Misclassification of workers is a trending topic in employment law and can result in significant financial damages for unwary employers. In Schwann v. FedEx Ground Package System, Inc., No. 15-1214, U.S. App. 1st Cir. 2016, FedEx drivers sued under the Massachusetts Wage Act (MWA), alleging that they were employees, not independent contractors as FedEx had classified them. For the drivers to be independent contractors under the MWA, they must (1) be free from FedEx’s control and direction, (2) perform services outside FedEx’s usual course of business and (3) have their own independently established trade similar to FedEx’s business.
The drivers moved for summary judgment, arguing that FedEx could not meet factors (2) and (3). FedEx opposed the motion, arguing that the Federal Aviation Administration Authorization Act (FAAAA) preempted its duty to meet factor (2).
The Massachusetts District Court ruled in the drivers’ favor. While the First Circuit Court of Appeals determined that the FAAAA did in fact preempt FedEx’s duty to prove that the drivers performed services outside FedEx’s usual course of business, the First Circuit allowed the drivers to proceed with their claims based on factors (1) and (3).
The Schwann decision underscores a transportation company’s duty to abide by state wage-and-hour laws, not just the FAAAA, when classifying its workers. Now is a good time for companies to review whether their workers are properly classified as employees or independent contractors. The short-term tax benefits related to independent contractor status may not outweigh the financial penalties should a judicial or administrative body determine that the workers were misclassified. Financial penalties under federal and state wage-and-hour statutes may include back wages, interest, penalties equal to back wages and attorneys’ fees. Additionally, a company may open itself up to criminal penalties and investigation by state tax, unemployment insurance and workers’ compensation authorities.