FedEx Loses Shareholders as Courts Upend Smith's Business Model

[Joanne98]

Aug. 20 (Bloomberg) -- FedEx Corp. tells its ground-service drivers when to work, what to charge customers and what kind of socks and shoes to wear, the workers say. Drivers who sued the company argue that makes them employees.

Founder and Chief Executive Officer Fred Smith, who has served as co-chair of U.S. Republican presidential candidate John McCain's campaign, opposes changing their status from independent contractors to employees. ``We've given that entrepreneurial opportunity to thousands of contractors to own, grow and expand their own business,'' Smith told investors in a Jan. 10 conference call. ``That's what freedom is all about.''

The trouble is the FedEx CEO isn't getting much support from shareholders. Calculating from five years ago, before its court losses on the drivers' claims, FedEx's total stock return was 25 percent, compared with 11 percent for United Parcel Service Inc.

Since a judge in Indiana certified a nationwide lawsuit Oct. 15 for drivers demanding FedEx federal pension benefits reserved for employees, total return for the company dropped 19 percent compared with a decline of 13 percent for UPS, the world's biggest package-delivery company.

FedEx, which has more planes in its delivery fleet than UPS, has had to pay higher prices for jet fuel in the last 18 months. Amid a slowing economy, some customers have switched from premium services such as FedEx's to cheaper delivery methods, Smith has said.

The FedEx CEO now awaits rulings by U.S. District Judge Robert Miller in South Bend, Indiana, on whether the drivers are employees. If they are, they'll seek $1 billion in damages.

Cost Advantage

At stake is a business model that provides FedEx Ground a cost advantage over UPS that may be more than 30 percent. That's the estimated savings enjoyed by businesses that use contractors rather than employees, according to Marick Masters, a business professor at the University of Pittsburgh.

``The case does not look good for FedEx,'' said Michael Harper, a Boston University law professor who is writing the chapter on the definition of ``employee'' for the ``Restatement of Employment Law,'' a reference work to be published by the American Law Institute. ``FedEx's legal position is much less appealing because these drivers are at the core of their business.''

In March, the same Indiana judge ruled that workers in 20 states could sue as 20 individual groups to win employee status. Because those class actions and a nationwide suit involve so many drivers, anticipated rulings by the Indiana judge on whether the workers are misclassified pose the biggest threat to date to Smith's vision.

Tax Case

The dispute also has opened FedEx up to a series of related legal responsibilities, including a potential pretax liability from unpaid payroll taxes of as much as $2.5 billion. It may force the second-largest U.S. package-delivery company to either overhaul its contractor model or throw it out entirely.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aIk8CwU1t6bI&refer=home

[dipsydoodle]

1. For comparison

in the UK they all be employees by definition . It's called master servant relationship when there is no difference between doing work and someone and working for them.

[indepat]

2. Fred Smith, also a major supporter of and fund raiser for junior is just as wrong on the

independent contractor vs. employee issue as he has been wrong in supporting junior, champion of pre-emptive wars of aggression, torture, unsustainable budget deficits to fund huge tax cuts for the likes of Fred Smith and tax breaks for large corporations like FedEx (most large corporations pay no federal income tax), and a cavalier approach to the environment, global warming, science et al. :P

[Tandalayo_Scheisskopf]

3. The abuse of independent contractor status...

Is shot through all types of employment, from small business to big corporations. It is especially egregious in the entertainment industry, where the exploitation of people working as IC's is rampant. That said, huge corporations(M&M/Mars is one) abuse this status as a matter of business course.

It is time to end this charade once and for all. Choke the life out of it.

[MonteLukast]

4. Good! I hope this sets a precedent.

This business model sucks and should be done away with. Weaseling out of paying benefits, absolving any responsibility for your workers, and dressing it up with pretty words like "freedom"... :puke: I hope the judge comes through.

Frankly, I'm surprised that shareholders are turning on FedEx... I thought they loved cost-cutting by any measure! What an unexpected and pleasant development.

[Lydia Leftcoast]

5. When I first started editing back in the early 1990s, I was given a list of

qualifications for independent contractor status, some of which were:

1. Owning your own tools and equipment

2. Being free to work for anyone or to refuse work

3. Being under a specific short-term contract

How the hell does being a Fed Ex driver fit those terms?

[A HERETIC I AM]

6. The article refers to a specific group of FedEx drivers, not all of them.

This truck is driven by an employee.                   This truck is driven by an independent contractor.

This truck is owned by and maintained by FedEx,
and is driven by an employee paid on a W-2.                  This truck is owned by either the driver or an individual who might 
                                                             own several, and hires drivers to operate them.  These are the guys who
                                                             prevailed in getting the lawsuit certified.  There is plenty of precedent,
                                                             so they just might win.

[MonteLukast]

7. Is it really that clear-cut?

Red good, green bad, hmmm. Looks like opposite-day.

Go plaintiffs!

[PassingFair]

8. A friend of mine was just talking to me about a friend of his....

that was injured and couldn't work for a while, she
fell behind on her payments, and lost her FedEx truck.

Now she is sunk.

If she had had employee status, she would have been
back to work after the injury and wouldn't have lost
everything.