FedEx Ground Update on Driver Misclassification: New Lawsuit Follows Changes to FedEx’s Massachusetts Business Model, Launched on Same Day FedEx Settles with State’s Attorney General

 
On July 15, 2010, the Massachusetts Attorney General’s Office announced that it had reached an agreement with FedEx Ground to settle a citation that the company was misclassifying its drivers as independent contractors (ICs) instead of properly classifying them as employees.  FedEx agreed to pay $3 million to settle the charges against it, including claims that it violated the Massachusetts Independent Contractor Law and improperly failed to pay the state payroll taxes and workers’ compensation and unemployment assistance premiums by treating its Ground Division drivers as ICs.  FedEx denied any liability in settling the case.

On the same day, FedEx Ground reportedly launched a new business model in Massachusetts for its ground and home delivery drivers. The new business model gives its single-route drivers three options for continuing to work with FedEx on a going-forward basis: (a) become a multi-route Independent Service Provider (ISP) by incorporating as a business, purchasing from FedEx Ground three or more work areas in the same geographic area and entering into an agreement with FedEx on an approved ISP arrangement for the work areas; (b) become an employee driver of an approved FedEx Ground ISP (that is, become a driver for a another driver that has set up a business as an ISP); or (c) terminate his or her relationship with FedEx Ground at the expiration of its current Operating Agreement, which will not be renewed, leading to loss of “employment” with FedEx Ground.

These options were described in a new class action lawsuit just filed in Massachusetts on August 4, 2010 by two FedEx Ground drivers that are seeking an injunction to prohibit the implementation of the new ISP program. The lawsuit claims that FedEx Ground’s new ISP business model in that state was created in retaliation for the actions by drivers and others on their behalf exercising legal rights under the Massachusetts Independent Contractor Law.

The new business model by FedEx Ground in Massachusetts comes on the heels of the announcement of a new business model by that company for its ground and home delivery drivers in most other states. According to a Wall Street Journal article on May 21, 2010, FedEx notified its IC drivers nationwide that they must soon become incorporated under state law instead of being organized as sole proprietorships, partnerships, or other unincorporated entities, and treat that they must treat their personnel (presumably including themselves) as employees. Drivers were given 180 days to comply. Challenges to that business model change are likely – either in the form of class action retaliation lawsuits by drivers, like the one just filed in Massachusetts, or by state or federal tax or workforce agencies, which may regard this new “corporate” business model as an effort to circumvent employment tax and workplace protection laws.

Your comments are invited.

Richard Reibstein
Attorney at Law
c/o 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
http://www.pepperlaw.com

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2 Responses to FedEx Ground Update on Driver Misclassification: New Lawsuit Follows Changes to FedEx’s Massachusetts Business Model, Launched on Same Day FedEx Settles with State’s Attorney General

  1. Linda Eisaman says:

    Drivers for every other trucking company in this country that own their own truck are considered independent contractors. Why should FedEx be any different? There are many other trucking companies that employ only independent contractors. Why is FedEx being singled out? Could it be that the union has been unsuccessful in taking over FedEx as they have UPS? Unions, like our government, can never get enough of other people’s money and I’m sure it’s killing the teamsters that they can’t count on FedEx as a source from which to funnel more money to the democratic party.

    • Many other drivers treated as independent contractors have been held by courts to be common law or statutory employees. Many of those cases are not union-inspired, but rather pursued by class-action counsel on behalf of employees. The challenge to FedEx Ground’s use of ICs as drivers was reportedly begun not by unions but by a competitor of FedEx. Each driver case turns on its own facts. Finally, political issues often become legal issues; that is just the way we operate our democratic system of government and our legal system.

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