Reference no: EM133302678

QUESTION 1 Explain whether there is any way in which FedEx could restructure the Operating Agreement to avoid the conclusions reached by the court in this case?

QUESTION2

Review the Alexander v. FedEx case in Chapter 28. Answer the Critical Thinking Question at the end of the case. Be specific - You are the contract lawyer advising Fed Ex. How would you write the Operating Agreement to avoid the conclusions reached by the court?

FACTS FedEx Ground Package System, Inc. ("FedEx"), contracts with drivers to deliver packages to its custom-ers. FedEx's Operating Agreement ("OA") governs its rela-tionship with the drivers. The OA requires that the drivers wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance stan-dards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Drivers must deliver pack-ages every day that FedEx is open for business and must deliver every package they are assigned each day. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx's consent. Drivers are compensated according to a complex formula that includes per-day and per-stop components. FedEx trains its drivers on how best to perform their job and to interact with customers. The OA requires drivers to conduct themselves "with integrity and honesty, in a pro-fessional manner, and with proper decorum at all times." They must "[f]oster the professional image and good reputa-tion of FedEx." A driver's managers may conduct up to four ride-along performance evaluations each year. Drivers must follow FedEx's "Safe Driving Standards." Drivers enter into the OA for an initial term of one, two, or three years. At the end of the initial term, the OA provides for automatic renewal for successive one-year terms if neither party pro-vides notice of their intent not to renew. The OA may be terminated for cause, including a breach of any provision of the OA. The OA requires drivers to submit claims for wrong-ful termination to arbitration. FedEx requires its drivers to provide their own vehicles, specifically approved by FedEx. The OA allows FedEx to dictate the "identifying colors, logos, numbers, marks and insignia" of the vehicles. FedEx requires vehicles to have spe-cific dimensions, and all vehicles must also contain shelves with specific dimensions. FedEx offers a "Business Support Package," which provides drivers with uniforms, scanners, and other necessary equipment. Purchase of the package is ostensibly optional, but more than 99 percent of drivers pur-chase it.FedEx contends its drivers are independent contractors under California law. Plaintiffs, a class of FedEx drivers in California, contend they are employees and filed a class action asserting claims for employment expenses and unpaid wages on the ground that FedEx had improperly classified the drivers as independent contractors. The district court granted summary judgment to FedEx on the employment status issue. Plaintiffs appealed.

DECISION Summary judgment for FedEx is reversed; case is remanded to the district court with instructions to enter summary judgment for plaintiffs on the question of employment status.

OPINION Fletcher, J. California's right-to-control test requires courts to weigh a number of factors: "The principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired." S.G. Borello & Sons, Inc. v. Department of Industrial Relations, [cita-tion]. California courts also consider "several 'secondary' indicia of the nature of a service relationship." Id. The right to terminate at will, without cause, is "[s]trong evidence in support of an employment relationship." [Citation.] Addi-tional factors include: (a) whether the one performing services is engaged in a dis-tinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupa-tion; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee. [Citation.] These factors "[g]enerally ... cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations." [Citation.] FedEx argues that the OA creates an independent-con-tractor relationship. California law is clear that "[t]he label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced." [Citation.] What matters is what the contract, in actual effect, allows or requires. [Citation.] The OA and FedEx's policies and pro-cedures unambiguously allow FedEx to exercise a great deal of control over the manner in which its drivers do their jobs. Therefore, this factor strongly favors plaintiffs. First, FedEx can and does control the appearance of its drivers and their vehicles. *** *** Second, FedEx can and does control the times its drivers can work. ** Third, FedEx can and does control aspects of how and when drivers deliver their packages. *** *** In light of the powerful evidence of FedEx's right to con-trol the manner in which drivers perform their work, none of the remaining right-to-control factors sufficiently favors FedEx to allow a holding that plaintiffs are independent con-tractors. [Citations.] The first factor, the right to terminate at will, slightly favors FedEx. The OA contains an arbitration clause and does not give FedEx an unqualified right to terminate. Under California law, the right to discharge at will is "[s]trong evi-dence in support of an employment relationship," [citations]. *** The second factor, distinct occupation or business, favors plaintiffs. As the California Court of Appeal reasoned in [cita-tion], "the work performed by the drivers is wholly integrated into FedEx's operation. The drivers look like FedEx employ-ees, act like FedEx employees, [and] are paid like FedEx employees." [Citation.] "The customers are FedEx's custom-ers, not the drivers' customers." [Citation.] While the drivers have opportunities to expand their businesses by taking on additional routes and hiring helpers, these opportunities them-selves are only available subject to FedEx's business needs. The third factor, whether the work is performed under the principal's direction, slightly favors plaintiffs. *** although drivers retain freedom to determine several aspects of their day-to-day work, FedEx also closely supervises their work through various methods. The fourth factor, the skill required in the occupation, also favors plaintiffs. FedEx drivers "need no experience to get the job in the first place and [the] only required skill is the ability to drive." [Citation.] The fifth factor, the provision of tools and equipment, slightly favors FedEx. The drivers provide their own vehicles and are not required to get other equipment from FedEx. *** Ultimately, the vast majority of drivers get their other equipment from FedEx. [Citation.] ***The sixth factor, length of time for performance of ser-vices, favors plaintiffs. Drivers enter into the OA for a term of one to three years. At the end of the initial term, the OA provides for automatic renewal for successive one-year terms if there is no notice of non-renewal by either party. *** The seventh factor, method of payment, is neutral. FedEx pays its drivers according to a complicated scheme that *** cannot easily be compared to either hourly payment (which favors employee status) or per job payment (which favors independent contractor status). *** The eighth factor, whether the work is part of the prin-cipal's regular business, favors plaintiffs. The work that the drivers perform, the pickup and delivery of packages, is "essential to FedEx's core business." [Citation.] The final factor, the parties' beliefs, slightly favors FedEx. *** the OA's statement of independent contractor status is evidence that the drivers believed that they were entering such a relationship. Ultimately, though, "neither [FedEx]'s nor the drivers' own perception of their relationship as one of independent contracting" is dispositive. [Citation.] Viewing the evidence in the light most favorable to FedEx, the OA grants FedEx a broad right to control the manner in which its drivers perform their work. The most impor-tant factor of the right-to-control test thus strongly favors employee status.

INTERPRETATION Because FedEx had the broad right to control the manner in which its drivers perform their work and the other factors do not strongly favor either employee status or independent contractor status, the drivers are employees as a matter of law under California's right-to-control employment test.