Judge William Fletcher, U.S. Court of Appeals for the Ninth Circuit
Judge William Fletcher, U.S. Court of Appeals for the Ninth Circuit ()

SAN FRANCISCO — A Ninth Circuit ruling against FedEx on Wednesday may have repercussions for Lyft, Uber and other companies that classify their workers as independent contractors.

FedEx Ground Package System Inc. improperly labeled its California delivery drivers as contractors instead of employees, according to the appellate panel. As a result, the company illegally denied them wages and failed to reimburse them for driving expenses.

“Although our decision substantially unravels FedEx’s business model, FedEx was not entitled to write around the principles and mandates of California labor law,” Judge Stephen Trott wrote. Judge William Fletcher drafted the panel opinion. Trott and Judge Alfred Goodwin joined in a concurrence.

The case will be remanded back to U.S. District Judge Edward Chen in San Francisco federal court.

Massachusetts attorney Shannon Liss-Riordan, who represents drivers for Lyft Inc. and Uber Technologies Inc., said the ruling could have implications for putative class actions against the ride-share companies in the Northern District of California. Liss-Riordan’s clients argue they are entitled to California minimum wage, as well as reimbursement for gas and other work expenses.

“It’s a great decision,” she said. “The laws are pretty strict in preventing employers in California from shifting their business expenses to their workers under the guise of independent contractor misclassification.”

The FedEx ruling affects a class of 2,300 California drivers who worked full time for the company between 2000 and 2007. Drivers in about 40 other states brought claims as well, which were consolidated into multidistrict litigation proceedings in Indiana. In nearly every case, the federal judge in Indiana granted summary judgment to FedEx and ruled the drivers were lawfully classified as contractors.

But the appellate panel found FedEx exercised a “great deal of control” over its drivers, and therefore must give them employee benefits.

“FedEx controls its drivers’ clothing from their hats down to their shoes and socks,” Fletcher wrote.

During the time covered by the suit, FedEx drivers provided their own vehicles, but were required to paint the vehicles “FedEx white,” mark them with the company logo and install shelves of specific dimensions. The company didn’t dictate its drivers’ working hours, but required they work between 9.5- and 11-hour days and deliver packages within a specific window of time.

Represented by O’Melveny & Myers, FedEx argued it only dictated that drivers deliver packages in a timely and professional manner—drivers were free to execute the deliveries however they saw fit. The company also argued its operating agreement specified that drivers are contractors, not employees.

But calling employees contractors does not make it so, the appellate panel ruled.

“Calling a dog’s tail a leg does not make it a leg,” Trott wrote, quoting Abraham Lincoln.

Beth Ross of Leonard Carder in Oakland argued the case on behalf of plaintiffs. O’Melveny’s Jonathan Hacker in Washington, D.C., argued on behalf of FedEx.

The shipping company will seek en banc review of Wednesday’s decision, according to a news release. FedEx changed its business model in 2011 and now only contracts with incorporated businesses that treat their drivers as employees.

“We fundamentally disagree with these rulings, which run counter to more than 100 state and federal findings—including the U.S. Court of Appeals for the D.C. Circuit—upholding our contractual relationships with thousands of independent businesses,” said Cary Blancett, FedEx Ground senior vice president and general counsel, in a statement.

While Lyft and Uber don’t go as far as telling their drivers what hats and socks to wear, the companies do dictate what types of vehicles drivers can use and how they must interact with customers, Liss-Riordan said. Neither company responded to emails seeking comment Wednesday.

“This is an extremely common problem—that companies are using the independent contractor classification model as a way to shift its expenses to its workers,” Liss-Riordan said. “I would say that courts are coming down harder as of late on companies that have done this.”

Contact the reporter at mkendall@alm.com.