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Recent Ninth Circuit Decisions Re-Emphasize Landscape of Heightened Workforce Classification Scrutiny

On August 27, 2014, the Ninth Circuit issued two key decisions that significantly impact the ongoing landscape of worfkforce classification in holding that FedEx drivers in Oregon and California are employees, not independent contractors.  Slayman et al. v. FedEx Ground Package Sys., Inc. (Oregon); Alexander et al. v. FedEx Ground Package Sys., Inc. (California).  

The Court concluded under “right to control” tests applicable in both Oregon and California, that FedEx retained control of multiple aspects of the drivers’ work to a degree that rendered the drivers employees.  Several “rights to control” were retained by FedEx in their Operating Agreements with the drivers.  In both opinions, the Court noted that “drivers must wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx’s appearance standards.”  In addition, “FedEx tells its drivers what packages to deliver, on what days, and at what times.  Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx’s consent.”  In the Court’s eyes, the fact that FedEx defined the drivers as independent contractors in the Operating Agreements did not alter their status as employees when taking all the facts into consideration.  Judge Alfred Goodwin and Judge Stephen Trott even go as far as to quote Abraham Lincoln in a concurring opinion in the California case in noting that: “If you call a dog’s leg a tail, how many legs does a dog have? …. Four.  Calling a dog’s tail a leg does not make it a leg.”

The Ninth Circuit decisions serve as an additional reminder that increased workforce classification scrutiny is here to stay.  Workforce classification remains a chief concern as businesses move closer to the escalating 2015 and 2016 employer mandate requirements associated with the Affordable Care Act.  In addition, the Internal Revenue Service, Department of Labor, and state governments across the country continue to crackdown on workforce misclassification across various industries with increased penalties.  It remains clear, now more than ever, that businesses should review internal classification policies and procedures and consult their trusted advisors in order to minimize the risk of misclassification exposure.   

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Contact our team today with any tax controversy concern you’re facing. We fight every day to protect the interests of the taxpayer, and we look forward to putting you in the best tax situation possible.

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