Independent Contractors, Three States Propose to Sue FedEx Over Alleged Employee Misclassification

October 22, 2009: The states of New York, New Jersey and Montana intend to sue FedEx Ground Package System Inc. (FedEx) over its policy of classifying drivers as independent contractors rather than employees, the attorneys general of the three states said Oct. 20.

“Our offices have examined the work done by FedEx drivers and have concluded that these workers are in fact employees of FedEx and are not simply independent contractors,” according to the letter notifying FedEx of the states' intent to sue the company after Oct. 27.

Independent contractors do not receive workers' compensation coverage through their employers, nor are they covered by anti-discrimination and labor relations statutes and other state laws that protect workers in Montana, New Jersey, and New York, according to a statement issued jointly by attorneys general Steve Bullock (D) of Montana, Anne Milgram (D) of New Jersey, and Andrew Cuomo (D) of New York.

Meanwhile, however, the drivers who pick up and deliver FedEx packages incur large out-of-pocket expenses to lease trucks and pay for fuel, vehicle maintenance, and the use of a FedEx uniform and scanner, according to the letter.

Level of Control Cited

The three states concluded from their investigations that Fed Ex drivers merit employee status under Montana, New Jersey, and New York state laws based on the level of control FedEx exercises over the drivers, according to the letter.

FedEx Ground, which is based in Moon Township, Pa., strictly controls all aspects of pickup and delivery drivers' work, from prescribing their hours to directing and prescribing how they load their trucks and hand off to customers, according to the letter.

Drivers' uniforms are mandated by FedEx, down to the colors of their socks, and their opportunities to do work unrelated to FedEx are almost entirely constrained by company rules, which bar drivers' use of their own trucks for non-FedEx purposes during FedEx working hours, according to the letter.

The letter noted that “the work of FedEx Ground drivers is at the very core of FedEx Ground's business activities; drivers are completely integrated into the overall business functions of the company.”

In addition to harming drivers, the company's alleged cost-cutting measures hurt the states when proper taxes are not paid and hurt other employers that face unfair competition as a result, the letter said.

In pursuing legal action to address the alleged state labor law violations, the states said they intend to seek restitution, damages, and civil penalties.

Discussions Ongoing

FedEx Ground has been in discussions with the three attorneys general to address their questions about the issue, company spokesman Perry Colosimo said in a statement.

“While we intend to continue with these discussions, we will vigorously defend the right of FedEx Ground independent contractors to own and operate their businesses, should the AGs pursue litigation, Colosimo said.

The issue of how the company classifies its drivers has been percolating in many jurisdictions for years.

Attorneys general from Iowa, Kentucky, Missouri, Montana, New Jersey, Ohio, Rhode Island, and Vermont in June called on FedEx Ground to ensure that it is properly classifying its drivers, expressing concern that the carrier may be circumventing worker protections and dodging payroll taxes in those states (122 DLR A-2, 6/29/09).

In addition, a federal court in Indiana is overseeing multidistrict litigation involving dozens of lawsuits covering thousands of FedEx Ground drivers from around the country who claim the company misclassified them as independent contractors and denied them entitlements guaranteed to employees by the various state laws (In re FedEx Ground Package Sys. Inc. Employment Practices Litig., N.D. Ind., No. 05-527).

By Lorraine McCarthy BNA Daily Labor News

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