How The FedEx Employee Misclassification Case Affects All Businesses [e88]

September 1, 2014

Nasir and Matt discuss the recent case against FedEx that will affect many businesses. They also answer, “I noticed that there is already an (my business name)registered under FBN with the county. From a legal standpoint, are the names too similar for FBN? I was planning on checking name availability with CaliforniaSecretary of State anyways, in case I want to incorp down the road. Should I be legally worried about the names being so similar? I know this is separate, but I’ve already done a preliminary trademark search and haven’t come up with much, but I though I should check that out too.”

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business. This is Nasir Pasha.

MATT: And this is Matt Staub.

NASIR: And welcome to our legal podcast where we cover business in the news and also answer some of your business legal questions that you have graciously sent in to us at ask@legallysoundsmartbusiness.com and that you can also do so in the future as well.

MATT: I think the listeners are excited because, later in the week, you’re going to do a live ice bucket challenge. You’re going to dump ice water on your head mid-show or actually right as you’re answering the question so people are pretty excited for that.

NASIR: Well, tune in. What’s nice is that this is an audio so you can have no idea whether I actually did it or not. In fact, hold on, let me just… All right, there’s no ice in here. I was holding up my glass of water which I realize the ice melted.

MATT: Well, I hate to keep talking about this but we’re going to have to.

NASIR: It’s a big one.

MATT: Yeah, it’s just issues that constantly come up but, yeah, like you said, this is a pretty big one. We’re dealing with another misclassification of independent contractors’ issue – this time, with FedEx.
A recent ruling, I think this week, right?

NASIR: Yeah.

MATT: The appellate court ruled that 2,300 drivers in California were misclassified. That’s going to be huge. You’re talking an insane amount of penalties and back money that’s going to be owed to them. But the facts of this are pretty interesting and I don’t know why these FedEx drivers were even agreeing to do this but talking about they made the drivers – let’s see – shifting the costs to them for the branded trucks, uniforms, and scanners. Obviously, they weren’t giving them sort of the right labor law rules of meals and rest periods, things of that nature. How did they try to get around it? “Oh, we’ll just put in the operating agreement that they’re independent contractors and that should be sufficient, right? I mean, that’s never failed before.”

NASIR: Yeah, they made extra efforts, too. I mean, one of many factors of a contractor relationship is that the contractor provides for their own equipment. Literally, the company, instead of just providing it to them, leased the trucks or sold the trucks to the contractors themselves. All the equipment like those devices that they carry to track shipments or whatever are also some kind of package that they purchase and so forth and they pay for their own gas and et cetera and their maintenance. That’s one aspect that they took care of but it seems like they failed to do a lot of other things as well.

MATT: Yeah, I’m wondering, from the driver’s perspective, how do they even make money? That seems like a pretty big expense.

NASIR: The reality is all they did was paid them a little bit more and then deduct it from their pay check. That’s how I see it. I mean, this case is actually pretty big. To put it into perspective, this is a three-judge panel, Ninth District US Court of Appeals and this ruling impacted both a Washington class action and a California class action which is why there’s 2,300 drivers impacted. But this case is also going to affect 20 other cases going around nationwide in the country on this very issue. By the way, UPS, I believe, does the exact same thing with its drivers too as well. This ruling may have pretty big consequences. But, let me ask you this – I mean, I’m talking to the listeners here for a second – who would have thought that the FedEx drivers, the UPS drivers are not employees? It doesn’t seem like they’re not, right? Just from a basic smell test, I think most people would be surprised that they’re classified as contractors. But, beyond that, if you actually look at some of the facts in the case, and we’ve talked about this in the past about control – the more control you have over somebody, the more likely they’re an employee – they require the trucks to have the FedEx logo on it; they require the drivers themselves to be clean-shaven, to wear a certain uniform, to look a certain way, yet they say, “Well, we don’t specify what route they take or whatever.” The law doesn’t say that you don’t have to have absolute control over the driver or over that person. It’s just you have to be able to exercise control over that driver and that’s how the court ruled last week.

MATT: Yeah. I mean, that’s a pretty poor argument but I think the listeners would say, “Yeah, we just assumed.” I would say too, you would think they were employees. I mean, there’s no reason to not think that. I would have never imagined that they were responsible for doing everything with their own trucks. I would assume they were renting these or whatever they were doing.

NASIR: What’s funny is, I think, if they made – and I would be interested to see how FedEx reacts to this. I mean, they’ll probably try to appeal this into the next level to the Supreme Court or not, I don’t know. We’ll see how that goes but I wonder if they try to just make changes in reaction to this case which they could make them independent contractors. They could get rid the restriction that they’re clean-shaven. To me, that’s weird in itself. If you’re saying you don’t want to exercise control over your drivers, don’t specify exactly what their hygienic habits are as far as whether they shave in the morning or not. Second is maybe take away the uniform aspect – even the logo. I know UPS is like this that every truck is exactly the same. I think FedEx is pretty much the same, too. Compare this to truck drivers, right? Truck drivers are classically independent contractors a lot of times because they have their own semi and they pick up a trailer which may be Walmart or Costco or whatever and they’re being hired by those companies to transfer goods and they may be hired by different companies at the same time. In this case, they’re driving the same truck, the same cargo, with the same company, the same logo on it. They’re allowed to use the truck off-hours if they cover the FedEx logo which is ridiculous. How would they even logistically do that? I just wonder if they’re going to make any changes or just try to pay them the employee wages.

MATT: Yeah. What are you going to do with that truck? It doesn’t make any sense. You can use it but drive this huge truck around that you can’t park anywhere other than a superstore parking lot.

NASIR: Well, I’m just thinking, when you see the movies and they have some kind of van in which they pull off some heist and then they have to change the decals really quick so they peel it off or cover it up. I mean, I don’t know what they expect these FedEx drivers to do to actually be able to use these trucks for any other purposes other than FedEx.

MATT: Yeah. I mean, if they want to do a vehicle wrap, we have a good referral that we can give them, but they’d have to do a vehicle wrap every day and then take it off. It’d just be a waste of money.
People probably aren’t interested in the actual case but they do go factor by factor here and it’s a pretty back and forth battle so it’s not as one-sided as you may think. Just reading through it, that control issue is pretty big, obviously. The drivers retain the freedom to determine several aspects of their day-to-day work but the problem is FedEx closely supervises their work through various methods. It’s not just “if you control someone.” It’s having that right to control them and that’s kind of where it falls down on.

NASIR: Yeah. For example, three or four times a year, they have the right to do a ride-along where even though the recommendations that they make after the ride-along aren’t binding or something to that effect but it just doesn’t make sense to me and we make it seem like it’s one-sided, obviously. I mean, it went far enough that some ports decided to actually take this on appeal but I think the major issue is this aspect of, to me, the clothing part and the logo part is most damaging because that really shows you how much control that they’re making efforts towards. If they got rid of that, I think they would have had a lot better argument. But then, again, I think they would defeat their business model of being able to have some kind of branding when you have all those FedEx trucks out there.

MATT: I’m expecting a package either today or tomorrow. Maybe I’ll just wait for them. If they come now, I can see through the window.

NASIR: Let’s just wait.

MATT: Yeah.

NASIR: Is it going to be FedEx or UPS?

MATT: I don’t know. Let’s all find out. But I’ll run down and ask them.

NASIR: Even the UPS thing, they have that classic brown shirt and brown shorts, right? I mean, what more control can you have in that respect?

MATT: Well, I know someone that used to work for UPS and they were an employee but they didn’t do the truck deliveries. They worked inside an actual store.

NASIR: Okay, yeah.

MATT: I guess that’s a difference. It’s harder to pull that off than truck driver because they don’t tell them what route to take so they’re obviously independent contractors.

NASIR: Yeah, exactly. But I’m telling you, this case is going to change that industry if it holds. You never know, you might have conflicting cases in different jurisdictions and so forth. But, looking at the facts, I think they got it right in my opinion.

MATT: You know, what’s going to change is all it’s going to be is now consumers are going to pay more money to ship their packages. All the costs are going to get shifted to the consumer. That’s my guess.

NASIR: That’s a good point because there are other very small – especially in local places where you have delivery services, you know – and I bet you a lot of those deliverers are independent contractors even though they have made one brand because you see that they’re just regular guys in street clothes that are either on their bikes or have their own car or truck that are delivering stuff and they have those boxes that are of some kind of courier service. That may be the model that FedEx and UPS may adopt. I don’t know.

MATT: Big news. It’s definitely going to have rippling effects in other industries, too.
[MUSIC]

NASIR: Okay, let’s get to our question of the day.

MATT: “I noticed that there is already a [insert name] registered under FBN with a county.”

NASIR: Which is “fictitious business name.”

MATT: “From a legal standpoint, are the names too similar for FBN? I was planning on checking name availability with the California Secretary of State anyways in case I wanted to incorporate down the road. Should I be legally worried about the names being so similar? I know this is separate but I’ve already done a preliminary trademark search and I haven’t come up with much but I thought should check that out, too.” – From someone in California.
Poor job reading on my part but hopefully they got the gist of it.

NASIR: Definitely very poor, I agree. I think everyone at home is just wondering what’s going on. Maybe you should read it again but that’s okay. We’ll summarize it here.
Basically, the questioner is asking that they want to register a fictitious business name but the one that they’re registering is somewhat similar to another. We took out the name of the question just to preserve their anonymity.

MATT: You know, that makes it obviously a little bit more difficult to discuss here but, you know, just keep that in mind.

NASIR: Basically, there’s an extra word in there. They’re both generic, regular dictionary words that describe the actual business, but they just added some initials.

MATT: They add another part in there to show the location.

NASIR: Oh, that’s right, the initials of the location. So, the question is, if they’re too similar, can he or she register the fictitious business name. I think we covered that a little bit. Generally, these assumed names or fictitious business names – whether it’s on the state or county level – very rarely have I seen any states that actually check for duplicates because there’s just so many of those names being filed that I think it’s just too cumbersome and they rely upon private enforcement for trademark infringement.

MATT: Yeah. I mean, it’s only $30.00 or $40.00 to do it. It’s not even enough money to pay someone to check into it. I’ve actually looked before and seen the same name multiple times.

NASIR: Yeah, very common.

MATT: Like, a bunch of times, so I don’t think that’s that big an issue, but this person that submitted the question, they’re on the right track. If they’re going to check with the Secretary of State, that’s what obviously you need to do and we’ve said this a couple of weeks ago but, yeah, the trademark search, too. That’s going to be the most important – or at least more important than the fictitious business name. So, they’ve definitely done the right. It’s weird that the fictitious business name was the last thing to be done. Well, I don’t know, I mean, it’s personal preference. I usually check that maybe first.

NASIR: Yeah, trademarks should be done first. It looks like this person did a preliminary trademark search which I’m not sure exactly what that means. Probably just put in the actual name which is fine, too. But, keep in mind, when it comes to trademark infringement, it can be just slightly different and still be trademark infringement. That’s more the issue with this person in the same county in California. One of the problems too is that, just because you don’t have a registered trademark doesn’t mean that that person cannot allege trademark infringement because they still may hold the common law trademark in that name itself and, if there’s some kind of likelihood of confusion between the names, especially if you’re in the same location, I could see someone getting upset about that and filing a trademark infringement claim, but those are harder to do. If you can register your trademark as soon as possible, you’re going to have many more rights over that person that has a common law trademark, so I would suggest starting out there.
All right. Well, thanks for joining us.

MATT: Is this coming out on Labor Day?

NASIR: Oh, yeah, Labor Day. I guess that’s fitting.

MATT: So, there’s a decent chance no one is listening to this until the next day. I hope you had a good Labor Day. I hope you’re not wearing white.

NASIR: All right, very good. Thanks for joining us and have a good day.

MATT: Yeah, keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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