Are Fedex drivers independent contractors?

Steve Bainbridge comments on a California case involving whether Fedex drivers are independent contractors, tipped by Christine Hurt. Steve quotes from his book on the application of Restatement (Second) of Agency § 220(2), concluding that, “if you try to get the benefits of vertical integration, while avoiding the legal responsibilities that attach to a vertically integrated firm, California will put substance ahead of form.”

True enough, but the problem is determining when you’re trying to “get the benefits of vertical integration.” And the problem with that is that “vertical integration” is an economic concept that needs to be adapted to the legal task of providing a yes or no answer as to liability. The multifactor Restatement approach is not much help because it doesn’t tell you which factors are important.

Chapter 2 of my Unincorporated Business Associations book includes Judge Posner’s opinion in Anderson v. Marathon Petroleum Company, 801 F.2d 936 (7th Cir. 1986), which provides somewhat more help in applying the economic definition of the firm to the independent contractor issue. Posner says:

The reason for distinguishing the independent contractor from the employee is that, by definition of the relationship between a principal and an independent contractor, the principal does not supervise the details of the independent contractor’s work and therefore is not in a good position to prevent negligent performance, whereas the essence of the contractual relationship known as employment is that the employee surrenders to the employer the right to direct the details of his work, in exchange for receiving a wage. The independent contractor commits himself to providing a specified output, and the principal monitors the contractor’s performance not by monitoring inputs— i.e., supervising the contractor—but by inspecting the contractually specified output to make sure it conforms to the specifications. This method of monitoring works fine if it is feasible for the principal to specify and monitor output, but sometimes it is not feasible, particularly if the output consists of the joint product of many separate producers whose specific contributions are difficult (sometimes impossible) to disentangle. In such a case it may be more efficient for the principal to monitor inputs rather than output—the producers rather than the product. By becoming an employee a producer in effect submits himself to that kind of monitoring, receiving payment for the work he puts in rather than for the output he produces.

Since an essential element of the employment relationship is thus the employer’s monitoring of the employee’s work, a principal who is not knowledgeable about the details of some task is likely to delegate it to an independent contractor. Hence in general, though of course not in every case, the principal who uses an independent contractor will not be as well placed as an employer would be to monitor the work and make sure it is done safely. This is the reason as we have said for not making the principal vicariously liable for the torts of his independent contractors. See Calabresi, Some Thoughts on Risk Distribution and the Law of Torts, 70 YALE L.J. 499, 545 (1961).

So the independent contractor determination should depend on whether the principal's contract with the agent calls for output-based or input-based control.

These observations go a long way toward making sense of the Restatement section 220 factors. However, in some situations the principal or master may have perverse incentives to disguise what is essentially an input-based contract as an output-based contract. That’s the real substance vs. form issue. In Anderson, Judge Posner had to determine whether having an employee sandblast without appropriate protection was an “abnormally dangerous activity” under Restatement (Second) of Torts § 427A (Judge Posner said no).

Analysis of the Fedex situation is complicated by the fact that it does not involve tort liability but the drivers’ coverage under California employment law. It is not clear this calls for the same policies as the tort issue in a case like Anderson. This is similar to the problem of applying the independent contractor rule in employment discrimination cases, as the Court did Clackamas Gastroenterology Associations, P.C. v. Wells, 538 U.S. 440 (2003), excerpted and discussed in Chapter 3 of Unincorporated Business Entities.

Comments

[Ron Kispert]

The cloke of "Independent Contractor" status is just a simple way for large companies to "have it both ways" they deny any real liability, don't have to pay any expenses incurred by the driver, have the power to fire anybody for anything, get free advertising (uniform,truck), negotiate their own contracts and the driver is just an employee with a lot of expenses and very little rights, while providing free advertisement on the truck and monkey suit. Wake up people!