James F. Mahoney, Attorney
Commentaries
 
     

Taxed Employees: Owner-Operator Misclassification Strikes Again

The first line of defense is a solid contract; and essential to that is an understanding by the parties that they created an independent contractor relationship

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FedEx Ground will pay $3 million to Massachusetts to settle claims that the company misclassified employee drivers as independent contractors. The State's allegations of misclassification were brought because of a claimed decrease in payroll taxes, loss of workers' compensation premiums and uncollected unemployment insurance tax.

FedEx Ground denied liability in the settlement. The company was cited for violations of the state’s independent contractor law, which included failing to provide drivers with a proper pay stub and not paying overtime to certain drivers.

FedEx appealed the citations, but after the State proceeded with its investigation, it alleged further underpayments to the State's Revenue agency.

As we know, in May FedEx Ground issued new standards for its 12,000 owner-operators, including requiring independent contractors to be incorporated. We're not certain that alone is enough.

FedEx Ground is involved in 50 class action lawsuits, several individual lawsuits and about 40 state administrative proceedings, all of which involve an argument that the company’s owner-operators should be classified as employees.

FedEx, of course, is a big fish, but this settlement reflects more than a number of isolated attempts against FedEx to curtail the owner-operator business model so necessary in our industry.

The first line of defense is a solid contract; and essential to that is an understanding by the parties that they created an independent contractor relationship. In all states, the party challenging the tax assessment has the burden of disproving an employment relation. Also important in the argument is the issue of control over the means and methods of the work; that the work contracted for required special skills; whether the contractor had an entrepreneurial opportunity to make a profit; and the reverse - that the owner-operator had the risk of operating at a loss. Special risks exist in one-stop lease-purchase arrangements.