In a new case, the Kansas Supreme Court, for the first time, has specifically identified the test to determine employment status under the Kansas Wage Payment Act (KWPA). The Court ruled, in what it called a “close-call decision,” that delivery drivers for FedEx Ground Package System, Inc. (FXG) were employees, not independent contractors, even though the drivers had contractually agreed that they were independent contractors.
This case came to the Kansas Supreme Court via litigation in Indiana. FXG drivers throughout the country filed several class-action lawsuits against the company, alleging that they were employees, not independent contractors, under various state and federal laws. The class actions were consolidated and transferred to a federal district court in Indiana. The Kansas class action was designated as the lead case.
The Kansas class claimed that they were employees under the KWPA, and thus entitled to repayment of costs and expenses that they expended on behalf of FXG. They also sought unpaid overtime wages.
The Indiana court ruled that the drivers were independent contractors under the KWPA, and thus ruled in favor of FXG. The drivers appealed to the Seventh Circuit Court of Appeals. But the Seventh Circuit was “unsure” which test it should use to determine whether an employment relationship exists under the KWPA. So it asked the Kansas Supreme Court to decide what test applies and whether the drivers were employees under the KWPA.
The Kansas Supreme Court adopted a 20-factor test to determine employment status under the KWPA. This test is a modified version of a 20-factor test, previously used by the Court in an unemployment case and in a workers compensation case, which was derived from an old Internal Revenue Service ruling. The Court explained that its 20-factor test includes “economic reality” considerations (the test used to determine employment status under the Fair Labor Standards Act), while maintaining the primary focus on the employer’s right to control (the old Kansas common law test).
The 20-factor test, stated below, is now “the tool to be used in Kansas to determine whether an employer/employee relationship exists under the KWPA”:
- the employer’s right to require compliance with instructions;
- the extent of any training provided by the employer;
- the degree of integration of the worker’s services into the business of the employer;
- the requirement that the services be provided personally by the worker;
- the extent to which the worker hires, supervises, and pays assistants;
- the existence of a continuing relationship between the worker and the employer;
- the employer’s establishment of set work hours;
- the requirement that the worker devote full-time to the employer's business;
- the degree to which the work is performed on the employer’s premises;
- the degree to which the employer sets the order and sequence of work;
- the requirement that the worker submit regular or written reports to the employer;
- the manner of payment to the worker, e.g., by the hour, day, or job;
- the extent to which the employer pays the worker’s business or travel expenses;
- the degree to which the employer furnishes tools, equipment, and material;
- the incurrence of significant investment by the worker;
- the ability of the worker to make a profit or suffer a loss;
- whether the worker can work for more than one firm at a time;
- whether the worker makes his or her services available to the general public on a regular and consistent basis;
- whether the employer has the right to discharge the worker; and
- whether the worker has the right to terminate the relationship at any time without incurring liability.
The Court explained that it must consider each of these factors, but view the factors as a whole, rather than simply compare the number of factors favoring one result against the number of factors favoring the other result. However, “particular emphasis” should be placed on the company’s right to control the worker.
The Court then stated several “overarching principles” to help guide the weighing process. First, the KWPA should be broadly construed to effects its purpose of protecting workers against employer overreaching. But, on the other hand, the KWPA should not be construed in a way that prevents a worker from having the opportunity to enter into a mutually advantageous business arrangement that provides the worker with a legitimate opportunity to generate a profit over and above what a pure wage earner could expect to earn. Finally, form should not be elevated over substance.
The Court then applied these factors as a whole to the FXG drivers’ case and concluded that they were employees, not independent contractors. The Court explained that while some of the factors pointed toward an independent contractor relationship, FXG exercised sufficient control over the drivers to make them employees for purposes of the KWPA. Craig v. FedEx Ground Package System, Inc., Case No. 108,526 (Oct. 3, 2014).
The good news is that the Kansas Supreme Court finally clarified the test to use to determine whether an employment relationship exists under the KWPA. The bad news is that this test is incredibly imprecise. If your company uses independent contractors, you should ensure that they are properly classified in light of the 20-factor test. Have an experienced employment help with the analysis if it’s not clear.