One year after the U.S. Ninth Circuit Court of Appeals restored three class-action lawsuits against FedEx for allegedly ripping off California employees and others by calling them contractors, the company settled with workers for $227 million.

The settlement, which must still be approved by the Ninth Circuit Court, covers 2,300 California FedEx drivers and 363 from Oregon who worked between 2000 and 2007, according to the Courthouse News Service.

The drivers had to dress in FedEx uniforms, meet FedEx grooming standards, and drive a truck (sometimes there own) festooned with the FedEx logo. Yet, FedEx called them contractors, not employees. Corporations claim the contractor system empowers workers as small-businesses operators.

Forbes described the hassles avoided by companies that identify their workers thusly:

“Employees trigger a litany of federal and state tax withholding, fringe benefit, anti-discrimination, health care, pension, worker’s compensation and unemployment insurance obligations. Companies can avoid these entanglements by hiring independent contractors.”

It’s a great corporate cost-cutter whose popularity continues to grow as the labor force is redefined amid growing income inequality and a shrinking middle class. There are varying estimates about what percentage of the workforce has been labeled, and mislabeled, as contractors. A report (pdf) from the U.S. Department of the Treasury in 2014 noted that the Internal Revenue Service (IRS) last calculated the number of mislabeled contractors―3.4 million employees by 15% of employers―in 1984.

That was in the middle of Republican Ronald Reagan’s presidency, when the shift from employees to contractors, real and fictitious, was being widely embraced by business for the first time. It was a critical part of the movement to crush organized labor in the country in both the public and private sectors, and was very successful.  

Still, the labeling of employees has remained a contentious issue and has not been forgotten by the executive branch of government. “Although the IRS has not updated the information from its Tax Year 1984 report, it has included a worker classification study in its ongoing National Research Program,” the Treasury report said.

FedEx’s main competitors, UPS and the U.S. Postal Service, classify their drivers as employees.

–Ken Broder

To Learn More:

FedEx Agrees to Pay $227 Million to Short-Changed Workers (by Peter Fimrite, San Francisco Chronicle)

FedEx Settles Suit by Drivers for $227 Million (by Katherine Proctor, Courthouse News Service)

FedEx Settles Independent Contractor Mislabeling Case for $228 Million (by Robert W. Wood, Forbes)

Court Tells FedEx Its Drivers Are Employees, Not Under-Compensated Contractors (by Ken Broder, AllGov California)