FedEx is going to have to cut everything in order to stay in the green. The lawsuits from the independent drivers are really going to cut into the bottom line and will put a financial burden on the company like it has never seen.

First:

CHICAGO (Reuters) - FedEx Corp (FDX.N: Quote, Profile, Research) shares dipped more than 2 percent on Monday following news late Friday that U.S. tax authorities had found the company owed more than $319 million in taxes and penalties for 2002 related to its independent contractor model at FedEx Ground.
Estimates vary for how much FedEx may eventually asked to pay the U.S. Internal Revenue Service -- which is now reviewing FedEx's results for calendar years 2004 to 2006 -- but Credit Suisse analyst Jason Seidl wrote in a research note to clients entitled "FedEx Gets Coal in its Stocking" that the company "could potentially owe nearly $1.5 billion in taxes and expenses when all audits are completed."

This is just the taxes that the company will owe imediantly, after this initial payment they will have a tax liability of 350-450 million a year.

Second:

The drivers are challenging FedEx to change its classification of their positions -- they're treated as independent contractors -- so they can obtain overtime wages, reimbursements and benefits. Currently, FedEx requires contracted drivers to purchase or lease their trucks and pay for all operating expenses, including liability insurance, fuel and maintenance.
The lawsuits also seek reimbursement of business wages, deductions and damages as a result of FedEx's alleged "misrepresentation and unfair business practices," according to documents from lawyers representing the drivers. The suits claim FedEx takes illegal deductions from wages and fails to notify drivers of medical-leave rights.
The Massachusetts attorney general cited FedEx Ground for intentionally misclassifying 13 pickup and delivery drivers as independent contractors rather than employees and intends to fine the company $190,000 in penalties.

Five years ago the number was put at about 1.3 Billion a year to make them all employees annually. Fred is going to fight this battle very hard but has lost in every court case and the end is near. If he losses the class action lawsuit being filed in Indiana then things are going to get very difficult at FedEx. Sorry.