Case Study: The Ongoing Battle Over “Employee Misclassification” versus the Right to Act as Independent Contractor. There is a lot to keep track of and a lot to understand – but unless your have no other choice or FedEx type resources try to stay away from such situations altogether if possible. COMMENT: This seems to be a lot more about labor union politics at the federal and state administrative level than about regulation according to developed principles of independent contractor versus employee. And unless you have a deep pocket like FedEx (and corresponding economic commitment to the independent contractor business model like FedEx Ground) – this battle is something to avoid at (almost) all costs.

Last week the Wall Street Journal published a news feature on what some in the U.S. Department of Labor and similar officials in state labor agencies refer to as “employee misclassification”. (Wall Street Journal Monday March 4, 2013 story available here [partial access free; full access requires subscription]).

The news feature cites a federal decision upholding the right of Gate Guard Services, L.P. to hire contractors to serve as gate attendants at energy extraction and construction sites. Gate Guard Services L.P. v. Solis, Slip copy, 2013 WL 593418 (U.S. District Court for the Northern District of Texas, February 13, 2013). Free copy available here.

Overturning a U.S. Department of Labor assessment of $6 million for what that Department had characterized as employee “misclassification” – because the court ruled that the workers in question were in fact independent contractors under applicable legal standards.

On the other hand, last week saw a victory in this area for State of California Labor Commissioner Julie A. Su in which a California Superior Court held that Port of Long Beach truck drivers working for Seacon Logix were “misclassified” employees as the department contended – not independent contractor as Seacon Logix argued. This court case was an appeal from a ruling of the California Department of Industrial Relations’ Division of Labor Standards Enforcement (Labor Commissioner’s Office). (I cannot find a copy of any order or opinion on WestLaw or elsewhere on the web – but attached please find a copy of the Labor Commissioner’s press release).

Legal Take-away:

The employee “misclassification” battle continues.

My own rule of thumb is that if you find yourself dealing with either the U.S. Department of Labor or authorities in a state like California, Minnesota, New York or Massachusetts – adherence to traditional independent contractor principles in the last few decades’ case law will not suffice. In such settings it is most prudent to assume that the new organized labor orthodoxy on this has supplanted what is in the case law.

To the extent you have the resources to get to court then such case law might well work – as in Gate Guard Services L.P. v. Solis. Also, FedEx Ground has had some success in this field – again in the courts.

But if you can avoid becoming a U.S. Department of Labor target and place your business operations in a so-called “Red” or Right-to-Work state then the more traditional application of “independent contractor” may prevail. Perhaps.

But for the long haul in transportation the real action here is independent contractor versus employee in multi-district litigation consolidated in the U.S. District Court for the Northern District of Indiana before Judge Robert L. Miller, Jr., its Chief Judge. E.g., In re FedEx Ground Package System, Inc., Employment Practices Litigation, 283 F.R.D. 427 (U.S. District Court for the Northern District of Indiana, April 24, 2012).

Practical Take-away:

If you are FedEx it may well be worth it to fight these battles in court and in the labor departments of the states.

But otherwise I would try to avoid getting into this area in the first place if at all feasible. Unless you have a soft spot in your heart and budget for lawyers.