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OutFront
Mutiny on the FedEx Truck

Elizabeth MacDonald, 09.19.05

Is a package deliverer an independent contractor or an employee?A truckload of money is at stake.
FedEx found a smart way to compete with United Parcel Service in ground delivery. In lieu of hourly truck drivers, it would use independent contractors in its FedEx Ground division, paid for results but responsible for their own vehicles, fuel and overhead. In that way they would be like the milkmen of yore, or like many a RE/Max Realtor, Allstate insurance salesman or newspaper deliverer of today.

Or maybe not so smart. After accepting FedEx contracts, contractor-drivers have filed 28 lawsuits in 22 states, most seeking class action status, covering as many as 7,000 current and former drivers, plaintiff lawyers say. Arguing they're not given full autonomy, they're demanding expense reimbursement, overtime and benefits. If FedEx, which earned $1.4 billion in fiscal 2005, has to classify all 14,000 ground-unit drivers as employees, the pretax hit could be in the neighborhood of $1.4 billion, taken over several periods, figures Brian Hamilton, chief executive of ProfitCents, a financial research company. And that's only for payroll taxes, health insurance, workers' comp, gas and overtime. The figure doesn't include things like retirement benefits and paid vacations. FedEx faces "a significant financial risk," but investors wouldn't know that because it has disclosed "the bare minimum," Hamilton adds.

Aren't these litigious drivers--as many as half the total number of FedEx contractor-drivers in the U.S., Puerto Rico and Canada--asking to have their cake after already having eaten it? Yes and no. Say an indie gets $80,000 for running a 120-mile-a-day route for 250 days a year. Out of this sum he'd spend an estimated $40,000 on vehicle insurance, gas, leasing costs, health insurance, retirement and Social Security and Medicare taxes. The $80,000 income in this hypothetical (from FedEx) sounds pretty good, but it's equal to a salaried job of only $40,000 or so, versus $70,000 for a UPS driver. Thus the drivers say they have to work 12 hours a day to make money.

Many of the drivers say they want a payout comparable to what their salaried employee counterparts get at FedEx. If it weren't for the dispute, this would be a success story for FedEx. Since FedEx acquired the ground delivery service (that is, delivering packages that were never in an airplane) in 1998, sales have more than doubled to $4.7 billion in annual revenue. The flood of litigation came after a superior court judge in California issued an interim ruling last year that FedEx should reclassify these contractors as employees. State labor boards in New Jersey and Montana have made similar findings.

Robert McDaniel, a Concord, N.H. attorney representing the drivers in one of the lawsuits, points to telltale features of an employer/employee relationship: FedEx tells them how to operate their trucks and deliver packages, makes them wear uniforms with company logos, has them report daily to FedEx hubs and fires them for failing to follow company policies. FedEx counters that the drivers aren't employees because they can sell their routes, don't have specific start and finish times and "have tremendous opportunities to grow their own businesses," says FedEx Ground spokesman Perry Colosimo. "We've got several hundred contractors who grossed over a quarter-million dollars last year." Colosimo also says FedEx's disclosures are appropriate. Robert Ostrov, FedEx Ground's vice president of contractor relations, downplays the situation, saying only 36 current drivers have filed suit seeking class action status.

Some drivers claim FedEx is retaliating against them for suing. Just 8 of the 29 drivers who joined a New Hampshire suit are still working at FedEx. Those who left say FedEx harassed, intimidated or fired them in response to the suit. Ostrov says he doesn't believe FedEx "is harassing" these contractors, adding "we wouldn't tolerate any inappropriate behavior."