Fed-Ex Case Highlights Risks of Classifying Workers as Independent Contractors

Posted by Edward Sharkey on Thu, 09/25/2014 - 04:00

A federal court in California recently rejected the independent contractor model that Fed-Ex has been using to employ about 2300 drivers in the state for years. Fed-Ex classified them as independent contractors. The drivers all agreed when they signed up. No matter. In every jurisdiction, the terms of the relationship determine the status, not the parties - even if everyone agrees.

The consequence? Fed-Ex is exposed to multiple millions of dollars of liability for all sorts of costs associated with having employees - overtime, health care, retirement benefits, workers comp, paid time off. Could it all have been avoided? The answer is complicated.

The law in every jurisdiction provides that the parties do not determine the status. The circumstances of the relationship do. The criteria to determine who may be classified as an independent contractor vary between the states and the federal government, and between different agencies within those governments. Those criteria typically are geared to discern the extent to which the employer controls the worker's performance.

In Maryland, the process for determining a worker's classification begins here. For purposes of federal law, the process would begin with this website.

It is important to get it right because the cost of misclassification is high and anyone, including the worker who agreed to the classification, can complain at any time, even years after the fact. If a business currently has workers that are misclassified, there is good reason to fix it. The IRS, and some other government agencies, offer incentives for reclassification, i.e. no penalties and no payroll audits for prior years.

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