Drivers Employment Contract by jsi64629


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									                        FedEx Drivers
             Employees or Independent Contractors

Over the past two years FedEx and FedEx Ground have had to face an influx of suits
across the country regarding the employment status of their contract drivers. While there
has been a long history of court decisions (i.e. United States v. Silk, 331 U.S. 704(1947))
which found truck drivers who owned their own trucks and were responsible for their
own business activities to be deemed independent contractors, it appears that FedEx may
have crossed the line in regards to the amount of control they have over the owner-drivers
and created an employee/employer relationship.

There are at least 28 class action suits currently in the courts across the country regarding
this issue. Because all of these cases share the same issue in regards to the classification
of the owner-drivers as independent contractors FedEx has requested and is in the process
of getting all of the cases transferred to the U.S. District Court of Northern District of
Indiana in South Bend. This will place all the suits under a single judge and eliminate the
necessity of having common witnesses subjected to multiple discovery demands.

The issued raised in these suits include:
   1. The owner-drivers were denied the accoutrements of employment such as wages,
       holiday pay; workers’ compensation, unemployment insurance; contributions to
       the FedEx Employee Stock Purchase Plan; ERISA benefits; overtime pay and
       meal, break and rest periods.

   2. FedEx’s failure to pay state and federal employment taxes including
      unemployment insurance, Social Security and Medicare.

   3. Owner-drivers were required to pay FedEx’s business expenses, all of which
      should have been paid by FedEx. Examples of these expenses include the
      purchase of the delivery vehicles, logos and uniforms; insurance costs;
      maintenance and repairs; fuel; training and scanners.

   4. FedEx / FedEx Ground have unlawfully withheld funds from the compensation
      earned by the owner-drivers for such things as cargo claims and insurance in
      violation of state law.

It is hard to fully determine the cost to FedEx should the owner-drivers be deemed
employees but an estimation of the cost of over time can be calculated. FedEx advertises
that the owner-drivers can earn between $60,000 to $80,000 a year. According to several
of the suits and the findings of the National Labor Relations Board the owner-drivers are
expected to work on an average 60 hours a week. Assuming the average income is

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                            Premium Pay     Premium Pay for
       Annual      Hourly     Over the   1,000 Overtime Hours Additional Overtime Pay
       income       Rate     Hourly Rate Per Driver for 1 Year  for 14,000 Drivers

      $70,000     $23.33       $11.67            $11,667              $163,333,333
The Department of Labor can require an employer to pay between 2 to 4 years of back
overtime pay.

The calculations below show the potential cost of the Federal Employment taxes that
could be assessed under the Internal Revenue Code Section 3509, for just 2004.
Assuming 14,000 driver-owners earning an average of $70,000 - a total of $980,000,000.

Federal Income Tax (1.5% X Total Wages)                                             $14,700,000
Employee FICA (Medicare) (20% X 1.45% X Total Wages)                                 $2,842,000
Employer FICA (Medicare) (1.45% X Total Wages)                                      $14,210,000
Employee FICA (Social Security) (20% X 6.2% X Wages under $87,900 per worker)       $12,152,000
Employer FICA (Social Security) (6.2% X Wages under $87,900 per worker)             $60,760,000
Federal Unemployment Tax (6.2% of first $7,000 paid to each worker)                  $6,076,000
                                                      Total Federal Tax Liability: $110,740,000

The IRS can go back three years and most states can go back between 3-4 years.

When making the determination as to the status of a worker the courts look at many
factors. Control of the working relationship is a primary factor. Who has control over
the how, when and where the work is to be done? Under an independent contractor
relationship the worker is free to make these decisions for himself. Under an employee /
employer relationship the employer instructs, trains, monitors and disciplines to control
the work process.

Another major factor the courts look at is the worker’s ability to be and act as a separate
business entity. Can the worker make his / her own business decisions - decisions that
affect his / her ability to make a profit or suffer a loss?

In 2004 FedEx / FedEx Ground had two rulings indicating that the owner-drivers were
employees rather than independent contractors. The first was in July of 2004 when Judge
Howard J Schwab of the California Superior Court ruled the owner-drivers of one route
were employees. Then in November the National Labor Relations Board, Region 22 in
Fairfield, N.J., made a similar ruling. The reasoning behind these decisions are as

   1. Although the contractual agreement between the drivers and FedEx indicated an
      independent contractor relationship it also included statements that indicated that
      FedEx had the control of an employer over the drivers. The NLRB found that

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      FedEx’s constraints and policies limited the hours and details of a driver’s
      performance and his or her discretion and judgment. For example:
          a. Drivers are required to foster the professional image and reputation of
             FedEx Ground and Contractor. This image included:
             - The wearing of the approved uniform.
             - Personal appearance requirements include cleanliness and prohibited
                 visible tattoos, earrings, hair falling below the middle of the ear,
                 moustaches beyond the corners of the mouth and sloppiness.
             - FedEx was able to prohibit a driver from driving on a particular day if
                 s/he was in violation of its appearance standards.
   2. FedEx controlled the driver on his / her route.
          a. While the driver may exercise discretion in selecting how to travel his /
             her assigned route s/he is required to make daily pickups and deliveries on
             specific days and times due to FedEx’s agreements with its customers.
          b. FedEx supervisors or managers conducted “customer service rides” along
             with the driver four times annually “to verify that the Contractor is
             meeting the standards of customer service provided in the Agreement.”
          c. If FedEx determined that a driver was below his / her capacity they could
             reconfigure the driver’s route and the driver who gains territory would be
             required to pay the driver from whose route the work was taken.
          d. FedEx’s Terminal Manager was required to hold formal and informal
             periodic safety meetings at the terminal. Attendance is recorded through a
             sign in sheet. The goal is to have 90% of the drivers present.
          e. While FedEx did not specify the size of a driver’s van, it did require that
             the vehicle be of sufficient size, as determined by FedEx, to service the
             driver’s route.
          f. Drivers may solicit customers but have no authority to establish new
             accounts. When a driver solicits a new customer, FedEx may assign the
             customer to another driver.

The drivers were deemed to be employees of FedEx for the following reasons:
   1. The work of the FedEx Ground drivers who deliver packages is the essence of the
       business of a package delivery company such as FedEx.
   2. FedEx trained potential drivers in the most fundamental aspects of their job, such
       as courteous treatment of the FedEx customers, where to leave a package, and
       whether to obtain a customer’s signature on the package.
   3. The driver’s were doing business in FedEx’s name, wearing the FedEx uniform,
       driving vehicles with FedEx logos, etc.
   4. The drivers operate with the assistance and guidance of FedEx. FedEx
       determines the routes, establishes times of pick-ups and deliveries, and provides
       loading, sales and customer service operations. FedEx provides programs to
       decrease the cost of insurance and maintenance of the vehicles.
   5. The drivers do not engage in any significant outside business activities.
   6. FedEx assigns drivers routes requiring 60 hours of work each week.
   7. FedEx requires that drivers leave from and return to the terminal each day.

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   8. The monitoring of the drivers’ workloads through the observation of FedEx
       management and quantitative analysis of their deliveries and the consequent
       reconfiguring of their routes are additional indications of an employee / employer
   9. The proprietary interest in customer accounts is not based upon contracts or
       arrangements between the drivers and the clients but rather, the customer accounts
       are based upon contracts between FedEx and the customer.
   10. The ability of the drivers to sell their routes is limited. Over a review of ten years
       the NLRB found very limited evidence that drivers realized any significant gain
       or profit from route sales and concluded that a route had little or no clear
       economic value.
   11. Drivers could not significantly increase their compensation through soliciting new
   12. Looking at FedEx’s major competition in the arena of package pick up and
       delivery service, (UPS, the US Post Office and DHL/Airborne, the primary model
       is that of an employment relationship.
   13. The owner-drivers have little or no opportunity for profit or loss based upon their
       own entrepreneurial activities.

Judge Schwab stated in his ruling, “The court finds that in entering the relationship, FEG
(FedEx Ground) purposely created controls of an employment nature, hoping that in spite
of those strictures, the status would still be seen and considered to be that of an
independent contractor.” He went on to quote Borello & Sons V. Department of
Industrial Relations (1989) 48 Cal3d341, 350-355, “The label placed by the parties on
their relationship is not dispositive, and subterfuges are not countenanced.”

Recently Judge Schwab followed up on his ruling by issuing an injunction requiring that
the several hundred California driver-owners be reclassified as full employees. FedEx
was given an option to substantially change the working relationship between FedEx and
the driver-owners so that they may remain independent contractors. According to an
article in the Sacramento Bee a spokesman for FedEx Ground said the company plans to
make the necessary adjustments. They have 180 days to do so.

The question is, “Will making these adjustments be too little too late?”

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