Express Misclassification

David Bensman and Molly Greenberg | September 6, 2010

FedEx offers another example where the Obama administration's effort to improve job quality is being undermined by an executive agency -- in this case, the Department of Defense. While a joint task force made up of the Labor Department and the Internal Revenue Service has been established to crack down on worker misclassification, a practice of which the FedEx Ground division has been repeatedly found guilty, the Department of Defense continues to award FedEx huge contracts.

For years, FedEx's ground-delivery system has saved money and resisted unionization by disguising its drivers as contractors or temps -- something that is illegal under labor law. In the most recent court decision against FedEx, U.S. District Court Judge Robert Miller found in May that delivery drivers were employees under the Illinois Wage Act in everything but name. They were required to buy or lease trucks that met company specifications, pay for the company logo to be painted on their trucks, and dress in company uniforms, down to the color of their socks and shoes. They made pickups and deliveries on routes assigned by the company, were barred from using their trucks to haul loads for other companies, and had to park their trucks in company-assigned spaces.

The court found that FedEx Ground misclassified its drivers as independent contractors as an illegal means to avoid paying state unemployment insurance and workers' compensation insurance. Judge Miller's ruling was significant because it is the first in a multidistrict class-action suit filed on behalf of 27,000 current and former FedEx Ground drivers in 20 states. Rulings on additional suits are expected later this year. The ruling follows a 2008 decision by the California Supreme Court, which upheld a trial-court decision in Estrada v. Fedex Ground Systems, Incorporated, finding that FedEx Ground drivers were employees, not independent contractors. In denying FedEx's appeal, the California court found that "the drivers look like FedEx employees, act like FedEx employees, are paid like FedEx employees, and receive many employee benefits."

Court rulings like these would seem to make FedEx a prime example of the worker misclassification on which the Obama administration promised to crack down when it created a joint IRS-Labor Department task force that will audit 6,000 companies over the next three years to determine whether they are illegally misclassifying their employees as independent contractors, and, in the process, failing to pay Social Security, unemployment-insurance, and workers' compensation taxes as well as denying workers the protection of federal and state labor laws.

Yet according to the Federal Procurement Data System, in 2009, FedEx received $1.5 billion in contracts from the Department of Defense for "Charter Programs Team Arrangement." Why is the Obama administration rewarding the very companies that are defying its efforts to enforce labor law?

Using Legislation and Executive Authority

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