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FedEx Business Model: Pothole or Sinkhole?
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FedEx Business Model: Pothole or Sinkhole?

In 2013 Fortune Magazine named FedEx as a top 100 "best company to work for" (ranked 98th). The following year, the company fell off the list. But who exactly works for FedEx?

Not the delivery drivers you see scurrying around town in their white FedEx trucks, their crisp FedEx uniforms (dark shoes, dark socks) and well-trimmed hair.

These drivers are "independent contractors." Key cogs in the FedEx structure, they are on their own for health insurance, retirement, workers comp, paid holidays and vacations, among the many perks that most of us enjoy as employees. Over the years, FedEx has carefully crafted contractor agreements that, on the one hand, establish independence, and, on the other, impose extensive restrictions on what the drivers can and cannot do and where they do it. If you see a FedEx package delivered by a dude with a pony tail, cut-off jeans and sneakers, you're hallucinating.

FedEx has been sued in forty states, primarily for violating state standards for "independent contractors." There have been class actions brought in federal court (violation of the Fair Labor Standards Act and FMLA); FedEx has won some (CT, DC) and lost many (MA, ME). They recently lost a whopper in California, where the Federal Appeals Court for the Ninth District dismantled the business model and appears to have left the delivery trucks either in temporary potholes, or permanent sinkholes.

Not-So-Independent Contractors

In an effort to curb abuses, beginning with but certainly not limited to the construction industry, many states have issued regulations defining specific criteria for independent contractors. Massachusetts, for example, has stringent requirements:

  • the IC must be available to work for others
  • the IC must be in a trade different from that of the general contractor
  • the IC must be in control of how and when the work is performed
  • It's easy to see how FedEx would struggle here: the drivers wear prescribed uniforms, operate prescribed trucks, drive prescribed routes (with some variations) and work to a FedEx schedule. Most important, their work is an essential extension of FedEx's mission: the delivery of packages. If you take away the drivers, there is no delivery. Indeed, there is no FedEx.

    FedEx competitor UPS hires all drivers as direct employees, pays generous benefits and, as a result, pays more for labor. The FedEx model is clearly cheaper. The question being asked over and over again, from state court to state (and federal) court is whether this strategy is legal.

    From a workers compensation perspective, it's worth raising this question: if the FedEx model is determined to be illegal, what will happen to the thousands of work-related injuries that have left drivers out of work, out of (comp) benefits and out of luck? While not the only liability facing the giant corporation, the comp liability will be huge, one requiring case by case litigation in state comp courts across the country. We may not know the future of FedEx's "independent contractor" drivers, but we know for sure that there will be plenty of work for the lawyers.

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