Drivers sue FedEx over classification as independent contractors
By Steve Urbon
SOUTH COAST TODAY
August 21, 2010 12:00 AM

An Acushnet man leads the list of 31 current and former FedEx route drivers who are suing the company in a class action for what they claim is illegal and harmful misclassification as independent contractors rather than regular employees.

The suit, filed this week in U.S. First District Court in Boston, lists David Duval of Acushnet as the lead plaintiff.

By treating the drivers as independent contractors, the suit alleges, FedEx escaped a wide range of expenses and obligations such as state taxes, unemployment taxes, benefits, vacations and other obligations.

FedEx, meanwhile, controlled every aspect of the work involved, even requiring drivers to purchase or lease, insure and maintain their own trucks, which can be used for no other purpose, the complaint said. The company, the suit says, sometimes arbitrarily changes the requirements with no input from the drivers.

FedEx faces many such lawsuits around the country, and hundreds of drivers are suing FedEx in Southern New England alone, said Duval’s attorney, Harold L. Lichen of Boston. Duval could not be reached for comment.

On July 15, Attorney General Martha Coakley accepted a $3 million settlement from FedEx to cover taxes that would have been due had the drivers been classified as employees. Coakley ruled that FedEx’s practices violate state law regarding contractors.

Lichel also represents FedEx drivers in two other Massachusetts cases. In one, drivers from Natick and Framingham are trying to block FedEx from a recently announced policy change that would force the “contractors” to service at least three delivery areas, which would mean hiring subcontractors and buying more trucks at their own expense.

The move toward “independent service providers” was seen by drivers as retaliation for all the lawsuits; it was announced in Massachusetts the same day as the Coakley settlement.

So not only is FedEx spending a king’s ransom on high-priced lobbyists and a disingenuous national PR campaign to retain a loophole that allows them to treat their drivers as airline pilots rather than drivers, but they are simultaneously spending a king’s ransom in court costs and legal fees in an effort to treat their drivers as independent contractors rather than as employees.

Talk about “going rogue.”

FedEx’s Campaign of Distortion

We are about to find out yet again whether we are a nation of laws or men. The U.S. Senate will be voting perhaps as early as Tuesday on the FAA Reauthorization Act, including whether House-passed Section 806 will remain part of the bill. FedEx and its CEO Fred Smith have railed against Section 806 for several years now, claiming that it will lead to unionization of their Express division and endless labor strife, affecting the entire U.S. economy. These claims are all self-interested bluster, of course.

Section 806 is really about equal application of the laws of our country to all similarly situated businesses — which should rise or fall in the marketplace based on their competitive abilities, not favoritism by the Congress. But perhaps we are after all a nation of CEOs: the current recession has exposed the out-of-bounds thinking and actions of many CEOs of large banks and corporations, which is too often aimed at manipulating the legal and political processes for personal and corporate gain.

In this case, FedEx and Smith have carried on a shameless campaign of lies and intimidation seeking to exclude Section 806. They have falsely labeled their main rival in the package delivery industry, UPS, as seeking a “brown bailout” for supporting Section 806, thus turning the English language on its head. In fact, it is FedEx Express that has been “bailed out” for the last 15 years by special interest language passed in 1996.

FedEx Express truck drivers are the only drivers in the nation’s package delivery industry covered under the Railway Labor Act, instead of being properly governed by the National Labor Relations Act. Section 806 puts an end to this misclassification and places all delivery drivers under the same law, the NLRA. FedEx Express drivers are in the same industry, do the same work, and should be covered by the same law as all other package delivery drivers in the country.

In spite of FedEx’s claims that it will be easier for the Teamsters to unionize its drivers if they are placed under the NLRA, the issue here is not about unionization or how easy or difficult that might be, or what the results might be. The question again is whether success in business should come through market-driven competition or whether success should be the result of political influence and legislative favor.

Since FedEx is consistently rated one of the very best companies for which to work, there is little likelihood that an organizing drive by the Teamsters will be successful. FedEx employees are overwhelmingly satisfied with their current non-union status. This situation is shown by two important facts: (1) over 120,000 FedEx employees are currently covered by the NLRA and not one is unionized; and (2) the comments of many FedEx employees on Section 806 appear on various web sites covering the issue and only a tiny minority appears to favor unionization.

Ironically, the only FedEx employees who are unionized are its pilots, who are covered by the RLA. Thus even if some Senators dislike labor unions, their fears of the potential unionization of FedEx if Section 806 is passed are unfounded. In any case, liking or disliking organized labor is not an appropriate ground to void the basic constitutional principle of equal treatment under law.

How does misclassification of its drivers under the RLA give FedEx an unfair competitive advantage? Simple. FedEx uses that status to woo customers on the grounds that it is “strike-proof.” Presumably this strategy/business practice is very profitable because FedEx is spending vast sums of money to defend its current special interest status.

Its deceptive “Brown Bailout” campaign ads now blanket the Internet, exploiting that medium’s lack of Truth-in-Advertising standards to disseminate patently false content. Meanwhile, editorial pieces by Smith, other FedEx officials, and friendly journalists and business owners offer misleading and sometimes hysterical reasoning for the special treatment of FedEx Express drivers. Among them:

• FedEx makes a big deal out of the fact that it was founded as an airline, and UPS as a trucking company. The correct response is, “So what?” Both companies have evolved considerably during their respective existences, and both use a combination of airplanes, trucks, and other vehicles, including boats, to carry out their businesses. What should matter is their entire business structure today, not 40 or 100 years ago. Incidentally, UPS was founded in 1907 as a foot messenger service. Should its drivers therefore be held only to pedestrian traffic regulations and be free to ignore both the RLA and the NRLA, which came a generation later?

• FedEx Express claims that it carries 85 percent of its packages by air and that UPS carries 85 percent by truck. Again, so what? The classification of FedEx Express delivery drivers is the issue. They have nothing to do with air operations, that is flying, maintaining, or servicing aircraft – jobs that Congress covered when it amended the RLA. FedEx Express drivers pick up and deliver packages in trucks. All FedEx Express packages move by truck. It’s that simple.

• FedEx claims that Federal courts, specifically the 9th Circuit, have found that FedEx trucks are an integral part of the company. Yet the specific case cited is irrelevant to the labor law classification issue. It is not on point as it examined whether a California state agency had the power to regulate FedEx trucks. (There are also two strong and persuasive dissents FedEx fails to mention.)

• FedEx also claims that putative NLRA-produced unionization could allow a strike at a single distribution hub to paralyze FedEx Express’s delivery service and much of the U.S. economy. But this oft-repeated claim doesn’t even pass the laugh test. After all, disruptions hit the delivery industry every day – in the form of bad weather and malfunctioning equipment. Yet the industry has learned to be nimble and adjust to disruptions. Isolated labor unrest, if any, would be overcome with equal skill.

• FedEx CEO Smith says that even the slightly increased odds of unionization under the NLRA will cause him to cancel aircraft orders and gut the FedEx Express business. And, of course, valuable American jobs would be lost in the process. But FedEx Express is the core business and main revenue source of FDX Corporation. Why on earth would Smith even propose this crackpot idea? And why would his Board of Directors and shareholders go along with it?

The Senate is duty-bound to see that American law is applied fairly and uniformly. It should eliminate the 1996 special interest provision handing FedEx a carve-out, stop holding up an FAA Reauthorization bill containing many important air travel safety provisions – some the result of the Colgan Air disaster, and get the measure to the President’s desk before the August recess. Neither transportation safety nor fundamental American legal principles should be held hostage to the campaign of distortion being carried on by Fred Smith and FedEx. The Senate should defeat any filibuster effort and pass Section 806 into law.

(Kevin L. Kearns is president of the U.S. Business and Industry Council, and serves as the director of the Same3 Coalition, a group formed in 2009 to support federal legislative efforts to create fair competition in the trucking industry.)

Last year’s crash of a commuter plane near Buffalo, which killed 50 people, highlighted the need for more stringent pilot training and tougher rules about how long pilots can fly before they are required to rest. Those reforms have been irresponsibly sidetracked by one of Capitol Hill’s nastiest and most expensive lobbying fights over the unrelated issue of unionization rules at the rival delivery companies, FedEx and United Parcel Service. . . .

The House’s aviation bill, led by Representative James Oberstar, a Democrat of Minnesota and a union champion, would finally put the two companies on the same footing. Mr. Oberstar argues adamantly that a Republican Congress unfairly allowed FedEx special antiunion protections in 1996, and this needs to be corrected.

The Senate-passed measure has no such provision. And a filibuster is threatened to protect FedEx by Senators Bob Corker and Lamar Alexander, Republicans of Tennessee, where, of course, FedEx is based. Far more than parochial posturing is at stake in the bill, which also includes modernization of the air traffic control system.

Both sides remain unyielding on the union fight. We sympathize with Representative Oberstar’s point and find the filibuster threat on behalf of FedEx shameless. Congress needs to rise above this to serve the one special interest most at stake: air passenger safety.

As a pro-business, free-market conservative advocacy organization, we recognize that many Republicans see this issue simply as a union issue and have reflexively sided with FedEx. However, this issue is really a matter of equality under law.

Simply put, FedEx should compete in the marketplace under the same federal labor law as everyone else. And in the interest of both air passenger safety and fairness, we find ourselves in the very unusual policy position of agreeing with the Times and urge the Senate to pass the FAA reauthorization bill with the amendment closing the FedEx loophole included.

“The Massachusetts attorney general says FedEx Ground has agreed to pay the state $3 million in a dispute over alleged misclassification of drivers as independent contractors. The state says the package delivery company’s actions denied the state payroll taxes as well as worker’s compensation and unemployment assistance contributions.

“The attorney general said the company also gained an unfair competitive advantage.”

This settlement comes after similar complaints in California were upheld by the courts and indicates that using and abusing federal labor laws to gain an “unfair competitive advantage” over its industry rivals by misclassifying its drivers may actually be part of FedEx’s overall corporate culture, if not its stated policy.

Indeed, on another front FedEx is attempting to retain another “unfair competitive advantage” by holding up the FAA reauthorization bill because of a provision eliminating a corporate welfare loophole in the law which allows FedEx Express, and ONLY FedEx Express, to misclassify its delivery drivers under the Railway Labor Act (RLA) as airline pilots.

What’s next, misclassifying them as independent contractor airline pilots?

The bigger problem with FedEx’s abuse of labor laws is that it invites further government meddling and regulation that will only hurt companies who aren’t pushing the envelope, so to speak, the way FedEx regularly does. When a big corporation like FedEx goes “rogue” like this, it ultimately can hurt all companies, even those not in the same industry.

It’s not only time for Congress to tell FedEx that it has to play by the same rules as everyone else, but that it won’t be threatened or intimidated into allowing the “FedEx Loophole” to continue holding up the FAA bill.

The Senate should send a shot across FedEx’s bow and kill two birds with one stone by passing the FAA Reauthorization Act with the field-leveling RLA provision intact.

“Congress needs to understand that hundreds of small firms are unfairly disadvantaged by the current loophole afforded to one company under current law. And, any ‘deal’ that may be proposed to appease one or both of these giants, would continue to leave small business owners at a distinct disadvantage in this cut-throat industry.”

“Legal or regulatory loopholes extended to larger companies often create havoc and economic disparity for smaller competitors. That is why Congress should always strive to fully understand the unintended consequences of the legislation it advances.

“This is what happened when FedEx Express was allowed to categorize its drivers under the Railway Labor Act (RLA) rather than the National Labor Relations Act (NLRA). As we all know, FedEx Express uses this regulatory benefit to its business and marketing advantage. Competitors – large, mid-size and small – are disadvantaged as a result of this special treatment.

“It has been suggested by a few that UPS be given the same RLA loophole as FedEx Express. But what about all the other small to mid-size firms in the express delivery business, as well as small firms in the trucking industry? Shouldn’t the laws of the land be applied to all of us equally?”

Exactly. If you extend a special benefit to FedEx, you don’t fix that inequity by extending that same special benefit only to the company’s main competitor. That would be no different from exempting the National Rifle Association from the DISCLOSE Act and then coming back next year and exempting Gun Owners of America, as well – but no other smaller gun rights organizations.

Clearly the correct action by Congress in this matter is to treat all entities – large and small – equally under the law. Which means eliminating the FedEx loophole completely – not extending it to some, but not all.

“It’s time to pass an FAA bill so that Americans can benefit from important air safety improvements and next generation navigation systems, as well as the thousands of jobs that will be created by improving airport infrastructure. We call on Sens. Corker and Alexander and FedEx to abandon their selfish and unfair corporate welfare effort and let this vital legislation move to President Obama for his signature.”

“The holdup is a 230-word provision inserted into the House bill that would change the federal labor law that governs FedEx Express, one of the world’s largest airlines. The provision is extraneous to the legislation, having no broad impact on air safety or infrastructure upgrades.

“But it would help UPS and its primary union, the Teamsters. Indeed, the provision is anti-competitive and would unfairly benefit one company, UPS, while targeting only FedEx Express. Put another way, it amounts to a legislative bailout. The Senate version of the FAA bill does not contain the UPS provision, and the Senate version received bipartisan support, passing the Senate 93-0.”

A few points:

• FedEx Express is not an airline; at least not in the way most people think of airlines. It is, in reality, a package delivery company which uses both airplanes and trucks to provide its services. So is UPS. It, too, uses both airplanes and trucks to deliver its packages.

• Is the provision in question “extraneous” to the bill? For argument’s sake, let’s concede that it is; however, FedEx hasn’t spent almost $10 million over the last six months on lobbyists who don’t know that adding “extraneous” provisions to “must pass” bills is the coin of the realm in Washington.

• The provision being debated is actually an effort to remove an extraneous provision which gave FedEx this special treatment in the 1996 FAA re-authorization bill in the first place. What’s that old saying about sauce for the goose?

• This issue has nothing to do with organized labor; it has everything to do with equality under law.

• The provision isn’t “anti-competitive.” Indeed, all it does is level the playing field by taking away what amounts to letting FedEx “hit from the ladies tees.”

• This provision doesn’t “unfairly benefit one company.” This provision repeals a previous provision which has unfairly benefited one company, FedEx, for over a decade.

• This is not a legislative bailout; it’s closing a legislative loophole. Or maybe more accurately, it’s eliminating a form of corporate welfare presently enjoyed by FedEx.

• As FedEx and its lobbyists know, the only reason the Senate version of the bill didn’t include the FedEx loophole provision is because the Senate knew the issue would ultimately be resolved in reconciliation.

As every Senator knows, the 93-0 vote wasn’t a vote against the provision itself; it was simply a vote to move the issue forward. To suggest otherwise is to be disingenuous. Then again, the entire FedEx campaign against this provision has been disingenuous from the beginning.

Like how FedEx tries to excuse their special treatment under the law by referring to its so-called “integrated air-ground delivery system.” Now consider for a moment exactly what this would mean if a real airline took the same position.

Suppose Delta expanded its operations by adding a taxicab service called it Delta Express. And borrowing from the FedEx fantasy, let’s say Delta claimed its new taxicab drivers were picking up and dropping off passengers as part of an “integrated air-ground delivery system.” Would any objective person think those new Delta Express cab drivers were pilots who should be treated under federal labor law differently from every other cab driver in the nation?

Of course not.

This is not a complicated issue despite FedEx’s multi-million dollar attempt to make it so.

Very few people in this country can fly a 747. That’s why FedEx Express pilots are rightly covered under the RLA (Railway Labor Act). But even 16-year-olds can drive a delivery van. Which is why every delivery driver in the nation – other than FedEx Express drivers – is covered under the National Labor Relations Act (NLRA).

This “extraneous” provision in the FAA bill rights a wrong in federal labor law. A driver is a driver. A driver is not a pilot. A driver should be treated under the law as a driver. And we urge Congress to close the FedEx loophole which treats FedEx Express drivers, and only FedEx Express drivers, like pilots.

And as mentioned in a Wall Street Journal story last week, this legislative loophole gives FedEx a “significant advantage” over its competitors; the equivalent of putting training wheels on a bicycle.

In addition to the millions of carrots FedEx has spent on lobbyists, it has also pulled out a big stick in the form of a threat to cancel a purchase from Boeing if Congress doesn’t allow it to keep the training wheels on. Some might even call this threat a form of legislative extortion.

But what we find most objectionable about FedEx’s PR efforts is the sheer dishonesty of its campaign. The most obvious, of course, is the company’s effort to characterize the amendment to treat FedEx Express drivers like every other driver in the nation as a “bailout” for UPS.

American taxpayers know a bailout when they see one. Fannie Mae and Freddie Mac got a bailout. AIG and Goldman Sachs got a bailout. GM and Chrysler got a bailout. BofA, Citigroup and Wells Fargo got a bailout.

This is no bailout for UPS. Period.

In fact, it’s actually FedEx which has been receiving a non-stop “bailout” since 1996 when Congress gave the company special treatment under the law which has resulted in a “significant advantage” over its competitors; an advantage FedEx has not earned on its own merits in the marketplace, but through its skill in the fine art of congressional arm-twisting.

Closing the FedEx loophole wouldn’t be a bailout for UPS. It would be taking the corporate training wheels off FedEx; forcing the company to finally compete in the package delivery industry without a “significant” advantage” compliments of an inequity in federal labor law.

“Last month, the House of Representatives passed a bill that would put FedEx express-shipping drivers, sorters, loaders and others under the National Labor Relations Act, while keeping pilots and airplane mechanics under the Railway Labor Act,” Hinton wrote. “(FedEx) Chairman and Chief Executive Frederick Smith was so incensed by the potential change in law, which would take away a significant advantage (emphasis ours) over rival United Parcel Service Inc., that he reportedly threatened to halt delivery of new Boeing jets to make up for the extra costs.”

Two points:

1.) As the Wall Street Journal article notes, FedEx currently enjoys a “significant advantage” over UPS and other express delivery carriers because of a loophole in the law that treats FedEx Express drivers differently from every other driver in the nation.

2.) This “significant advantage” – not from market factors, but an inequity in federal law – is so valuable to FedEx that its chairman essentially issued Congress nothing short of an economic threat if it rights this wrong.

Two questions:

1.) Will 98 senators allow FedEx to keep this “significant advantage” over its competitors simply because of a filibuster by two protectionist senators from the company’s home state?

2.) Can the Senate really be pressured into doing the bidding of one major company at the expense of others by issuing an economic ultimatum?

If so, this is a very troubling precedent. It means any major corporation can potentially use Congress as a weapon against its competitors which puts Congress in the position of picking winners and losers in the free market. Will the Senate next pass a law which gives Target a “significant advantage” over Wal-Mart if Target threatens not to open any new stores?

It’s never too late to do the right thing. We continue to urge the Senate to eliminate the FedEx loophole.

Actually, when it comes to this issue, the bailout was extended to FedEx back in 1996…and now it’s time for the company to pay it back. Or more to the point, stand on its own without a set of legislative crutches.

As Brian Straight of Trucking Straight Talk explains at FleetOwner.com: “In 1995, FedEx Express was reclassified by Congress under the NLRB only to have Congress rescind that in 1996.”

So 15 years ago, Congress recognized that FedEx Express’ new and expanded express delivery ground operations were different from FedEx Express’ air operations. In other words, delivery drivers weren’t pilots. As such, Congress saw fit to place FedEx Express drivers under the same labor law – the National Labor Relations Act (NLRB) – as every other express delivery driver.

That established a level playing field.

But as Straight points out, FedEx flexed its lobbying muscle in a year later and obtained from Congress a true bailout in the form of a provision slipped into the FAA reauthorization bill at the time which gave the company a competitive advantage over its rivals.

In essence, Congress changed the rules of the game so that the new FedEx Express operations could “hit from the ladies tees” while trying to compete with its largest competitor, UPS.

If after all these years FedEx Express still can’t compete in the free market without this corporate welfare subsidy, what’s that say about the company’s true viability?

Congress bailed out FedEx in 1996. It’s time for FedEx to start competing on its own merits without being artificially propped up by an inequity in our nation’s labor laws.