May 19, 2005

FedEx and the Filibuster: The Future of Independent Contractors?

Perhaps you will think that the Insider is reaching a bit, when we state that the current judicial confirmation crisis in the U.S. Senate will eventually have a direct impact on the ultimate status of independent contractors in America, including the FedEx drivers that we have been following of late. Give us a moment to explain.

The first U. S. District judge up for confirmation is Priscilla Owens of Texas. She is widely viewed as ferociously pro-business. Her nomination is supported by the Justice Department and by a number of conservative groups. She is vehemently opposed by a long list of pro-consumer advocates, including People for the American Way.

In her years on the Texas Supreme Court, she has frequently dissented from the opinions of the majority -- a majority considered quite conservative in its own right. One of these dissents involved the status of an "independent contractor." The case is Dena Read v. the Kirby Vacuum Company. For political junkies, it's worth noting that the majority opinion was signed by then Chief Justice Raul A. Gonzalez, a former Bush staffer who is currently the U. S. Attorney General and rumored to be headed for the U.S. Supreme Court.

Here is the background: A customer who was raped by a door-to-door vacuum cleaner salesman brought a negligence action against the vacuum's manufacturer and the regional distributor, who operated as an independent contractor to the manufacturer. The trial court rendered judgment for the plaintiff for actual and punitive damages. The court of appeals affirmed the damages. The manufacturer then appealed to the Texas Supreme Court. The question presented to the Supreme Court was whether a company that markets and sells its products through independent contractor distributors and exercises control by requiring in-home demonstration and sales, owes a duty to act reasonably in the exercise of that control. In other words, does the manufacturer have to ensure that the independent sales force is qualified and appropriate to do the work? A majority of the court held that the company does owe such a duty. Accordingly, the court affirmed the lower court judgment.

Due Diligence in Hiring
In applying for employment to the regional distributor, Mickey Carter listed three references and three prior places of employment. Had the regional distributor checked these references, he would have found that women at Carter's previous places of employment had complained of Carter's sexually inappropriate behavior. The distributor would also have found that Carter had been arrested and received deferred adjudication on a charge of indecency with a child, and that one of the previous employer's records indicated that Carter had been fired because of that incident. Further, the regional distributor would have found that these records also contained witness statements, a confession, Carter's guilty plea, and the indictment charging him with the offense! Unfortunately, the regional distributor did not check any references; his defense, in part, was that Kirby, the manufacturer of the vacuum cleaners, didn't require him to check references for the independent sales force.

The court actually did not question Carter's status as an independent contractor, but stated that this status was no defense in this situation. The court found that Kirby required that its vacuum cleaners be marketed solely through in-home demonstration. It was Kirby's retention of control over this detail that gave rise to the duty to exercise that control reasonably. Even though Kirby's agreement with the distributors allowed them to independently hire a sales force, this did not excuse Kirby from the duty to act reasonably with regard to the qualifications of that salesforce. So the court found Kirby and the distributer negligent in not checking Carter's references.

To this point, it all sounds pretty reasonable. Indeed, the Texas Court references a similar case from North Dakota, where a Kirby "independent" salesman violently assaulted a customer (kind of makes you want to buy your vacuum in a store, doesn't it?). In direct response to this incident, Kirby put warnings in its training manuals of the need to do a "thorough criminal background check" on potential dealer candidates, had discourse with some distributors about the need to do reference checks, and instructed that if "red flags" come up in the process, the distributors should do further background checks. Alas, the changes in North Dakota never found their way into Texas.

Enter Owens
Priscilla Owens dissented from the Texas Supreme Court opinion. While details of her dissent are not available at the website, it appears that she considers the salesman a true independent contractor, so in her view the manufacturer bears no responsibility for his actions. Although the issue is not quite the same, I don't think that it's much of a stretch to project Owen's response to the FedEx business strategy. She appears unlikely to have any problem with their position that their drivers are "independent contractors."

So perhaps it is not far fetched to link the future of independent contractors -- and the FedEx business strategy -- with this week's senate floor drama. While you never know exactly how judges will rule, you can certainly get a sense from their prior opinions. Based upon the history, a Priscilla Owens on the bench may provide the kind of victory in the courts for FedEx that has proven elusive to date. We will keep you posted.

| 1 Comment

1 Comment

Jon: Justice Raul A. Gonzalez, a very conservative Democrat, wrote the Read opinion. Justice Alberto R. Gonzalez, who is now U.S. AG, was not on the Court in 1998. It is confusing, I realize. The Texas Supreme Court has had only two Hispanic members, and both of them have been named Gonzalez.

In Read, the opinion by Justice Raul Gonzalez, was joined by 5 other members of the court. There were two dissents. One by Justice Hecht, whose opinion was that the court overreached because of the horrible facts of the case. Justice Hecht wrote:

The Court's solution is to limit its decision, as much as possible and well beyond what general principles will allow, to companies that require their products to be sold exclusively in customers' homes. A company that only allows its products to be sold in homes is unaffected, even if the risk to customers is the same. Today's "vacuum cleaner rule", carefully tailored and trimmed, is to apply in all cases exactly like this one, of which there appear to be none. In all other cases, the "taxicab rule" continues to apply, absent other sympathetic circumstances. Employing its chancery jurisdiction, the Court achieves a good result in this one case without adversely affecting the direct sales industry, the employment of independent contractors, or, it is hoped, anyone else at all. Today's decision is, to borrow Justice Roberts' metaphor, "a restricted railroad ticket, good for this day and train only."

The other dissent, by Justice Abbott, who is the current Texas Attorney General, concluded that the court sympathetically misapplied the facts of the case to settled law. Justice Abbott wrote:

I agree with the Court's analysis of Redinger v. Living, Inc., 689 S.W.2d 415, 418 (Tex.1985), that "a general contractor, like Kirby, has a duty to exercise reasonably the control it retains over the independent contractor's work." 990 S.W.2d at 735. I also agree with the Court's synopsis of Exxon Corp. v. Tidwell, 867 S.W.2d 19, 23 (Tex.1993), that in determining whether a duty exists in a retained-control case, the "focus is on whether [the] retained control was specifically related to [the] alleged injury." 990 S.W.2d at 736. I disagree with the Court's application of this law to the relevant facts of this case.

Justice Owens did not write an opinion in Read. She did, however, join in both dissents.

In my view, there is nothing remotely novel about the Read holding. The disagreement of the court centered on the application of awful facts to settled Texas law.

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This page contains a single entry by Jon Coppelman published on May 19, 2005 12:32 PM.

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