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FedEx Loses Driver-Classification Legal Skirmishes

FedEx Ground has lost ground in recent weeks in its fight to define its delivery drivers as independent contractors rather than employees. A federal judge ruled that 19 state lawsuits against FedEx Ground can proceed as class actions.

April 4, 2008
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FedEx Ground has lost ground in recent weeks in its fight to define its delivery drivers as independent contractors rather than employees.

In late March, a federal judge ruled that 19 state lawsuits against FedEx Ground regarding the employment status of its drivers can proceed as class actions.

And in late February, the New York State Department of Labor determined that a former driver and other single route drivers at FedEx Ground were employees.

Peter Overs Jr., a New York-based attorney who is representing FedEx Ground and Home Delivery drivers in litigation against FedEx, portrayed the New York State Department of Labor ruling as part of a pattern.

“Once again we see an impartial fact finder conclude that a FedEx driver was completely under the control of FedEx,” Overs said in a statement.

FedEx Ground is a unit of delivery giant FedEx. FedEx did not immediately return a call seeking comment.

The FedEx developments are part of a broader debate about independent contractors.

Companies can create a more flexible workforce through the use of contractors, in addition to being able to avoid paying employment taxes. But worker advocates argue that such arrangements often amount to shams that let companies shirk both taxes and their responsibilities to workers who actually are employees under the law.

For years, FedEx and its FedEx Ground unit have been at the forefront of this debate. FedEx Ground, the most profitable division of FedEx, argues that it contracts with independent operators to work its routes. The drivers own their own trucks, but FedEx has a series of requirements governing their work, such as the display of company colors and logos on trucks.

FedEx has been hit with multiple lawsuits challenging its treatment of FedEx Ground owner-operators.

In a March 25 ruling, Judge Robert L. Miller Jr. of the U.S. District Court for the Northern District of Indiana granted motions for class certifications in cases involving drivers from 18 states including New York, Florida and Tennessee. A case involving drivers from California got a split decision. Miller granted the motion for class certification “to the extent the motion seeks a class and sub-class for state law claims, but denies the motion with respect to the Family and Medical Leave Act claims.”

Miller denied class certification in cases involving drivers from nine states including Massachusetts, Michigan and Virginia.

Although the class certification ruling does not decide whether independent-contractor status for the drivers is appropriate, it forces FedEx to confront potential damages in the hundreds of millions of dollars, says Chris Gilreath, a Memphis, Tennessee-based attorney for some of the plaintiffs. The total number of drivers and former drivers covered in the class-action suits is about 12,000, he estimates.

“It’s a major step,” Gilreath says. “Anytime you get class certification, it increases the pressure on defendants.”

The California Supreme Court has refused to review a 2007 appellate court decision upholding a trial court ruling that found a number of California contractors should be reimbursed as employees for some expenses.

Last year, Judge Miller granted nationwide class certification to a suit against FedEx alleging violations of the federal Employee Retirement Income Security Act of 1974. The number of plaintiffs covered in that class is about 25,000, Overs says.

In addition, the U.S. Internal Revenue Service has tentatively concluded that owner-operators who were working in the firm’s ground delivery business in 2002 should be reclassified as employees.

FedEx may have to pay $319 million plus interest in tax and penalties. The IRS is auditing the company on similar worker-classification issues during the period from 2004 through 2006.

The New York State Department of Labor looked into the status of FedEx Ground drivers after a former driver, David Oberhelman, filed an unemployment insurance claim.

“While FedEx Ground maintains that its drivers are entrepreneurs, the reality of Mr. Oberhelman’s services prevented him from being an entrepreneur,” the department wrote in a letter to FedEx Ground on February 26. “… [I]t is our determination that Mr. Oberhelman, and all other similarly employed drivers, were FedEx Ground employees.”

The department also told FedEx Ground it must “submit amended quarterly returns and pay contributions on the earnings of David Oberhelman and all other single route drivers similarly employed beginning with the first quarter of 2005.”

The New York State Department of Labor declined to comment on the letter, citing unemployment insurance confidentiality rules.

Workforce Management was a provided a copy of the letter from Overs, who says he obtained it from Oberhelman. Reached by phone on Friday, April 4, Oberhelman said he got a copy of the letter from the state agency and sent it to the attorney.

FedEx may have yet another headache in store on the independent-contractor front: Oberhelman says he wants to recoup his expenses as a FedEx Ground driver.

“I’m interested in pursuing a lawsuit on my own,” he said.

—Ed Frauenheim

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