FedEx Corp. plans to pay $228 million to settle a lawsuit by California-based FedEx Ground Package drivers who claim they were misclassified as independent contractors. FedEx announced the amount on June 12, but the move follows a decision last August by the Ninth Circuit Court of Appeals that the drivers were employees based on California’s “right-to-control” test for ICs.

“This is an extremely large settlement probably one of the largest employment wage and hour settlements that I’m aware of,” said Aaron Kaufmann, a partner in the law firm Leonard Carder, which represents plaintiffs in the case.

The Ninth Circuit’s decision was a huge victory and paved the way for the agreement, Kaufmann said. The settlement will resolve all claims in the lawsuit.

A preliminary approval hearing for the settlement is anticipated for August, but it will be several months before the court fully approves the settlement, he said.

“FedEx Ground faced a unique challenge in defending this case given the decision of the Ninth Circuit Court of Appeals last summer,” said Christine Richards, executive VP and general counsel of FedEx Corp. “This settlement resolves claims dating back to 2000 that concern a model FedEx Ground no longer operates.”

The class action lawsuit involved approximately 2,300 people who were drivers in California between 2000 and 2007 for the FedEx Ground and FedEx Home Delivery operating divisions. The case was originally filed in December 2005.

The Ninth Circuit focused on FedEx’s control of the drivers despite the operating agreement referring to them as “independent contractors.”

“As a central part of its business, FedEx Ground Package System Inc. contracts with drivers to deliver packages to its customers,” the court wrote in its opinion.

“The drivers must wear FedEx uniforms, drive FedEx-approved vehicles and groom themselves according to FedEx’s appearance standards,” the opinion continues. “FedEx tells its drivers what packages to deliver, on what days, and at what times. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent. FedEx contends its drivers are independent contractors under California law. Plaintiffs, a class of FedEx drivers in California, contend they are employees. We agree with plaintiffs.”

California’s right-to-control test weighs several factors, but “the principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired,” according to the court.

Other intertwining factors, according to the opinion, include:

  • Whether the one performing services is engaged in a distinct occupation or business.
  • The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision.
  • The skill required in the particular occupation.
  • Whether the principal or the worker supplies the instrumentalities, tools and the place of work for the person doing the work.
  • The length of time for which the services are to be performed.
  • The method of payment, whether by the time or by the job.
  • Whether or not the work is a part of the regular business of the principal.
  • Whether or not the parties believe they are creating the relationship of employer employee.

The court said the amount of control used by FedEx ranged from the dimensions of packing shelves on trucks to the appearance of drivers — down to their clothing choice of shoes and socks. It also said FedEx offers a “business support package” which provides drivers with uniforms, scanners and other equipment. The package is optional, but 99% of drivers purchase it, according to the court, and scanners drivers must use in package delivery are not readily available from other sources.

“The level of control that FedEx exercised over the drivers’ performance and behavior outweighed the entrepreneurial opportunities to own and operate a business, and to profit from it, according to the multi-factor test in California’s law. However this may not be the case in other states where the entrepreneurial opportunities will undermine the other factors indicative of control,” said Fiona Coombe, Staffing Industry Analysts’ director, Legal and Regulatory Research.

The California case is one of 28 cases in multi-state litigation against FedEx over labeling its drivers as ICs.

The Seventh Circuit Court of Appeals heard an appeal in a Kansas case. But in 2012 it certified two questions to the Kansas Supreme Court, and 19 other cases were stayed pending a decision, according to a filing with the US Securities and Exchange Commission by FedEx. The Kansas Supreme Court ruled on Oct. 3, 2014, that drivers were employees, not contractors and the case went back to the Seventh District.

Eight other of the 28 cases were remanded back to the district court where they were filed, according to a FedEx filing with the SEC. Three settled for immaterial amounts, two are on appeal, but the Ninth Circuit ruled for the drivers in two Oregon cases and the California case (for which the $228 million settlement was announced).