Product, Service & Design Innovation
FedEx May Pay for Millions For Misclassifying Workers

FedEx could be liable for hundreds of millions of dollars in drivers’ operating expenses and wages after the Ninth Circuit Court of Appeals ruled this week that a class of 2,300 individuals working for FedEx Ground was misclassified as independent contractors instead of employees.

As a result, FedEx may owe its workforce of drivers hundreds of millions of dollars for illegally shifting to them the costs of such things as the FedEx branded trucks, FedEx branded uniforms, and FedEx scanners, as well as missed meal and rest period pay, overtime compensation, and penalties. The case, known as Alexander v. FedEx Ground, covers employees in California from 2000 - 2007.

FedEx Ground maintains its independent contractor model is built on the idea that its drivers are in business for themselves, but the Ninth Circuit rejected that claim. The court’s finding in Alexander that drivers in California are covered by California’s workplace protection statutes not only impacts one of FedEx Ground’s largest workforces but could influence the outcome in over two dozen cases nationwide in which FedEx Ground drivers are challenging the legality of their independent contractor classification.

FedEx currently requires its contractors in California to hire a secondary workforce of FedEx drivers, who do the same work as the plaintiffs under the same contract. The Alexander decision calls into question FedEx’s strategy of making plaintiffs the middle men between the secondary workforce of drivers and FedEx.

In some cases workers were required to pay the wages of employees who FedEx Ground required them to hire to cover for them if they were sick or needed a vacation, to help out during the Christmas rush, and in some cases to drive other FedEx Ground trucks, according to the case. After paying these expenses, a typical FedEx driver makes less than employee drivers at FedEx Ground’s competitors such as UPS, and receives none of the employee benefits, including health care, workers compensation, paid sick leave and vacation, and retirement.

The primary criticism against FedEx’s independent contractor model is that it takes advantage of workers and are anti-competitive. FedExGround’s contractors do the same work as UPS and U.S. Postal Service drivers for substantially less pay and without benefits, critics claim. In this way, FedEx Ground saves money by avoiding employment taxes and workers’ compensation insurance, and complying with all other workplace protections.

FedEx isn’t the only major brand facing legal issues lately. Tyson Foods is in risk of losing close to $500 million in government contracts if found guilty in and ongoing criminal investigation by the Environmental Protection Agency over the recent release of toxic chemicals at a plant in Monett, Mo. In April, Lowe's was ordered to pay $18 million for illegally disposing hazardous waste, including pesticides, batteries, fluorescent bulbs and other toxic materials, as a result of a civil enforcement action.

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