Copyright 2009, Traffic World, Inc.
FedEx Ground is changing the way it manages driver operations in New Hampshire as the parcel carrier looks to stave off legal challenges to a business model based on independent contractors.
Effective May 30, Granite State drivers will be required to operate under contracts that give them overall responsibility for managing pickup and delivery and for negotiating financial terms with FedEx. The new contracts will include multiple routes rather than the single-route contracts the company generally uses.
The changes mirror a model FedEx Ground started using recently in California to meet claims that drivers should be classifieds as employees, not owner-operators, under that state's law.
The company convinced hundreds of single-route drivers in that state to either take on multiple routes or sell their businesses to multiroute drivers.
It also comes after New Hampshire changed its laws, making it more likely that single-route drivers in the New England state would be classified as employees, not independents.
FedEx officials say the changes in New Hampshire were the result of changes in state employment law there as well as recent regulatory decisions that have challenged the company's claims that the drivers are independent owner-operators.
"These changes, which allow more customer service offerings like early and later pickups, will ensure that FedEx Ground complies with new state regulations while enhancing our ability to serve our customers, all of it occurring invisibly to the customers using our network," said FedEx spokesman Maury Lane.
In December, FedEx settled one suit with 200 FedEx Ground workers in California, paying $26.8 million to reimburse workers for business expenses incurred under the assumption they were independent contractors.
The California Appeals Court sided with the drivers in the case last year.
FedEx argued the California settlement does not set a precedent and has "no bearing on our relationship with our network of independent contractors in California or any other legal case."
But the change in contract policy in New Hampshire and the California settlement underscore FedEx's determination to defend the FedEx Ground business model despite driver lawsuits, scrutiny by the Internal Revenue Service and a Teamsters union campaign.
"FedEx Ground engaged in this legal battle because we firmly believe that the thousands of contractors who serve California and every other state in the nation are independent business owners, not employees," the company said last month.
FedEx Ground's owner-operator business model goes back to the days when the company was Roadway Package Services. Protests against the model go back that far as well - RPS battled the Internal Revenue Service in the 1990s to overturn an IRS ruling that certain drivers were employees, not owner-operators. RPS and the IRS settled in 1995, but FedEx inherited the issue when it acquired RPS as part of Caliber Systems in 1998.
FedEx Ground has faced several lawsuits, state worker classification investigations , and continued IRS scrutiny.
Several lawsuits were consolidated in the federal multidistrict case called the FedEx Ground Employment Practices Litigation. A U.S. District Court in Indiana is handling that case.
In December 2007 the IRS hit the company with a tentative assessment of $319 million in taxes and penalties for the 2002 tax year, saying FedEx Ground had misclassified drivers. The IRS later withdrew that assessment, although it continued to audit FedEx's finances.
There's more at stake than the operational efficiency FedEx Ground claims its business model delivers.
If its 15,000 drivers were reclassified as employees, the company would be liable for their pension and health benefits and other costs. And unlike contractors, employee drivers could be unionized. That could affect the company's competitive stance against rival UPS, the largest Teamster employer.