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FedEx
Ground Gives Up Contractor Model in California
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Fedex Watch, September 21, 2007
FedEx could pay between $26 million to $33 million in severance costs
alone for abandoning its illegal contractor model in California, a
change announced by company chief executive Fred Smith.
Smith calls this abandonment a 'transformation.' But this is a retreat
from the contractor model. FedEx is offering special incentives to
encourage single-route contractors to transform their operations into
multiple route businesses or sell their routes to others. Information
obtained by the Teamsters from FedEx drivers puts the incentives at
$25,000 to $33,000 per contractor to leave their jobs at FedEx.
There are 1,055 such contractors as of March 2007, according to court
filings. FedEx Ground commonly puts its total contractor workforce
nationwide at 14,000 to 15,000.
California tax authorities, the California Court of Appeal and the
National Labor Relations Board among others have all found the
contractor model to be illegal. The FedEx Ground model is the subject
of a potential class action lawsuit filed in 30 states. In the last two
years, state revenue and labor authorities in New Hampshire,
Massachusetts, Connecticut, New York, Pennsylvania, New Jersey,
Maryland, Montana, Oregon and others have found that FedEx
misclassified contractors.
"This is the beginning of the end for the contractor scam at FedEx
Ground," said Teamsters General President Jim Hoffa. "FedEx pushed past
the legal limits and pushed its drivers to fighting back to regain
their rights."
This major change in company policy means that FedEx is abandoning the
contractor model in California but keeping the misclassification
practice for the rest of the country.
The Teamsters are sponsoring a shareholder proposal at the Fedex annual
meeting in Memphis on Monday, Sept. 24, that seeks to split the chief
executive officer and chairman of the board positions to assure board
independence and better corporate governance.
The Teamster proposal is based in part on the board of directors'
failure to instruct management to fully disclose the liabilities and
potential financial impact of a major change in the FedEx Ground
business model.
If adopted, the proposal will lead to greater board independence from
management and more accountability to shareholders. At present, Fred
Smith serves as both CEO and chairman.
To date the board has failed to conduct an audit on the risk potential
concerning the independent contractor status of FedEx Ground drivers.
As recently as last month, FedEx stated in corporate filings, "We
strongly believe that FedEx Ground's owner-operators are properly
classified as independent contractors, and we continue to vigorously
defend ourselves in (all) proceedings."
"FedEx shareholders should be fully informed of the corporation's
obligations and costs to bringing its model into compliance with the
laws in California and nationwide," Hoffa said. "The board of directors
needs to split the duties of chairman and chief executive to exercise
proper oversight at FedEx and increase shareholder confidence in the
board's independence."
This $26 to $33 million estimate is on top of the $17.8 million
judgment awarded to drivers in California in civil litigation now under
appeal by FedEx. It is also on top of an $8 million back tax
determination ordered by the California Employment Development
Department, also under appeal by FedEx.
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