FedEx Potentially Facing $Billions in Fines/Taxes

Big Beer Belly

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FedEx Drivers Demand Employee Status (Arizona Republic, Aug. 22)

If FedEx can tell its ground-service drivers when to work, what to charge customers and what kind of socks and shoes to wear, shouldn’t they be considered employee? That’s what ground workers say in a lawsuit they have filed against the company.
As drivers in a nationwide lawsuit demand the federal pension benefits that are reserved for employees, FedEx founder and Chief Executive Officer Fred Smith has a lot at stake. If a judge in Indiana decides the drivers are employees, they'll seek $1 billion in damages. Plus, it may force the company to overhaul or even throw out a business model that provides FedEx Ground a cost advantage over rival UPS.
"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. The dispute 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.
The bigger problem for the second-largest U.S. package-delivery company may be how to overhaul the business model to make it compliant.
A Teamsters Union financial model predicts FedEx's costs would go up $426 million a year if the company compensated the drivers as it does present employees. The model assumes FedEx would pay Social Security and Medicare taxes, unemployment and worker-compensation insurance, vacations, health insurance and 15 hours a week of overtime.

http://tinyurl.com/5zvejn
 

fob727

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BBB I wonder if the drivers are "entitled" to a job in a capitalist system? Kind of old news, huh?
 

Big Beer Belly

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BBB I wonder if the drivers are "entitled" to a job in a capitalist system? Kind of old news, huh?
Oh fob... settle down and un-twirl your panties! :D



BBB
 

brownie

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Maybe they should give thier ground side away to ups like dhl did thier air side and it will cut thier cost by 1/3. INCOMING.:laugh:
 

atpcliff

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Hi!

FedEx in Canada is facing the same problem there. The drivers, are, practically speaking, employees, but, technically, FedEx treats them as contractors when it suits them.

cliff
YIP
 

Fly Astar Jets

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Yep.
Maybe they should give thier ground side away to ups like dhl did thier air side and it will cut thier cost by 1/3. INCOMING.:laugh:

Hey get it right! ! ! We're not giving you nothing! ! We're gonna pay pay you a Billion a year and you're gonna like it. Ya hear!!!!!!!! :rolleyes: :rolleyes: :rolleyes: :rolleyes: ( how many sarcastic smilies can I put here before I crash the server :laugh: )


Brownie and other brownies,

I'm over it. Do I hope that another deal can be made and we all keep flying, sure. But I'm getting on with gettin on. I hope you all believe when I say it was never about you boys and girls.

I'm actually gonna put my stuff through when the time comes and hope I get as far as a sim ride before they say buh bye. I was fortunate to be hired at DHLAirways when they still used your DC-8 sim. Good stuff, great facilities and wouldn't mind playing there again.

FAJ
 

Whistlin' Dan

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"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.
http://tinyurl.com/5zvejn
http://tinyurl.com/5zvejn[/quote

The situation with the feeder operations at FedEx isn't that much different from that faced by the delivery drivers. Many small "subcontractors" operating equipment owned, specified, or leased back to FedEx, and operating solely in their service on vendor-defined routes and schedules.

Once this thing with the truck drivers gets sorted out, I wonder if the Caravan and ATR drivers will petition for the same "employee" status the delivery guys will have?
 

PreContact

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Wow, this could be HUGE. Not just for FedEx, but for 'contractors' in other lines of work. Looks like it's shaping up as a campaign issue as well. You know which side McCain is on...

http://www.twincities.com/ci_10283707?source=most_emailed

In driver lawsuit, FedEx stands to lose money, business model

New definition of 'employee' may work against nation's No.2 delivery service
By Laurence Viele Davidson and Bob Van Voris
Bloomberg News
Article Last Updated: 08/23/2008 03:15:41 AM CDT

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. Those who sued the company argue that makes them employees, not independent contractors.
As drivers in a nationwide lawsuit demand the federal pension benefits reserved for employees, FedEx founder and chief executive officer Fred Smith has a lot at stake. If a judge in Indiana decides the drivers are employees, they'll seek $1 billion in damages. Plus, it may force the company to overhaul or even throw out a business model that provides FedEx Ground a cost advantage over its biggest competitor, United Parcel Service Inc.

"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."

The dispute 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. With $1.1 billion in net income in fiscal 2008, the company declined to say whether it had set aside reserves to cover the possible damages or tax liability. Spokesman Maury Lane said FedEx follows generally accepted accounting principles in disclosing reserves. The bigger
problem for the second-largest U.S. package-delivery company may be how to overhaul the business model to make it compliant. Businesses that use contractors rather than employees enjoy an estimated cost savings of more than 30 percent, according to Marick Masters, a business professor at the University of Pittsburgh.

"It's a critical stage for FedEx Ground," said Richard Reibstein, a New York labor-law partner in the firm WolfBlock who isn't involved in the cases. "The amount at issue is extraordinarily high."
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.

Smith, who has served as co-chair of U.S. Republican presidential candidate John McCain's campaign, was suggested in press reports as a potential running mate for McCain — a possibility the FedEx CEO rejected. Campaign spokesman Brian Rogers said the candidate had no comment on the litigation, which could help define what it means to be a full-time employee.

Treating workers as contractors rather than employees has been gaining popularity among U.S. employers, with the number in the work force rising 25 percent to about 10.3 million from 1999 to 2005, according to the Government Accountability Office. The reason for the increase is the cost differential, according to Masters, the business professor.
A Teamsters Union financial model predicts FedEx costs would go up $426 million a year if the company compensated the drivers as it does present employees. The model assumes FedEx would pay Social Security and Medicare taxes, unemployment and worker-compensation insurance, vacations, health insurance and 15 hours a week of overtime.
FedEx's Lane declined to comment on the Teamsters' model or Masters' 30 percent savings estimate, except to call both "speculative." He declined to say how much FedEx saves by using contractors.
FedEx describes the drivers as small-business owners who invest in their trucks and are free to hire helpers or substitutes.

"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 company claims it doesn't prescribe the drivers' work methods or their days or hours of work, allowing them to pick up and deliver packages on their own schedules. Drivers are paid by the job, FedEx says.
"We do not think it's against the law to work for yourself," Lane said.

Pat Becker Jr., chief investment officer for FedEx investor Becker Capital Management Inc., said Smith, before converting the drivers to payroll workers, would revise the model, probably moving toward multiroute drivers as he had when FedEx lost a similar California class action demanding employee status.
Still, shifting to a multiroute model may not provide legal sanctuary. Employees of multiroute contractors are suing FedEx in Washington state, arguing they too should be eligible for overtime pay.
FedEx also is contesting an initial assessment in December by the Internal Revenue Service that the company owes $319 million in payroll taxes, fines and interest for 2002 because its drivers qualify as employees. The $2.5 billion in potential liability encompasses the worst-case scenario for three additional years being audited, Jon Langenfeld, an analyst at Robert W. Baird & Co., said in a January report. The company argues that a 1994 settlement between the IRS and a company that FedEx subsequently bought classified the drivers as independent contractors and supports its business model. To add to Smith's troubles, he 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 through Tuesday was 25 percent, compared with 11 percent for UPS, the world's biggest package-delivery company. Since U.S. District Judge Robert Miller in South Bend, Ind., certified the lawsuit Oct. 15, it's down 19 percent, lagging UPS' 13 percent decline.
 

jmreii

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I earned a business degree doing the time I worked for a Fedex feeder, and I pointed out this very issue to management. They ignored it, and I told them it was only a matter of time before some labor lawyer with nothing better to do say's ah how, I got you by the short hairs.
 

Whistlin' Dan

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FedEx's Lane declined to comment on the Teamsters' model or Masters' 30 percent savings estimate, except to call both "speculative." He declined to say how much FedEx saves by using contractors.
FedEx describes the drivers as small-business owners who invest in their trucks and are free to hire helpers or substitutes.
Basically, those guys "buy" their jobs. I was asking one of their semi drivers about it, and he said that after expenses, he cleared only about 53K last year. That did not include health insurance (which his wife received through her work), sick or vacation bank, or retirement.

Considering that the truck alone cost him 100K (for which he was personally responsible) and the job kept him on the road 8-10 hours a day, 20-22 days per month, it didn't seem like a very good return on investment. Given the hours and time away from home, it didn't even sound like a very good job.

Maybe FedEx doesn't count on it's drivers being "independent businessmen" so much as it counts on them being "bad independent businessmen"

If anybody has any better info on this, I'd be interested in hearing it.
 
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