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Craig v. FedEx Ground Package Sys., Inc.

Supreme Court of Kansas

October 3, 2014


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On certification of two questions of law from the United States Court of Appeals for the Seventh Circuit, FRANK H. EASTERBROOK, certifying judge.

The questions certified are determined.


On certified question from the United States Court of Appeals for the Seventh Circuit, this court answers: Given the undisputed facts presented to the district court in this case, the plaintiff drivers are employees of FedEx Ground Package System, Inc. as a matter of law under the Kansas Wage Payment Act, K.S.A. 44-313 et seq., and a plaintiff driver does not lose his or her employee status by acquiring another route for which that plaintiff is not the driver.

Steve Six, of Stueve Siegel Hanson LLP, of Kansas City, Missouri, argued the cause, and Beth A. Ross and Sandy N. Nathan, of Leonard Carder, LLP, of Oakland, California, Robert I. Harwood and Matthew M. Houston, of Harwood Feffer, LLP, of New York, New York, Susan E. Ellingstad, of Lockridge Grindal Nauen P.L.L.P., of Minneapolis, Minnesota, and George A. Barton and Stacy A. Burrows, of The Law Offices of George A. Barton, P.C., of Kansas City, Missouri, were with him on the briefs for appellants.

James D. Oliver, of Foulston Siefkin LLP, of Overland Park, argued the cause, and Jonathan D. Hacker, of O'Melveny & Myers LLP, of Washington, D.C., Robert M. Schwartz, of O'Melveny & Myers LLP, of Los Angeles, California, and J. Timothy Eaton, of Shefsky & Froelich Ltd., of Chicago, Illinois, were with him on the brief for appellee.

Greg L. Musil and Amy E. Morgan, of Polsinelli PC, of Overland Park, James C. Sullivan, of Kansas City, Missouri, and Richard Pianka, of ATA Litigation Center, of Arlington, Virginia, were on the brief for amici curiae American Trucking Associations, Inc. and Kansas Motor Carrier Association.

Justin McFarland, deputy general counsel, of Kansas Department of Labor, was on the brief for amicus curiae Lana Gordon, State of Kansas Secretary of Labor.

MORITZ, J., not participating. DANIEL D. CREITZ, District Judge, assigned. [1]


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Per Curiam

 The United States Court of Appeals for the Seventh Circuit requests our answers to two certified questions regarding [300 Kan. 789] the proper classification of FedEx Ground Package System, Inc. (FedEx) delivery drivers under the provisions of the Kansas Wage Payment Act (KWPA), K.S.A. 44-313 et seq. Specifically, the Seventh Circuit inquires:

" 1. Given the undisputed facts presented to the district court in this case, are the plaintiff drivers employees of FedEx as a matter of law under the KWPA?
" 2. Drivers can acquire more than one service area from FedEx. . . . Is the answer to the preceding question different for plaintiff drivers who have more than one service area?" Craig v. FedEx Ground Package System, Inc., 686 F.3d 423, 431 (7th Cir. 2012).

We answer yes to the first certified question. As applied to those drivers who are members of the certified class, i.e., those drivers who " 'drive a vehicle on a full-time basis,'" we answer no to the second question, i.e., the answer to the first question remains the same. See 686 F.3d at 425, n.1.

Facts and Procedural Overview

This case began as numerous class actions filed throughout the country against FedEx by current and former drivers for the company. The plaintiff drivers allege they are employees, rather than independent contractors, under both state and federal law. The Judicial Panel on Multidistrict Litigation consolidated the class actions, transferred the consolidated action to the United States District Court for the Northern District of Indiana (District Court), and designated the Kansas class action as the lead case.

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The District Court certified a nationwide class seeking relief under the Employee Retirement Income Security Act (ERISA) and certified statewide classes under Federal Rule of Civil Procedure 23(b)(3). Craig, 686 F.3d at 425. There are 479 Kansas class plaintiffs who allege that they were improperly classified as independent contractors under the KWPA. They seek repayment of all costs and expenses that they expended on behalf of FedEx during their time as FedEx drivers, and they claim entitlement to unpaid overtime wages. The Kansas class is defined as follows:

" 'All persons who: 1) entered or will enter into a FXG Ground or FXG Home Delivery form Operating Agreement . . . ; 2) drove or will drive a vehicle on a full-time basis (meaning exclusive of time off for commonly excused employment [300 Kan. 790] absences) from February 11, 1998, through October 15, 2007, to provide package pick-up and delivery services pursuant to the Operating Agreement; and 3) were dispatched out of a terminal in the state of Kansas.' [Citation omitted.]" Craig, 686 F.3d at 425, n.1.

Pursuant to this class definition, plaintiffs must be full-time drivers. Accordingly, we will also refer to plaintiffs as " drivers."

All parties filed cross-motions for summary judgment on a stipulated record that included a form Operating Agreement (OA) entered into between FedEx and the drivers, as well as evidence relating to certain FedEx work practices. The District Court determined that the Kansas class plaintiffs were independent contractors under the KWPA. Consequently, the court granted summary judgment to FedEx and denied the Kansas class plaintiffs' summary judgment motion. 686 F.3d at 425. Subsequently, the District Court relied on its decision in the Kansas Craig case to enter summary judgment in favor of FedEx on the respective plaintiffs' employment status challenges in all the other statewide class actions. See In re FedEx Ground Package System, Inc., 758 F.Supp.2d 638 (N.D. Ind. 2010).

All state class plaintiffs appealed, presenting substantially the same issue: Whether the district court erred by deciding, as a matter of law, that plaintiffs were independent contractors, rather than employees, under each respective state's substantive law. The Seventh Circuit chose to proceed with review of the Craig appeal while suspending briefing in the remaining appeals.

The Seventh Circuit began its analysis by noting that under Kansas law the " 'right of control' test is the most important consideration in determining whether an employment relationship exists, but it is not the only one." Craig, 686 F.3d at 427. Ultimately, the Seventh Circuit opined that our Kansas cases addressing the right to control test did not clearly indicate to the Seventh Circuit how it should decide a close case, such as the one presented by the facts of this case. The Seventh Circuit explained its need to propound certified questions to this court as follows:

" Where some of the factors weigh in favor of finding employee status, some weigh in favor of independent contractor status, and some 'cut both ways,' a court must weigh the factors according to some legal principle or principles. But other than [300 Kan. 791] the point that the right of control is the primary factor, what is the underlying principle (or principles) that guides that weighing process in close cases such as this seeking to establish an employment relationship under the KWPA? We are unsure." 686 F.3d at 428.

A lengthy recitation of the uncontroverted facts relied upon by the federal courts is set forth in the District Court's opinion. In re FedEx Ground Package System, Inc., 734 F.Supp.2d 557, 560-75 (N.D. 2010). Although we have carefully reviewed all of the recited facts, we will not repeat the entire recitation here but rather we will refer to the relevant facts as they become germane to our discussion.

Fedex Delivery Drivers' Status under the KWPA

The simple question is whether FedEx's delivery drivers are employees for purposes of the KWPA. The answer defies such simplicity. As FedEx's counsel acknowledged at oral argument, the company carefully structured its drivers' operating agreements so

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that it could label the drivers as independent contractors in order to gain a competitive advantage, i.e., to avoid the additional costs associated with employees. In other words, this is a close case by design, not happenstance. Notwithstanding the form or labels utilized, we must determine whether the substance of the relationship between FedEx and its delivery drivers renders the drivers employees within the meaning of the KWPA. Ultimately, we determine that form does not trump the substantive indicia of an employer/employee relationship.

Authority/Standard of Review

K.S.A. 60-3201, entitled " Power to answer," provides us with the authority to respond to the Seventh Circuit's request. That statute provides, in relevant part:

" The Kansas supreme court may answer questions of law certified to it by . . . a court of appeals of the United States, . . . when requested by the certifying court if there are involved in any proceeding before it questions of law of this state which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the supreme court and the court of appeals of this state." K.S.A. 60-3201.

[300 Kan. 792] By statutory definition, certified questions present questions of law, and we exercise unlimited review over such questions. See Nationwide Mutual Ins. Co. v. Briggs, 298 Kan. 873, 875, 317 P.3d 770 (2014); Eastman v. Coffeyville Resources Refining & Marketing, 295 Kan. 470, 473, 284 P.3d 1049 (2012).

Moreover, with these particular certified questions, we must interpret and apply the KWPA, which is also a question of law subject to de novo review. See Salon Enterprises, Inc. v. Langford, 29 Kan.App.2d 268, 270-71, 31 P.3d 290 (2000).

Overview of the KWPA

We begin by reviewing the applicable statutory provisions. The KWPA is an " expansive and comprehensive legislative scheme that is broad in its scope and the rights created for Kansas workers to secure unpaid wages earned from their labors." Campbell v. Husky Hogs, 292 Kan. 225, 233, 255 P.3d 1 (2011). It was enacted in 1973 and primarily sought to address problems being encountered by employees of small businesses. See An Act Providing for Wage Payment and Collection: Hearing on H.B. 1429 Before the Senate Comm. on Public Health and Welfare, 1973 Leg., 68th Sess. (Kan. 1973) (statement of Rep. Jim Parrish, Member, House of Representatives). The KWPA's primary concern was to protect low income workers who were shorted, docked, or cheated out of pay for services performed. See An Act Providing for Wage Payment and Collection: Hearing on H.B. 1429 Before the House Comm. on Labor and Industry, 1973 Leg., 68th Sess. (Kan. 1973) (statement of T. McCune, Kansas Department of Labor). A goal of the legislation was to protect Kansas employees who were not then covered by the Fair Labor Standards Act (FLSA), minimum wage requirements, or the National Labor Relations Board. (McCune Statement, p. 1).

The KWPA controls several aspects of wages and benefits for the Kansas worker that are not covered by the Fair Labor Standards Act of 1938, 29 U.S.C. § 201 (2012) et seq. The KWPA governs when wages must be paid, the manner in which they must be paid, and the circumstances in which wages can be withheld. See K.S.A. 2007 Supp. 44-314; K.S.A. 2007 Supp. 44-319. The [300 Kan. 793] KWPA also requires employers to provide certain notice requirements with respect to the payment of wages and the provision of benefits. See K.S.A. 2007 Supp. 44-319a; K.S.A. 44-320. It provides for remedies and penalties for violation of its requirements. K.S.A. 44-322; K.S.A. 2007 Supp. 44-322a. Notably, the KWPA does not contain any express provision relating to the payment of overtime, which is typically pursued under a FLSA claim.

Getting to the crux of the presented questions, the KWPA applies to " employees," defined as " any person allowed or permitted to work by an employer." K.S.A. 2007 Supp. 44-313(b). Independent contractors are specifically excluded from the definition of employee

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under the KWPA: " 'Allowed or permitted to work,' within the meaning of K.S.A. 44-313(b), shall not include an independent contractor, as defined by rules, regulations, and interpretations of the United States secretary of labor for the purposes of the fair labor standards act." K.A.R. 49-20-1(e) (Kansas regulation promulgated for the purpose of administering and enforcing provisions of the KWPA.).

Test for Determining Employment Status under the KWPA

As the Seventh Circuit discovered, this court has not specifically identified a test that will definitively determine employment status under the KWPA. In Herr v. Heiman, 75 F.3d 1509, 1512 (10th Cir. 1996), the Tenth Circuit cited to a Kansas employment security law case-- Crawford v. State, Dep't of Human Resources, 17 Kan.App.2d 707, 845 P.2d 703 (1989), rev. denied 246 Kan. 766 (1990)--to discern the proper test for determining employment status under the KWPA. The Herr panel identified 20 factors that had been used in Crawford to consider when determining whether an employer/employee relationship exists. The panel noted that these factors were to be considered as a whole, with " particular emphasis placed on the employer's right to control the worker." Herr, 75 F.3d at 1512. These 20 factors were also considered in Hartford Underwriters Ins. Co. v. Dep't of Human Resources, 272 Kan. 265, 271, 32 P.3d 1146 (2001), a workers compensation case wherein we found an employer/employee relationship existed under the right to control test.

[300 Kan. 794] Neither Crawford nor Hartford identified the genesis of the 20-factor test, and neither opinion engaged in an individual discussion of each factor, which might explain why some of the factor descriptions appear to be inscrutably duplicative, e.g., " 19) whether the employer has the right to discharge the worker; and 20) whether the employer has the right to terminate the worker." Hartford, 272 Kan. at 271. An earlier source for a nearly identical 20-factor test is a 1987 Internal Revenue Service (IRS) revenue ruling, Rev. Rul. 87-41, 1987-1 C.B. 296, which discussed how to determine employment status under Section 530(d) of the Revenue Act of 1978. The description of each factor set forth in that revenue ruling eliminates any suggestion of duplication and provides clarification as to how to apply each factor. Accordingly, we will amend the Crawford factors to eliminate the ambiguous or duplicative descriptions and will hereafter refer to them as the 20-factor test.

But Kansas courts have long emphasized the right to control test when determining a worker's status.

" The primary test used by the courts in determining whether an employer-employee relationship exists is whether the employer has the right of control and supervision over the work of the alleged employee, and the right to direct the manner in which the work is to be performed, as well as the result which is to be accomplished." Jones v. City of Dodge City, 194 Kan. 777, 780, 402 P.2d 108 (1965).

We have utilized this test in cases involving the Kansas Employment Security Act, Workers Compensation Act, and negligence based on respondeat superior. See Wallis v. Secretary of Kansas Dep't of Human Resources, 236 Kan. 97, 102-03, 689 P.2d 787 (1984) (unemployment taxes); Knoble v. National Carriers, Inc., 212 Kan. 331, 332-33, 510 P.2d 1274 (1973) (workers compensation); Aspelin v. Mounkes, 206 Kan. 132, 135-37, 476 P.2d 620 (1970) (respondeat superior).

In Coma Corporation v. Kansas Dept. of Labor, 283 Kan. 625, 644, 154 P.3d 1080 (2007), while determining that the KWPA applied to an undocumented worker, this court observed that the " definition of employee in the workers compensation statute is virtually identical to the definition of employee in the wage payment statutes." That definitional identity would seem to counsel in favor [300 Kan. 795] of simply utilizing our workers compensation cases to inform our determination of " employees" under the KWPA. But a potential impediment to a direct correlation is found in our administrative regulations, specifically, K.A.R. 49-20-1(e). Granted, that regulation is not binding on this court. See In re Tax Appeal of Chief Industries, Inc., 255 Kan. 640, 650, 875 P.2d 278 (1994) (" Administrative

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regulations do not supplant statutory law[,] nor do they preempt judicial statutory construction." ). Nevertheless, the absence of binding effect does not entirely remove an administrative regulation from the de novo interpretation of a statute, especially given that the authority to promulgate regulations emanates from a statute.

K.S.A. 44-325 authorizes the Kansas Secretary of Labor to adopt rules and regulations necessary to administer and enforce the provisions of the KWPA. In response to that authority, the Kansas Secretary of Labor promulgated K.A.R. 49-20-1, which defines specific terms utilized in the KWPA. K.A.R. 49-20-1(e) pertains to the term " '[a]llowed or permitted to work'" and, as noted above, the regulation specifies that the term " shall not include an independent contractor, as defined by rules, regulations, and interpretations of the United States secretary of labor for the purposes of the fair labor standards act." (Emphasis added.) In other words, our department of labor has deferred to the United States Department of Labor's definition of an independent contractor.

The FLSA defines an employee as " any individual employed by an employer" and " employ" is defined as " to suffer or permit to work." 29 U.S.C. § 203(e)(1) and (g) (2012). The principal congressional purpose in enacting the FLSA was to protect all covered workers from substandard wages and oppressive working hours. Barrentine v. Arkansas-Best Freight System, 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981). The definition of employee under the FLSA was intended to make the scope of employee coverage under the FLSA very broad. Johns v. Stewart, 57 F.3d 1544, 1557 (10th Cir. 1995). However, similar to the KWPA, independent contractors cannot maintain a claim under the FLSA. Johnson v. Unified Government of Wyandotte, 371 F.3d 723, 727-28 (10th Cir. 2004).

[300 Kan. 796] Although there are no relevant federal regulations defining " independent contractor" for purposes of the FLSA, courts have considered the economic realities of the employment relationship when determining whether the individual is an employee or independent contractor under the FLSA. Johnson, 371 F.3d at 729; see Lumry v. State, 49 Kan.App.2d 276, 286, 307 P.3d 232 (2013). " The 'economic realties' test seeks to look past technical, common-law concepts of the master and servant relationship to determine whether, as a matter of economic reality, a worker is dependent on a given employer." Barlow v. C.R. England, Inc., 703 F.3d 497, 506 (10th Cir. 2012). The economic reality test focuses on whether the worker is economically dependent on the business to which he or she renders service or whether the worker, as a matter of economic fact, is in business for himself or herself. Baker v. Flint Engineering & Const. Co., 137 F.3d 1436, 1440 (10th Cir. 1998); Doty v. Elias, 733 F.2d 720, 722-23 (10th Cir. 1984).

In applying the economic reality test, courts generally look at the following factors:

" (1) the degree of control exerted by the alleged employer over the worker; (2) the worker's opportunity for profit or loss; (3) the worker's investment in the business; (4) the permanence of the working relationship; (5) the degree of skill required to perform the work; and (6) the extent to which the work is an integral part of the alleged employer's business." Barlow, 703 F.3d at 506.

The test also considers " whether the alleged employer has the power to hire and fire employees, supervises and controls employee work schedules or conditions of employment, determines the rate and method of payment, and maintains employment records." Baker, 137 F.3d at 1440. None of the individual factors are dispositive; instead, the court must employ a totality of the circumstances approach. Barlow, 703 F.3d at 506 (citing Baker, 137 F.3d at 1440).

Several of these economic reality factors are considered under the Kansas common-law right to control test for determining a worker's status. See, e.g., McCubbin v. Walker, 256 Kan. 276, 281, 886 P.2d 790 (1994) (length of contract, independent nature of business, and method of payment); Wallis, 236 Kan. at 106 (right to discharge, furnishing equipment, and method of payment). In [300 Kan. 797] addition, all but one

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component of the economic reality test--the degree of skill--are included within the 20-factor test, which we restate here as follows:

(1) the employer's right to require compliance with instructions (economic reality test's degree of control factor);
(2) the extent of any training provided by the employer;
(3) the degree of integration of the worker's services into the business of the employer (economic reality test's integral part of employer's business factor);
(4) the requirement that the services be provided personally by the worker;
(5) the extent to which the worker hires, supervises, and pays assistants;
(6) the existence of a continuing relationship between the worker and the employer (economic reality test's permanence of the working relationship factor);
(7) the employer's establishment of set work hours;
(8) the requirement that the worker devote full-time to the ...

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