U.S. labor and employment laws exist to protect U.S. workers from suffering or being subjected to discrimination, harassment, wage theft and unsafe working conditions. However, in order to be afforded many of these protections, a worker must be classified as a full or part-time employee.
In some cases, an employer may hire a worker who is classified as an independent contractor to complete a work assignment. For an employer, there are many cost-saving advantages of hiring an independent contractor vs. an employee. For example, an employer is not required to pay taxes related to unemployment, health care and worker's compensation on independent contractors. Additionally, an employer who relies upon independent contractors isn't required to provide workers with overtime pay or to compensate workers for work-related costs like uniforms, insurance, gas and supplies.
An employer has control over how it chooses to designate a worker. In some cases, employers have been accused of misclassifying workers as independent contractors when, in fact, they are employees. FedEx is one of the most-recent employers to come under scrutiny for violating labor laws related to this issue.
According to the IRS, a worker should be designated as an employee if an employer "can control what will be done and how it will be done." For example, in cases where an employer provides training, requires set hours and directs how a job is completed; a worker should be designated as an employee.
In the case of FedEx, despite the many controls the employer has over how FedEx drivers do their jobs, the company has routinely classified drivers as independent contractors. A Ninth Circuit ruling on a 2014 class action lawsuit filed by some 2,300 FedEx drivers recently culminated in a $228 million settlement. While the ruling and settlement only covers drivers in the state of California, the court's decisions will likely impact the outcomes of other similar pending lawsuits in states like New York.
Source: Forbes, "FedEx Settles Independent Contractor Mislabeling Case For $228 Million," Robert W. Wood, June 16, 2015