Independent Contractor Issues Flare

California has long been known for its inflammatory policies regarding the IC vs. employee matter.  Now, Massachusetts may be joining California in that hot seat.

The difficulty began in July 2004, when Massachusetts� Governor Romney signed a bill amending the Massachusetts law that creates a presumption that workers are employees, not independent contractors.

Another Massachusetts law, which became effective September 8, 2004, fed the fire by increasing the potential sanctions for misclassification of workers as independent contractors.

Fanning the flames, Harvard University and the University of Massachusetts released the results of a joint study in December 2004 reporting that up to 248,000 workers in Massachusetts were misclassified as independent contractors. According to the study, the action cost the state $152 million in uncollected income tax revenue, and $35.1 million in unemployment insurance taxes.

Now, Massachusetts workers may only be classified as independent contractors if they meet the state�s rigid �three-factor� rule.  All three points must be met, a feat that is thought by many to be more difficult to satisfy than the traditional common law test or the IRS�s familiar Twenty Factor Test.

 
The three-factors:

1. The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact;

2. The service is performed outside the usual course of the business of the employer;

3. The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

 
The flames continue to spread as four Massachusetts drivers filed a class-action lawsuit against FedEx Ground (Pittsburg, PA), claiming that they were unlawfully classified as independent contractors. This action, filed May 6, 2005, is the first brought on behalf of all 17,000 of FedEx�s IC drivers in the United States and Canada. According to The Boston Globe, FedEx Ground spokesman David Westrick, declined to comment on the specifics of the lawsuit. He said, however, that since the delivery firm was founded in 1985, it has relied on independent drivers and will continue to do so.

Chicago FedEx drivers followed by filing a class action suit there.

The situation does not look promising for FedEx.  In a similar suit last July, a California court ruled in favor of FedEx workers who claimed to be employees.  Westrick said the company plans to appeal that ruling.

The main points the drivers are using to make their case is that they were retained as independent contractors but treated exactly the same as employees. They claim that they provided their own vehicles, paid for their own gas and repairs, but were required to work a minimum amount of hours for FedEx and were not allowed to drive for any other delivery companies. They also did not receive health insurance or retirement benefits.

Hope on the Horizon

New York State is the first to show some flexibility on the issue.  The NY Department of Labor is working with a group of legislators and the New York State Messenger and Courier Association, Inc. to establish guidelines that will allow for varying flexibilities depending on the industry type. 

Among the issues being addressed by the New York task force is the use of uniforms for IC drivers.  Traditionally, if courier companies require drivers to wear uniforms they are considered to be crossing the line of �direction and control.�  This violation often automatically throws these drivers into the employee category. However, because of heightened security in the post 9-11 environment, the new parameters would allow courier companies to require their independent contractors to wear uniforms.

According to Christopher MacKrell, who is a business development manager with CD&L and a member of the task force, the guidelines should be finalized by July of this year.  MacKrell believes the goals are �achievable for those who want to do it right.�

Industry hopes remain high that once New York allows for a more flexible view, other states may follow suit.