The chairman, president, and CEO of FedEx Corp. lashed out yesterday

TRANSPORTATION

 October 8, 2015

FedEx chief rails against states' efforts to restrict use of independent contractors

At conference, Smith calls for federal pre-emption of state labor laws.

By Mark B. Solomon

The chairman, president, and CEO of FedEx Corp. lashed out yesterday at legislative and judicial attempts to penalize business' use of independent contractors, saying they interfere with interstate commerce and threaten to undermine the responsiveness and efficiency of the supply chain.

Keynoting an industry conference in his company's hometown of Memphis, Tenn., Frederick W. Smith said the U.S. and world economies have flourished over the past 40 years because transport deregulation allowed companies to be flexible in managing changes in a cyclical industry. Attempts by legislative and judicial bodies to restrict those freedoms are a "profound" change that bodes well for no one, Smith said.

"The more rigidity you put in the supply chain, the less responsive and efficient it will be in the marketplace," Smith said.

FedEx's fast-growing ground-parcel division, FedEx Ground, is staffed by independent-contractor drivers, a model FedEx inherited from the old Roadway Package System Inc., whose Caliber System Inc. parent was acquired by FedEx in 1998. With its nonunion operations as leverage, RPS competed effectively against the then-dominant parcel carrier, UPS Inc. Since FedEx acquired Caliber, it has made significant inroads into UPS' once-unassailable share of the U.S. ground-parcel market.

However, the model has come under assault in recent years in state legislatures and in the courts, with opponents arguing that FedEx Ground and FedEx Home Delivery drivers essentially operate as company employees but are denied the benefits and job protections that come with being an employee. The most visible battle took place in California, where 2,300 FedEx Ground and Home Delivery drivers sued the unit claiming it improperly classified them as independent contractors and not company employees while they worked there from 2000 to 2007. After an appellate court panel in California ruled in August 2014 that the drivers were company employees under state law, FedEx Ground in July paid $228 million to settle the drivers' claims.

Smith today called for federal pre-emption of state labor laws that effectively block the free flow of interstate commerce, and intrude on a legally binding contractual relationship between company and contractor. "There is a steady drip, drip, drip of restrictive laws at the state level ... into what should be a contractual relationship between consenting adults," he said.

Smith was not upbeat about the outlook for the global economy, saying it is suffering from "low growth" as a result of government policies that are "business-agnostic at best, and anti-business in many cases." Smith added that there are no visible catalysts for improvement unless pro-growth policies are developed and implemented. He added that tepid economic demand will trigger a surge in merger and acquisition activity as companies facing a slow-growth environment look to expand by buying and building scale.

One of the few bright spots is the continued growth of e-commerce, Smith said. He noted, however, that e-commerce shipments, which at one time were made up exclusively of small, lightweight shipments, are getting bigger. This trend is putting pressure on traditional package-sortation systems that are not designed to process such heavier, outsized commodities as kayaks that are ordered online, he said.