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FedEx Ground Continues Its Contractor Battle

August 22, 2007
FedEx has lost another round in court in the latest chapter of a long-running dispute that is being closely watched for its potential influence on how companies outsource jobs to independent contractors.

FedEx Ground, a division of FedEx Corp., lost an appeal in California in August over whether a group of former route drivers whom the company considered independent contractors should actually have been treated as employees. FedEx Ground saves millions of dollars in costs, including payroll taxes and employee expenses, by categorizing some 15,000 drivers around the country as independent contractors.

But a three-judge California Court of Appeal panel held last month that the drivers who sued, despite owning their own trucks, were controlled by the company in much the same way as employees would be, and as a result they should have been compensated like employees.

Using language already being cited by worker advocates, the ruling concluded that, “If it looks like a duck, walks like a duck, swims like a duck and quacks like a duck, it is a duck.”

Although the decision applies to just 200 drivers who worked for FedEx Ground in California, attorney Lynn Faris, who represented the drivers, said the decision sends a strong message to corporate America. FedEx can still appeal to the California Supreme Court, but Faris said the fact that a lower court and an appeals court have now ruled against FedEx should be a warning to other companies using or contemplating similar independent contractor arrangements.
 
“I think that the people who have tried to walk the line by creating these sham independent contractor arrangements are not going to be able to do so any longer,” Faris says. “If you treat people like employees, no matter what you call them, they are employees.”

FedEx Ground spokesman Maury Lane disagreed, saying the ruling is limited to a small number of former FedEx Ground drivers in California. FedEx has no intention of abandoning the independent contractor model, Lane says, and in fact continues to expand its use around the country.

“Their effort to say this is a precedent is nothing more than wishful thinking,” Lane says. “This model has been successful for our customers, contractors and other companies for more than 20 years.”

The independent contractor model has helped make FedEx Ground one of the most profitable divisions within FedEx Corp. For the quarter ended May 31, FedEx Ground reported $1.58 billion in revenue, up 12 percent from last year’s quarter, while operating income hit $269 million, up 30 percent from a year earlier. FedEx Corp. total revenue for the quarter was up 8 percent, while operating income rose 9 percent.

In the FedEx Ground system, routes are sold to contractors who must then buy their own equipment and uniforms and pay their own expenses. But FedEx maintains a long list of requirements for those drivers, including the display of company colors and logos on trucks and the use of specific computerized package tracking devices. It was those employer-like controls and rules that influenced the court’s attention.

Dave Welker, a spokesman for the International Brotherhood of Teamsters, which is keeping a close watch on the case, says the ruling should make companies more cautious about how they use independent contractors.

“There is a middle-of-the-road way for employers to set up a legal contractor workforce,” Welker says. “We are not arguing that it has to be employees or nothing. The argument is: If you are going to give them the freedom of being contractors, you have to abide by those freedoms.”

For example, independent contractors have to be able to accept work from other clients—and to be able to turn down work as well. That type of freedom makes it more difficult to use an independent contractor for an essential, regular company function.

Faris says she expects FedEx to appeal the California decision. And there is another, much larger case pending: A class-action lawsuit involving FedEx Ground workers in 35 states is working its way through federal court in Indiana.

FedEx spokesman Lane says that the company is confident it will eventually prevail and that its use of independent contractors will be upheld. 

“Successful companies like FedEx have learned that you don’t win every ruling. You don’t win every first appeal,” Lane says. “Many cases are decided at the upper level of the judicial system.”

Faris says both sides are prepared for a long fight. “The reality is FedEx is not going to give up,” Faris says. “And neither are we.”

—Irwin Spiezer