Whether someone is an employee (a.k.a. servant) or an independent contractor is a critical question for many reasons. An employer is generally responsible for torts committed by a servant, but generally is not liable for torts committed by an independent contractor. Employees are entitled to various job protections that independent contractors lack. And so on.
Christine Hurt blogged a recent Los Angeles Superior Court decision rejecting Federal Express' argument that its drivers are independent contractors rather than employees.
Los Angeles County Superior Court Judge Howard Schwab said FedEx had violated California law by classifying all of its single-route drivers as independent contractors and forcing them to incur expenses the company should have covered, including paying for fuel, oil, tires, repairs and liability insurance. The judge ordered payments ranging from a few hundred dollars to as much as $98,000 for about 200 class members. The case was tried over nine weeks last year. ...
In court, FedEx has argued that while it sets work rules for some contractors, they aren't employees because they don't have set start times, they can hire and fire workers, they use their own vehicles, and they choose their own routes.
I discussed these delivery driver cases in my book Agency, Partnership, & LLCs, explaining that:
Frank Frausto was a delivery driver for the Arizona Republic newspaper. Frausto’s car collided with a motorcycle driven by plaintiff William Santiago, who then sued the newspaper. The newspaper defended by claiming that Frausto was an independent contractor. The trial court agreed, granting the newspaper summary judgment on the issue as a matter of law. Applying an 8 factor test tracking Restatement (Second) § 220(2), the Arizona supreme court reversed and remanded for trial.
First, as to control by the alleged master, the court noted that the newspaper exercised little actual supervision, but was able to give Frausto specific instructions with the expectation that they would be followed. Pointing out that the power to fire is regarded as “one of the most effective methods of control,” the court noted that Frausto could be terminated without cause on 28 days notice and, moreover, could be terminated for unsatisfactory service without any notice. Second, the court noted that Frausto had no independent delivery business. He worked only for the newspaper, payments went to the newspaper and not the carrier, and accounts were serviced by the newspaper. This distinguished the case at bar from other newspaper carrier cases in which the delivery firm bought the newspapers from the publisher and resold them to delivery customers at a profit. Third, the court noted that being a newspaper carrier required little specialized or skilled training, which suggests that Frausto was a servant. Fourth, while the newspaper did not provide all of the necessary supplies, it did supply the newspapers and designated the route to be covered. Fifth, the court observed that the relationship was of indefinite duration, which points towards finding that Frausto was a servant. Sixth, Frausto was paid a regular weekly salary. Seventh, newspaper delivery was a core part of the publisher’s business. Finally, Frausto stated that he regarded himself as an employee. In sum, on all of the § 220 factors there was at least some support for treating Frausto as a servant and summary judgment was inappropriate.
I haven't seen Judge Schwab's decision, but my guess is that the key factors were (1) Fed Ex probably has the ability to fire the drivers on short notice if they fail to comply with instructions and (2) the drivers probably don't have an independent business (when Fed Ex comes to my door, the driver is in a Fed Ex truck wearing a Fed Ex uniform).
The business lesson is that out-sourcing only works if you outsource to a truly independent business. If you try to get the benefits of vertical integration, while avoiding the legal responsibilities that attach to a vertically integrated firm, California will put substance ahead of form.
