$20 Million Settlement Against Trucking Company for Misclassifying Drivers as Independent Contractors

XPO Logistics Inc. (XPO) is a global freight company with trucking services transporting containers to and from shipping and railway terminals across North America. XPO regularly hires drivers to move cargo across the United States. However, XPO’s business practices recruiting and hiring drivers gave rise to allegations of employment misclassification, which ultimately lead to a settlement of $20 million.

Angel Omar Alvarez and other drivers were required to sign an Independent Contractor Operating Contract (IC Contract) as a condition of work. Although classified as an Independent Contractor per the IC Contract, XPO still required Alvarez and other drivers to undergo an employment application process, as well as controlled the days and hours Alvarez worked. Furthermore, XPO imposed various policies on Alvarez and other drivers requiring adherence or risking disciplinary action, otherwise.

Plaintiffs filed suit in May 2018 in the United States District Court for the Central District of California alleging the class member drivers are employees because XPO retained control over wages, hours, and working conditions. Plaintiffs further contended XPO maintained direction over the manner and means of the drivers’ work by controlling their trucks and other equipment used to haul cargo.

Plaintiffs further argued XPO cannot establish prong A of the ABC Test because drivers are not free from XPO’s control and direction. In addition, plaintiffs argued that XPO cannot establish prong B of the ABC Test because the drivers’ work is not outside the usual course of XPO’s business.

Lastly, plaintiffs argued XPO’s deductions of business expenses from the drivers were in violation of California Labor Code Section 2802. Therefore, the class is entitled to reimbursement plus legal interest.

Defendant XPO argued that plaintiffs’ evidence of control were merely XPO’s efforts to comply with government regulations and that none of these efforts amounted to actual employer-employee control. XPO further contended the IC Contracts allowed plaintiffs the freedom to run their own business by allowing the selection of their own drivers and deciding the number of hours to work.

XPO also argued that if it is to be found liable to make reimbursements pursuant to Labor Code Section 2802, then it should be entitled to credit for significant fuel surcharge payments made to drivers under the IC Contract.

After years of litigation including class certification, an unresolved mediation in 2019, subsequent discovery, and finally trial preparation with numerous pre-trial pleadings including 25 motions in limine, the parties agreed to a second mediation in 2021. Just a few weeks before trial, on August 9, 2021, the parties reached a tentative settlement of all class claims for $20 million.

On January 10, 2022, the District Court by order granted final approvement of the $20 million settlement. There are approximately 531 class members eligible to receive compensation with an estimated average of $27,000 per share and approximately $68,000 for the highest share.

Misclassification as an Independent Contractor remains fertile ground for exposure and liability for not only for logistics providers, but for companies across all industries. It is more important than ever for employers to review their policies and guidelines to make sure they are not exposed to misclassification claims.