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- August 25 , 2010 -

Logistics News: FedEx Wins Important Ruling in Contractor Legal Battle, but War far From Over


Multi-District Federal Judge Rules Kansas Contractors are not Employees, sends most Cases Back to States; Final Outcome will Now Likely Take Years to Play Out, as FedEx Looks for Contractors to Incorporate; Vestige of RPS


 
 


SCDigest Editorial Staff

SCDigest Says:
According to Wolfe Trahan, is that “a sudden class action ruling forcing a change to FedEx’s Ground model increasingly unlikely going forward for the foreseeable future.”

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Last week, FedEx won an important decision when a federal multi-district judge trying to sort through 28 state lawsuits against the carrier ruled that ground contractors in the state of Kansas are independent contractors not FedEx employees. The ruling was made as a summary judgment, following a motion requesting that ruling from FedEx.

 

The decision is viewed by many experts as a major win for FedEx, though how federal Judge Robert Miller in South Bend, IN will handle some of the other state lawsuits is anything but clear.

 

The ruling “seemingly sets a very strong precedent in favor of FedEx that its ground contractors are in fact independent contractors by law and not de facto company employees deserving of days off, benefits, expense reimbursement, and other advantages,” according to the analysis by the Wolfe Trahan, a investment research firm focusing on the logistics market.

 

The contractor model for FedEx ground actually dates back to the practices of Roadway Package Systems (RPS), which FedEx acquired in 1998. Lawsuits over the status of the contractors date back until at least the mid-2000s. Some contractors strongly prefer their current status, while many others appear to prefer employee status – or at least a big check for costs reimbursement and benefits they might be due from a favorable ruling.

 

As part of the decision, the judge remanded 16 of the remaining 27 cases back to state courts, where they will be litigated, if at all, on a state-by-state and driver-by-driver basis – a much harder road than a favorable ruling at the federal level across all or most of the individual state actions. Last year, the same judge disqualified 14 state actions, and kept 28 for further review.

 

However, Judge Miller did set up a 30-day window for the other plaintiffs to submit briefs as to why the other 27 state cases are different than the one he ruled on from Kansas. Also, in May, Judge Miller ruled that three FedEx contractors in Illinois were in fact employees.

 

To have its thousands of contract delivery personnel ruled as employees would significantly increase FedEx’s costs, not only in absolute terms but in relation to the cost structure of rival UPS, which does not have a contractor model. Some estimates have concluded the contractor model gives FedEx a cost advantage of more than one dollar per package versus UPS. FedEx uses different drivers for its air shipments, whereas UPS has an integrated delivery system for air and ground packages.

 

 

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The ruling last week was based solely on reading the Operating Agreement between FedEx and its contractors, with no other testimony or evidence included in the review. Judge Miller did not consider a mass of other submitted evidence, including documents containing evidence from individual drivers, as he had in the Illinois decision previously.

 

Instead, the judge said that FedEx provides only general instructions and not specific requirements as to how the contractors should do their work – a key element of whether an individual is an employee or not. Also key to the ruling, the judge noted, was the fact that the contractors are free to hire and fire their own employees – something that actual FedEx employees would be unable to do.

 

That Operating Agreement had to be resolved against the specific law in Kansas that determines whether or not an individual is a company employee. While the judge said that some of the 11 criteria for employee status in Kansas may have been met, in totality the relationship did not cross that threshold.

 

While he noted FedEx likely does exert more control than the Operating Agreement would indicate, it did not rise to the level of an employer-employee relationship, according to Judge Miller.

 

The upshot, according to Wolfe Trahan, is that “a sudden class action ruling forcing a change to FedEx’s Ground model increasingly unlikely going forward for the foreseeable future.”

 

Wolfe Trahan estimates that a unfavorable ruling for FedEx in favor of all the litigants in the multi-district court could have required payments of as much as $3-4 billion.

 

Instead, it seems more likely that the numerous cases will plod along slowly, perhaps with wins on both sides, even as FedEx attempts to adjust its model to rid itself of the issue by forcing its contractors to incorporate.

The contractor issue is just one of two major labor-related lega battles FedEx is currently fighting. The other is related to a potential change to its regulatory jurisdiction from the National Railway Act to the National Labor Relations Act, which covers UPS and other truckers. The National Railway Act, which covers railroads and airlines, puts steeper hurdles to unionization at those companies, in part to avoid broad national strikes that could paralyze transportation in the US. Due to this and other factors, FedEx has remained largely un-unionized, while UPS is heavily unionized. (See Absence of Language Affecting FedEx Union Status in Senate FAA Bill Doesn’t Mean Victory for FedEx, UPS Spokesman Says.)

Moves in Congress to change that status are still pending, and being fought vigorously (on seperate sides, of course) by UPS and FedEx.

 

What do you think of the federal judge’s ruling for FedEx? Does how this plays out matter to shippers? Why? Let us know your thoughts at the Feedback button below.


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