The proper classification of workers as employees or independent contractors is critical to all businesses. On Tuesday, January 22, 2008, the 7th Circuit Court of Appeals denied FedEx Grounds’ request to review the nationwide class certification of its drivers’ claims for employee benefits under the Employee Retirement Income Security Act (ERISA) and other state law claims. In an October 2007 Opinion and Order, involving this multi-district litigation, Judge Miller of the United States District Court for the Northern District of Indiana granted class certification on behalf of current and former FedEx Ground/Home Delivery Drivers who alleged that FedEx misclassified them as independent contractors instead of employees. (In re FedEx Ground Package System, Inc., Employment Practices Litigation, Cause No. 3:05-MD-527 RM (MDL-1700), October 15, 2007). Separate class actions were filed in about 36 states and consolidated in this multi-district litigation.

In the case, the Kansas plaintiffs alleged that FedEx’s classification of the Kansas pick-up and delivery drivers as independent contractors violates the Kansas Wage Payment Act. As a result, the drivers are claiming that they are entitled to repayment of costs and expenses that they paid during their employment as well as overtime wages. The drivers also alleged that they have been wrongly denied employee benefits under Fed Ex’s 401(k) plan, group life plan, short-term disability plan, long-term disability plan, medical, dental and vision care plan, and a dependent care account.

Should the drivers prevail in this action, it will be another blow to Fed Ex. In August 2007, the California Court of Appeals upheld a trial court’s decision finding that the FedEx Ground drivers were employees and not independent contractors and they were entitled to reimbursement for approximately $6 million in additional expenses bringing the total damages to about $11 million for 200 drivers. The lead attorney in the class action noted that the Internal Revenue Service recently ordered FedEx to pay back taxes and penalties of $319 million for a single year.

According to Alan Kaplan, a member of the Firm’s Employment and Labor Practice Group, the proper classification of workers clearly can affect the company’s financial health and involve claims for wages and benefits “wrongly” denied. Alan recommends that all companies review their employment arrangements with consultants and other service providers to ensure compliance and proper classification.