FedEx Corp. will pay $228 million to resolve a class action brought by FedEx Ground drivers in California. It was alleged that the company misclassified them as independent contractors instead of employees, shorting their wages and benefits. The tentative settlement, which requires the approval of a California federal judge, will resolve claims brought against FedEx Ground Package System Inc. by 2,300 California truck drivers who worked for the company from 2000 to 2007 and claimed that they should have been considered employees.
FedEx said in a U.S. Securities and Exchange Commission filing that it will take a fourth-quarter charge of $197 million, or 48 cents per diluted share, in order to increase legal reserves in connection with the settlement. The settlement is said to be one of the largest employment settlements in recent years.
The settlement follows the Ninth Circuit’s August 2014 ruling that overturned a lower court’s summary judgment in favor of FedEx. The Ninth Circuit found that under the provisions laid out in FedEx’s operating agreement, the company had broad authority to dictate the way drivers carry out their jobs. Taking that authority into account and weighing it against other facts, the appeals court said the level of control FedEx exercised over its drivers made them employees.
The following factors were considered by the Ninth Circuit in reaching its decision that the drivers were employees.
• While the operating agreement allowed drivers to supply their own trucks and to pay for their own uniforms, the agreement also included specifications for the size and maintenance of those trucks and the condition of the uniforms.
• FedEx also required drivers to pick up and deliver packages within a certain geographic area and time window, and
• Fed Ex provided training for drivers on job performance and interacting with customers.
U.S. Circuit Judge William A. Fletcher, writing for the Court, said in his opinion:
The [operating agreement] grants FedEx a broad right to control the manner in which its drivers perform their work. Other factors do not strongly favor either employee status or independent contractor status. Accordingly, we hold that plaintiffs are employees as a matter of law.
The case was part of a number of lawsuits filed by FedEx drivers in about 40 states across the U.S. The suits, which were eventually consolidated in multidistrict litigation (MDL) and certified as class actions, included similar allegations that FedEx improperly classified its drivers as independent contractors, depriving them of benefits that employees would normally receive and forcing them to cover business expenses.
The Ninth Circuit appeals were filed after the Indiana federal district court handling the MDL granted summary judgment to FedEx on the question of whether the drivers were employees.
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