Knight Ridder/Tribune
Business News - December. 27, 2007
FedEx Corp. is remaining steadfast in defense of its business model
despite its disclosure that the IRS is challenging its long-held
assertion that drivers for the company's FedEx Ground division are
independent contractors rather than employees.
The company disclosed in a Securities and Exchange Commission filing
Friday that the IRS "has tentatively concluded" through a 2002 audit
that contract drivers with FedEx Ground should have been classified as
company employees.
"The IRS has indicated that it anticipates tax and penalties of $319
million plus interest for 2002," FedEx said. "Similar issues are under
audit by the IRS for calendar years 2004 through 2006."
"We were surprised by this preliminary finding and we disagree with
it," Maury Lane, a spokesman for the Memphis, Tenn., headquartered
FedEx, said on Monday.
"In 1994, the IRS, through a settlement agreement and ruling letter,
affirmed our use of owner-operators to perform pickup and deliveries as
independent contractors for tax purposes," Lane said. "We believe that
reversal of that original determination is unwarranted and that the
associated tax assessment is inappropriate."
The decision is the latest in a series of attacks on FedEx Ground's
system for contracting with independent pickup and delivery drivers who
own and maintain their own trucks while lacking access to work benefits
provided for company employees.
It faces lawsuits from unhappy Fedex Ground drivers from around the
country and is in the process of making major changes with its
independent driver system in California because of legal challenges.
More than 50 lawsuits brought by drivers in 36 states have been
consolidated in federal court in South Bend, Ind.
Among their complaints, drivers argue they should be company employees
with full employee benefits and should be reimbursed for on-the-job
expenses and lost wages.
In November, the California Supreme Court rejected the company's claim
that state trial and appeals courts erred in deciding that FedEx's
independent contractor drivers are full-time employees.
In California, FedEx Ground is offering financial incentives to
single-route contract drivers to take on multiple routes. A research
note filed in October by analysts with Credit Suisse said those
incentives could total up to $20 million.
FedEx Ground became a part of FedEx when the company acquired the
former Roadway Packaging in 1998. The unit, which is headquartered in
Moon, was branded as FedEx Ground in 2000, said spokesman Rob Boulware.
According to the company's second-quarter earnings report issued
Thursday, the division had revenues of $1.7 billion, up 12 percent from
last year, for the period ending Nov. 30.
The unit has 15,000 independent contractors nationwide, including about
175 in the Pittsburgh region, Boulware said.
It operates three facilities in Western Pennsylvania -- Neville Island
and Greenfield in Allegheny County, and Hunker in Westmoreland County
-- from which its independent drivers are dispatched.
FedEx Ground, which serves commercial customers, and FedEx Home
Delivery, which provides residential service, work out of the same
facilities.
In its earnings report, which was released the day before the IRS
disclosure, FedEx noted that "increased regulatory and legal
uncertainty" with the independent contractor model could eventually cut
into earnings at FedEx Ground.
But despite the preliminary determination by the IRS, FedEx is not
required to set aside any money for or take any immediate action to pay
any money until an appeals process is completed, said Lane, who noted
that cases of this type can take nearly a decade to decide.
"We will meet with the IRS to better understand their concerns, and if
necessary after that, we will appeal," he said.
FedEx Ground: Bah humbug
to workers - Daily News Tribune - December 21, 2007
Coakley fines FedEx
Ground for saying drivers
were contractors - Boston Herald, December 20, 2008
Massachusetts Attorney
General Cites FedEx Ground - Fedex Watch, December 19, 2007
FedEx Ground Gives Up
Contractor Model in California - Fedex Watch, September 21, 2007
Delivery
Companies
Pressured - Los Angeles Times, December 5, 2005
Drivers Deliver
Trouble to FedEx By Seeking Employee Benefits - Wall Street
Journal, January 7, 2005
Independent
Contractors - Disguised Employees
8 Arrested in
Alleged Insurance Fraud - Los Angeles Times, May 5, 2006
FedEx
Watch
