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Independent Contractors Versus Employees

On Behalf of | May 8, 2014 | Employment Law

A recent Federal Court decision emphasizes the importance of providing for the payment of expenses by some means to employees or independent contractors whom may later be determined by a court or governmental agency to legally be employees. In the March 19 decision of Robert Gennell, Jr. v. FedEx Corp., the New Hampshire federal trial judge addressed the drivers’ reimbursement of expense request as part of a long-running dispute between a class of drivers based in New Hampshire who have worked for FedEx. The Court previously found that these drivers, while called independent contractors with a separate Operating Agreement that established the parties’ rights and obligations, were, in fact, employees and therefore covered under the New Hampshire Wage and Hour Law, RSA 275.

On March 19, the judge resolved the dispute between the drivers and FedEx as to whether or not the drivers, in addition to getting their payments for services provided under the Operating Agreement were also entitled to obtain a separate payment for their work-related expenses. Each driver entered into a standard form Operating Agreement with FedEx. The Operating Agreement required each driver to purchase and bear all costs and expenses incidental to the operation of their delivery vehicles including the cost of fuel, maintenance, insurance, taxes, toll, licenses, and other work-related expenses and for FedEx to pay each driver a weekly settlement payment for services rendered which is calculated according to a formula that considered: the stops made; packages handled; each day that a qualified, uniformed driver provided a clean, properly maintained vehicle; each day that a driver picked up and delivered packages in a sparsely populated area; each day that the driver participated in FedEx’s “Flex Program”; each mile driven each day in excess of 200 miles; and each mile driven when the fuel price per gallon exceeded a specific threshold. The drivers stated that because they were misclassified as independent contractors that they should now be entitled to, in addition to their payments under the contract, work-related expenses in accordance with RSA 275:57(I). That statute provides that employees do get reimbursed by their employer work-related expenses which have not been paid for by wages, cash advances, or other means from the employer. FedEx argued that the Operating Agreement between it and the drivers expressly stated that the drivers would not get any additional compensation for their work-related expenses, but were to receive the payments under the above formula. The judge interpreted the statute such that the drivers had already been paid for their work-related expenses through the payments made under the Operating Agreement and therefore the drivers were not entitled to additional expense reimbursement, leaving it to the New Hampshire legislature to change that statute if it deemed it appropriate.

While it is likely that FedEx previously analyzed the risk of their drivers being determined to have been misclassified as independent contractors rather than employees, for small to medium-size companies, a similar finding of independent contractor misclassification by a judge or a governmental agency could substantially affect the financial viability of the company. While there are several considered factors to determine whether or not a worker is an independent contractor, three of the most important factors are: the degree of control that worker has in performing its services; whether that worker has its own independent legal entity such as a limited liability company or a corporation along with its own federal tax identification number; and does that entity provide and market similar services to other companies and not just exclusively your company.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].