Hunton Employment & Labor Perspectives

In yet another employee misclassification case, Kentucky Attorney General, Jack Conway, brought suit against FedEx Corp. alleging that FedEx violates Kentucky state law by misclassifying its drivers as independent contractors.  The Complaint contends that FedEx violated state law in regards to unemployment insurance, workers compensation, payroll taxes, and the Kentucky Consumer Protection Act.  The lawsuit asks the Court to order FedEx to classify its drivers as employees and to pay the contributions and penalties required by state law, which includes back pay dating to 2000 and totaling at least $10 million.

Employees v. Independent Contractors

In his Complaint, the Attorney General points to several details of FedEx drivers’ jobs that allegedly support his assertion that the drivers are not independent contractors.  Specifically, the Complaint alleges that drivers are required to wear uniforms, comply with FedEx standards regarding the appearance of their trucks, and submit driver logs and other records on a daily basis.  Additionally, the Attorney General alleges that FedEx monitors the performance of the drivers daily, retains the right to discharge drivers, and maintains a contractor operations department, which is the equivalent of a human resource department for the drivers.  Based on these allegations, Attorney General Conway contends that FedEx exercises extensive control over its drivers and as a result the drivers should be classified as employees rather than independent contractors.

Legal Consequences of Misclassification

The Kentucky lawsuit goes on to contend that because of FedEx’s alleged misclassification of its drivers, FedEx has violated several Kentucky laws.  The Complaint claims that FedEx failed to file the required reports and make the proper contributions for its drivers under Kentucky unemployment insurance law and additionally, failed to provide workers compensation for its drivers as required by Kentucky workers compensation law.  Furthermore, the Kentucky lawsuit contends that FedEx did not withhold the necessary payroll tax amounts required for employees of Kentucky and also acted in violation of the Kentucky Consumer Protection Act, which prohibits deceptive acts or practices when conducting business.

FedEx’s Response

FedEx has responded to the Kentucky lawsuit by citing previous legal decisions that held in its favor.  A spokesman for FedEx explained that the claims in the Kentucky lawsuit conflict with rulings by the United States Courts of Appeals, the Internal Revenue Service and a jury in Washington State Court, all of which validated the company’s position that FedEx drivers are properly classified as independent contractors.  Attorney General Conway disagrees with these previous rulings and noted that laws are different in different states. 

What Are Employers To Do?

This case is yet another example of the predicted increase in scrutiny regarding the employment status of workers.  As noted in several of our earlier posts, federal and state legislative bodies along with enforcement agencies have expanded their efforts to challenge employers’ decisions regarding the classification of individuals as independent contractors.  For example, Congress continues to develop and support new legislation to target employers who classify their workers as independent contractors, such as the Employee Misclassification Prevention Act and the Fair Playing Field Act.  These new legislative and enforcement efforts compound the complexity posed by conflicting legal decisions and varying state laws.  Considering these developments, employers should carefully review the classification of their workers in light of both federal and state laws.