New York is Next State to Sue FedEx for Misclassification of Its Ground Division Drivers as Independent Contractors

Almost one year to the day following the joint statement by the Attorneys General of New York, New Jersey, and Montana that they intended to sue FedEx Ground for misclassifying drivers as independent contractors instead of employees, New York Attorney General Andrew Cuomo has commenced a lawsuit against FedEx Ground on behalf of the State of New York.  (New York State v. FedEx Ground Package System, Inc.)

The lawsuit was filed the same week as the Attorney General of the Montana, Steve Bullock, announced that his office settled its driver misclassification claims against FedEx Ground for $2.3 million.  The New York lawsuit also follows by two months the filing of a similar misclassification lawsuit by the Attorney General of Kentucky, Jack Conway, and comes three months after the Attorney General of Massachusetts, Martha Coakley, settled its driver misclassification claims against FedEx Ground for $3 million.

Cuomo’s lawsuit was filed in the New York Supreme Court for New York County. It alleges that, by classifying its drivers as independent contractors, FedEx’s Home Delivery unit fails to provide its drivers the rights afforded to “employees” under New York’s labor laws, which includes the Unemployment Insurance, Workers Compensation, Wage Payment, and Overtime laws.  According to the complaint filed in court, Cuomo alleges that “FedEx has the power to control, and does in fact control, almost all aspects of its drivers’ work” including “hours, job duties, routes, and even clothing.”  There are reportedly over 700 drivers in the Home Delivery unit.  (Click “More” for “Takeaway” below)

In contrast to FedEx’s Ground Division, its Express Division treats its drivers as employees, affording them rights under the state and federal labor laws.

A FedEx spokesman, Murray Lane, suggested that the lawsuit was timed by Cuomo to coincide with his election campaign for Governor of New York.  A spokesperson for the Attorney General dismissed that claim over the timing of the lawsuit, reportedly noting that Cuomo’s office has been negotiating with FedEx to resolve the dispute for months, but to no avail.  The spokesman also observed that the New York lawsuit was filed after a similar lawsuit was commenced against FedEx Ground by the Attorney General of Kentucky, Jack Conway. 

FedEx Ground has over sixty class action cases brought under state and federal laws still pending against it; those cases have been consolidated in a federal court in Indiana.  While FedEx Ground has won some court battles in the past two years, it lost a number including a California class action case in which it was required to pay $30 million in damages and legal fees. 

Last fall, the IRS withdrew a $319 million citation against FedEx Ground for unpaid federal employment taxes, penalties, and interest under the “safe harbor” provisions of the Revenue Act of 1978.  That “safe harbor” provision would be eliminated if Congress passes the “Fair Playing Field Act of 2010.”  Another independent contractor bill, the Employee Misclassification Prevention Act, is currently pending in Congress.  Eighteen states have passed laws cracking down on independent contractor misclassification in the past three years.

Takeaway:  This latest lawsuit against FedEx Ground further demonstrates that misclassification has substantial legal consequences.  Regardless of the outcome of the New York lawsuit, defending enforcement actions and class action lawsuits is costly.  FedEx’s experience has led many companies, which utilize the services of a significant number of independent contractors, to take proactive steps designed to enhance independent contractor compliance.  

Your comments are invited.

Richard Reibstein
Attorney at Law
Pepper Hamilton LLP
The New York Times Building
620 Eighth Avenue, 37th Floor
New York, New York 10018
T: 212.808.2722
F: 866.454.5857
E: reibsteinr@pepperlaw.com
www.pepperlaw.com

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One Response to New York is Next State to Sue FedEx for Misclassification of Its Ground Division Drivers as Independent Contractors

  1. J Mueller says:

    Fedex’s answer to the lawsuits is to make all single route drivers own multiple routes. As a single route driver, if this lawsuit continues, I plus many other drivers trying to make a living will be out of a job. So much for small business. Way to go New York.

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