FedEx and FAA Get Stung By Courts

Two recent court cases are of some interest to all. The first deals with who is or is not an independent contractor. Although related to truck drivers, it is significant because of the huge outsourcing efforts by major air carriers and others. It could have application in other areas as well. The second case deals with FAA enforcement. This case affords relief to certain certificate holders (pilots, mechanics, repair facilities, etc.) that have allowed their default to be taken suspending or revoking their certificates.

Independent contractor or employee?
Do you have a choice?
Estrada, Morgan and Roberts vs. FedEx Ground, BC 210130, California Superior Court, Los Angeles

For many years companies have experimented with claiming that certain employees are independent contractors when performing services for them rather than employees. In most cases the companies saved money when their workers were classified as contractors rather than employees. There is, as we all should know, a significant difference.

For openers, contractors are most likely non-union people and will remain that way so long as their status remains as contractor. The company does not have to deal with a union therefore saving a large amount of money for union administration costs. In addition, they avoid paying state unemployment insurance taxes, employment training, taxes for disability, personal income taxes, and avoid collecting withholding taxes and union dues. Workers’ compensation premiums are an added cost. In total these can add up to a huge amount of money.

Historically, many of these cases dealing with employee or contractor status have to do with truck drivers. Some of the earliest decisions on the issue were among trucking companies and their drivers and subcontractors. The freight company typically did not own the trucks which are furnished under contract to them. Where the company also furnished the permits to the drivers to travel specific routes, and an accident occurred, the freight company was usually held liable. Insurance coverage today generally takes care of accident problems.

The case on the point that is currently in litigation, and was decided recently, involves FedEx and its delivery drivers in its ground operation. When FedEx decided to compete with UPS and others in the ground delivery arena as well as flight, it acquired a trucking company called RPS and continued that company’s practice of dealing with delivery drivers as independent contractors. This practice has now been challenged in courts throughout the country. All the cases have been joined in a single class action.

The case went to trial in Los Angeles and a judgment was rendered for the plaintiff drivers and against FedEx. It was dated and signed by the court on Dec. 19, 2005. FedEx, needless to say, has appealed the decision. The appeal is pending.

The money
The drivers were granted reimbursement for their expenses of operations from the date of signing their operating agreement with FedEx. There were slightly more than 200 claimants in this case and the awards ranged from as low as $500 up to $100,000. Attorney fees and costs in a total amount of $12,373,875 were awarded. This included basic attorney fees and out-of-pocket expenses. This was doubled in accord with the law. The drivers were also entitled to recover their court costs of $35,173. As one can see, this was no small potatoes case, hence the appeal by the defendant.

But, the key important element for the drivers, outside of the money gained, is the fact that they now have to be classified as employees from their initial date of hire. The state of California wants its share also. The California Employment Development Department says it is owed $510,400 for unpaid unemployment insurance taxes, $19,443 for employment training taxes, $891,432 disability taxes, and unpaid income tax in the amount of $5,875,790. An administrative appeal of this assessment was denied. This denial is currently under further appeal by FedEx.