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$228M Misclassification Settlement May Send Ripples Through Industry, On-Demand Economy

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FedEx has agreed to settle with over 2,000 past and present California workers who claimed they were misclassified as independent contractors.  The $227 million settlement comes amidst a multitiude of long-running legal battles affecting FedEx drivers.

Last August, a federal appeals court ruled that the workers were employees and therefore entitled to overtime and other benefits.  FedEx appealed the ruling before agreeing to settle last week. The settlement must now be approved by the Ninth U.S. Circuit Court of Appeals in San Francisco.

Following the announcement, Beth Ross, who represented the workers in the case, said:

“The $227 million settlement, one of the largest employment law settlements in recent memory, sends a powerful message to employers in California and elsewhere that the cost of independent contractor misclassification can be financially punishing, if not catastrophic, to a business.”

The settlement money will be used to pay back the workers for expenses they incurred while misclassified.  According to Leonard Carder, the law firm that represented the workers, these expenses included:

• FedEx Ground drivers were required to pay out of out of pocket for everything from the FedEx Ground branded trucks they drove (painted with the FedEx Ground logo) to fuel, various forms of insurance, tires, oil changes, maintenance, etc. as well as their uniforms, scanners and even workers compensation coverage.

• In some cases workers were required to pay the wages of employees who FedEx Ground required them to hire to cover for them if they were sick or needed a vacation, to help out during the Christmas rush, and in some cases to drive other FedEx Ground trucks.

• After paying these expenses, a typical FedEx driver makes less than employee drivers at FedEx Ground’s competitors like UPS, and receives none of the employee benefits, like health care, workers compensation, paid sick leave and vacation, and retirement.

• In addition, their employment was subject to the whims of FedEx management and FedEx Ground’s decisions on staffing and routes left the employee drivers stuck with expensive long-term truck leases on FedEx branded trucks.

Christine Richards, general counsel for FedEx, explained the company’s decision to settle:

FedEx Ground faced a unique challenge in defending this case.  This settlement resolves claims dating back to 2000 that concern a model FedEx Ground no longer operates.”

The San Francisco Business Journal notes that the case was being closely watched by leadera of the on-demand economy as it could set a precedent concerning industries that rely heavily on misclassification.  It remains unclear whether the settlement will affect a similar case in Kansas where the state supreme court ruled in favor of FedEx workers who made similar misclassification claims.

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