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FedEx in Fight With Organized Labor

Ted Reed
03/27/09 - 04:54 PM EDT
Updated from 11:27 a.m. EDT
As organized labor has gained ascendance with the election of a Democratic president and a Democratic Congress, FedEx(FDX Quote - Cramer on FDX - Stock Picks) has staked out a position as a leader of the opposition.

Democratic gains have boosted support for two measures that are important to labor organizing -- and anathema to FedEx. One is the Employee Free Choice Act, or "card-check" bill.

It would enable a union to be recognized if a majority of employees sign cards requesting one, rather than allowing companies to call for secret-ballot elections. It would also enable either side to request binding arbitration if a contract agreement cannot be reached within 120 days of an election.

The momentum in favor of card check slowed this week, when Sen. Arlen Specter (R., Pa.), who had been considered a key swing vote, reversed a previous indication of support and said he would oppose the bill. Now the act's future is unclear.

Also in play is FedEx's classification under labor law. A change could potentially make it easier for unions to organize and would require FedEx to be treated in the same way as its principal competitor, UPS(UPS Quote - Cramer on UPS - Stock Picks).

FedEx stridently opposes the change, saying congressional approval would force it to abandon plans to order 30 new aircraft from Boeing(BA Quote - Cramer on BA - Stock Picks), potentially dealing a blow to the fragile economy.

At a rally in Los Angeles on Thursday, Teamster leaders, social activists and U.S. Rep. Linda Sanchez (D., Calif.), excoriated FedEx and released a report entitled: "Keeping FedEx Jobs in the Middle Class in Los Angeles."

Teamsters General President Jim Hoffa says the report "tells us what we know (about) the vicious anti-labor atmosphere that prevails at FedEx" and "shines a light on the cockroaches at FedEx."

Sanchez said FedEx is "trying to create a hostage situation by threatening to pull contracts from Boeing, (but) we will not be cowed into submission."

FedEx spokesman Maury Lane says he's heard it all before. "Every time (Teamster) revenue and membership decline, they pick FedEx to help replenish their numbers and coffers," he said. "It has been this way for over 25 years."

FedEx speaks out regularly against card check, most recently on a March earnings conference call when CEO Fred Smith said "we don't agree with the concept of doing away with the secret ballot," while general counsel Chris Richards said that mandatory arbitration means "a person who knows nothing about the industry or knows little would be setting those wages and benefits."

Most organizing at FedEx currently falls under the Railway Labor Act, which requires companywide employee voting, which is challenging for unions.

By contrast, UPS labor organizing falls under the National Labor Relations Act, which allows workers to organize on a location-by-location basis. That makes it far easier for unions to get a foot in the door. The Teamsters represent 240,000 UPS workers.

In 1996, the Senate inserted a provision in the Federal Aviation Administration reauthorization bill, assuring that the Railway Labor Act covers FedEx, even though Congress had removed a similar provision from applicable laws a year earlier. Now, a pending FAA reauthorization bill would again remove the protection FedEx enjoys.

Lane says FedEx agreed to buy 777s in January, "in a very challenging economic period, when most companies were not making economic commitments." The agreement ends if the company's labor status changes. Union organizing could subject FedEx to "local disruptions," he says, and, "There's no way we can enter into an agreement (without) certainty about our ability to fully utilize these aircraft."

Reminded that UPS operates successfully despite falling under the National Labor Relations Act, Lane said the two companies are different. UPS was a trucking company that created an airline, while FedEx started as an airline, operating under a law created to help key transportation providers avoid labor disruptions.

UPS is larger, with revenue of $51 billion and 425,000 employees, including 355,000 in the U.S. FedEx has revenue of $23 billion and 290,000 employees and contractors, including 230,000 in the U.S. The airline division, FedEx Express, has 143,000 workers: They are covered by the Railway Labor Act.

Because the remainder includes foreign workers, 14,000 drivers who are independent contractors, and many part-time package sorters, all groups unlikely to seek union representation, the Teamsters and the International Association of Machinists have focused on periodic efforts to organize airline workers, particularly drivers and mechanics. (FedEx pilots are represented by a pilots union.)

The IAM, the nation's biggest airline union, says it would renew organizing efforts at FedEx if Congress alters the company's classification. "We would certainly seek to organize the automotive mechanics, the customer service agents and the ground workers," said Robert Roach, general vice president of the International Association of Machinists.

Roach said workers at Flying Tiger Airlines were represented by the IAM before FedEx bought it in the mid-1980s. The union currently represents about 4,000 mechanics at UPS. Roach says having the two companies covered by different laws "is unfair to workers at both UPS and FedEx because workers suffer when you have different standards at a competitor."

As for UPS, it believes that under existing labor laws, "you have some truly illogical and disparate treatment of companies that do the exact same thing," says spokesman Norman Black. "We believe there can be no justification for treating these employees differently. We're glad to see that Congress is moving to correct the inconsistency."

FedEx shares closed down $1.30, or 2.8% to $45.68. UPS shares finished lower by 35 cents or 0.7% to $50.11.