New Jersey Labor and Employment Lawyer & Attorney : Fox Rothschild LLP Law Firm : Serving Essex County, Sussex County, Roseland, New Jersey

Federal Express is facing a looming legal battle over whether it can classify its drivers as independent contractors or as employees, as the company’s Ground Package division faces a nationwide class action suit by truck drivers, who are suing under the Employment Retirement Income Security Act (ERISA) for allegedly misclassifying the employees as contractors.

The drivers are seeking benefits under several plans for which they were not eligible, because they were designated as independent contractors when hired by Federal Express. The class of plaintiffs includes more than 20,000 current and former drivers, who had signed operating contracts declaring them to be contractors. The lawsuit claims that FedEx had control over the workers as employees, which would not allow them to be designated as independent contractors. If the drivers are deemed to be employees, they would be eligible for a variety of rights and benefits, including: overtime compensation, retirement benefits, and health insurance. Indeed, a finding of employee status for these drivers would be dramatically expensive for FedEx.

Federal Express also faces a separate legal battle with its California-based drivers. Following a California appellate court decision, which determined that FedEx single-route drivers were in fact, employees, FedEx has elected not to renew driver single-route contracts, and would only work with multiple-route contractors. Not surprisingly, the drivers have now alleged retaliation. FedEx has offered its single-route drivers various incentives to either take up more routes or to sell their routes. This case is significant because at least 75% of FedEx’s 12,000 drivers are single-route contractors; therefore, any rulings could have adverse affects on FedEx, and the industry as a whole.

Class actions suits involving drivers are becoming a rapidly growing area of litigation, as there are currently 35 pending rulings on class certification for drivers under both state and federal laws, as more and more drivers are challenging their employment classification status. It is incumbent upon companies in all industries to make sure that they understand when an individual is an employee and those (often limited) circumstances when individuals are “really” independent contractors. This FedEx litigation highlights the problems and the potential exposures for misclassification of employees as “independent contractors.”

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It is important for employers to feel that they have selected the right job title for their employees, but just because the title sounds perfect, that does not mean the chosen title will automatically shield employers from misclassification liability under the exemption rules of the Fair Labor Standards Act (“FLSA”). When deciding if a position is to be exempt or non-exempt, it is important for an employer to look at the components of each particular position to find out what is unique about each. In other words, employers should consider that even within different positions of a particular job title, some positions may be part time, others may be “as needed” and some may require much longer hours than others. Classifying one position as exempt or non-exempt in a particular job title does not mean that all of the positions in that job title should be treated the same.

 
A recently published United States Department of Labor (“DOL”) Opinion Letter has clarified that choosing the right title is not the end of the inquiry, as liability can come from misclassifying some positions within a particular job title and not others. The Letter provided an example of a group of nurses that could be classified “as needed,” and therefore classified as non-exempt under the overtime rules, and yet, such a classification would not change the status of other nurses who were classified as exempt.

 
The DOL noted that the key to proper employee classification as exempt or non-exempt is based on two factors—salary (or compensation) and job duties. Providing a hypothetical situation, it noted that an employer can pay some employees within a particular job title on an hourly basis and other employees in that same job title on a salary basis, and the fact that some are paid hourly will not necessarily affect the exempt status of the exempt/salaried employees. This is because determinations of exempt status are based on an assessment of each individual employee’s unique job duties and salary basis of compensation.

 
In this same Opinion Letter, the DOL clarified that an exempt nurse’s exempt status is not affected by paying shift differentials because a “pre-determined salary does not have to include all of the compensation that the employee will be paid.” This guidance makes it easier for employers to feel free to pay salaried employees on an hourly or shift basis for extra work without having to incur liability, assuming the threshold salary of at least $455 per week (under the FLSA) is paid. This is important to the ever-important goal of keeping tabs on a workforce that is becoming more flexible, whether because the business is growing, or just because the overall nature of the workplace is changing.

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In the continuation of a class action that has been going on for some time, Wal-Mart has recently been ordered by the court to pay a class of 125,304 employees roughly $62 million in liquidated damages for Walmart's violating state wage and break laws by refusing to allow employees to record their hours worked in the computerized pay system. This action had the effect of employees not being paid for all time they worked.  In addition, Wal-Mart prohibited employees from taking need rest breaks which they had been promised, thereby further denying employees rightfully earned wages. The jury determined that Wal-Mart saved $1,031,430.00 by denying employees the right to record their hours in the computerized pay system and $48,258,111.00 by prohibiting promised rest breaks. Taken together, the estimated savings totaled $49,289,541.00.

What this case highlights is that liquidated damages are a real possibility in a class action.  Such damages are not viewed under the law as a fine or penalty but are deemed to be more in the vein of “waiting time” damages.  The employees are awarded the liquidated damages as a remedy for the long delay in their receiving their justly deserved wages, at the time they were due. In this case, 98.81% of the 125,304 class employees were owed liquidated damages as determined by an expert. The dollar amount arrived at was $62,253,000.00. The number could have been much greater as the state law at issue required a $500.00 penalty for each violation of rest break violation.

This award is, to put it mildly, exorbitant.  The ostensible excessiveness of the liquidated damages portion of the award does not detract from the fundamental fact that such damages are an all too common component of a successful class action. The basic lesson to be taken from this is for employers to be ever cognizant that their failure to comply with all wage-hour laws and regulations may provide the fodder for the filing of a class action lawsuit and the imposition of large-dollar damage awards.

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Everyone knows (all too well) what constitutes “work,” but do we really? Naturally, if we are performing our primary job, we know we are working (and the employer must pay for that time). What about activities that are performed either before the start of the “bell” or following the formal end of a “shift.” Depending on what they are, these activities may or may not constitute compensable working time. Indeed, the focus of numerous class actions is an allegation that such preliminary and postliminary activities are “work.”

The issue of what constitutes compensable working time is often confusing because reasonable minds can differ as to whether the performance of “work” requires some degree (however small) of physical (or mental) effort or exertion. That may not, however, be the best prism through which an employer should consider the matter. The better view, and one recently adopted by the Third Circuit Court of Appeals, is whether the activity at issue is integral or indispensable to the performance of the “primary” duty of the employee. This analysis is often at play in so-called “donning and doffing” cases, such as in De Asencio v. Tyson Foods Inc.

These employees worked in a chicken processing plant of Tyson Foods. Before/after their shift and for their breaks and lunches, these employees had to put on (“don”) and take off (“duff”) safety and protective clothing. The workers filed a collective/class action under the Fair Labor Standards Act (“FLSA”), claiming that the time was compensable. The jury found against them, primarily because the trial judge had instructed the jury that for the activity to be deemed “work,” it had to involve some degree of exertion, rather than being an activity controlled/required by the employer or for the benefit of the employer. The workers appealed and the Third Circuit reversed.

The Third Circuit reasoned that the proper test was not an “exertion” test but rather whether the activity was linked so closely to the principal job performed that the principal job could not be performed if the preliminary/postliminary activity was not engaged in. In this case, the connection was clear—the chicken processors could not engage in their jobs if they did not wear the sanitary/protective clothing. Thus, whether or not they engaged in any physical exertion was of no consequence.

Other activities may well fall into the category of “indispensable” when compared to the main job function. Consider a cashier whom the employer commands to report ten minutes early to count the money in the cash register, before commencing their shift. Similarly, consider a nurse who comes in early, before the start of her shift, to receive information from the nurse finishing her shift on the status and needs of patients. Although these are not donning and doffing cases, the principle espoused in the Tyson Foods case nevertheless remains applicable. Without the early arrivals of these employees, they would not be able to perform their primary job. What is also crucial here, as in Tyson Foods, is the element of employer compulsion---the employer is ordering the early reporting, for its benefit, i.e. ensuring smooth continuation of operations.

The lesson for employers is to ascertain what, if any, preliminary/postliminary activities are engaged in by employees. If employees are doing any such activities, the degree of employer compulsion and, most importantly, the relation of that activity to the principal job must be examined to conclude if the time is compensable

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