You know the old weather saying about June gloom? Well, last June was a very gloomy month for two of the largest mega transportation companies out there. In separate court cases, Walmart and FedEx Ground recently either lost rulings or settled cases, and both will probably be forced to pay hundreds of millions of dollars to their drivers included in the lawsuits.
A Fresno law firm says it has scored a major legal ruling against Walmart that could cost the retail giant more than $100 to $150 million in connection with a federal class-action lawsuit that affects hundreds of truckers in California. U.S. District Court Judge Susan Illston in San Francisco has ruled that Walmart violated California’s minimum wage law when it failed to pay its drivers for all the tasks they do. Those unpaid tasks include waiting in line to load or unload their cargo, time spent to fill out federally-mandated trip slips and washing and fueling their trucks.
“Under California law, the drivers must be paid for all the time that they were subject to Walmart’s control. Here, certain required tasks are specifically designated unpaid activities,” Judge Illston said of Walmart’s pay plan for its truckers. Back pay for those unpaid tasks, plus interest and penalties, could add up to $100 million to $150 million, Wagner said. Walmart, however, disagrees with the court’s decision, company spokesman Randy Hargrove said. “We intend to continue to defend the company against the claim.”
The civil dispute began in 2008 when Wagner, Jones, Kopfman & Artenian sued Walmart, accusing the mega-retailer of wage theft. Walmart then picked the U.S. District Court in the Northern District of California in San Francisco to settle the civil dispute. In September last year (2014), Illston certified the class-action case. Walmart currently has three distribution centers in California – Porterville, Apple Valley and Red Bluff. According to Mr. Hargrove, Walmart drivers are among the best paid in the industry, earning on average between $80,000 to over $100,000 per year.
Unlike other states, where paying by the mile is permissible, California law says truck drivers are supposed to get paid for all the tasks they do, Wagner said. But Walmart’s lawyers contended that Wagner’s interpretation of the law is wrong. The central issue is no different than that of a housekeeper who is paid not by the hour, but for each house they clean, the lawyers said. To clean a house, the housekeeper must sweep the floors, vacuum the rugs, scrub the bathrooms, wipe down the countertops and so forth. “Nothing in the Labor Code requires a separate ‘pay code’ for each act that goes into cleaning the house,” Walmart’s lawyers say in court papers.
If Wagner’s interpretation of the law is correct, the lawyers said in court filings that it would lead to absurd results that the California Legislature never could have intended – it would require a separate pay code for wringing a mop, carrying a bucket of cleaning supplies and for each sweep of the broom. “Does the Labor Code require drivers to be separately paid for putting a key in the ignition or while sitting at a stop light?” the lawyers said. Must Walmart use a separate pay code for a pre-trip inspection and other duties of a truck driver? “Plaintiffs provide no principled explanation – nor any legal authority – as to why a separate pay code must be assigned to each and every act comprising the various activities that employees are already paid to perform.”
Wagner said a jury trial will settle the long-standing civil dispute next year. In addition to unpaid tasks, Wagner has accused Walmart of violating a number of California labor laws, including failing to give its drivers meals and rest breaks. One big point of contention is whether drivers are adequately compensated for sleeping in their cabs during layovers. In court documents, Walmart says it pays its drivers $42 to remain in the cab during their required 10-hour layover period. Wagner says Walmart is being disingenuous. “Forty-two dollars for 10 hours isn’t even minimum wage,” Wagner said, contending that Walmart offers this bonus so truckers can live in their truck and act as security guards, so no one breaks into it.
While Walmart continues to fight their drivers, FedEx Ground has been at the center of the crackdown on independent contractor misclassification since 2007. In 2010, they won a significant decision in a huge multi-district litigation case. But, that all changed in August of 2014, when the Ninth Circuit Court of Appeals reversed that decision involving drivers in California and Oregon. On June 12, FedEx Ground reached an agreement with plaintiffs in an independent contractor lawsuit to settle for $228 million, the company announced.
The settlement resolves claims dating back to 2000 of workers who were classified as independent contractors. The lawsuit said, in reality, they were employees. The case was pending in the U.S. District court for the Northern District of California and the settlement is now subject to court approval. Just last summer, the U.S. Ninth Circuit Court of Appeals ruled that several FedEx Ground workers had been misclassified as independent contractors and not employees. FedEx vowed to appeal the decision at the time.
“FedEx Ground faced a unique challenge in defending this case given the decision of the Ninth Circuit Court of Appeals last summer,” said Christine P. Richards, executive vice president and general counsel of FedEx Corp. “This settlement resolves claims dating back to 2000 that concern a model FedEx Ground no longer operates.” The company also announced that it would charge $133 million after taxes or 0.47 cents per diluted share in the fourth quarter of 2015 to increase its reserve of money to pay toward the settlement.
So, where did FedEx Ground fail? Simply put, their independent contractor agreement was a “brilliantly drafted contract creating the constraints of an employment relationship with their drivers in the guise of an independent contractor model. The contract, based upon interpretation and willfully-ambiguous language, was simply an employment relationship with its delivery drivers, but it dressed that relationship in independent contractor clothing.”
So, what is the lesson learned here? You should perform a “Risk Assessment” of your company to evaluate whether an existing or proposed independent contractor relationship can be legitimately structured as such. And, if so, whether it needs to be restructured, re-documented or re-implemented to avoid potential lawsuits – and to make sure that it meets current state and federal law. NTA has affiliated attorneys that can help you, especially if you are in California. Call me now at (800) 805-0040 (extension 102) to schedule an assessment for your operation. Don’t wait until it is too late!