FedEx in Massachusetts: Buying Time

Tuesday, September 21, 2010 | 0

By Jon Coppelman
Lynch Ryan & Associates

Five years ago we blogged the problem FedEx would inevitably run into in Massachusetts, where the definition of "employee" is so inclusive, it's almost impossible to find a truly "independent contractor." Well, the proverbial chickens have come home to roost.

Attorney General Martha Coakley has announced a settlement with FedEx, wherein the delivery giant has agreed to pay a little more than $3 million relating to the status of 13 "misclassified" delivery drivers. Without admitting liability or wrongdoing, FedEx has agreed to refrain from using the "independent contractor" strategy in response to claims for benefit coverage, including payroll taxes, unemployment insurance, and workers comp. In exchange, Massachusetts will refrain from any further legal action for one year. In other words, for the modest sum of $3 million, FedEx has bought itself a year to clarify its business strategy. Therein lies a tale of attorneys, well worth the telling.

FedEx maintains a steadfast commitment to a business model for its ground delivery system where the work is performed by independent contractors. With a healthy scepticism in our hearts, we have frequently blogged the barriers to independence: the drivers wear FedEx uniforms, drive FedEx trucks, adhere to FedEx dress codes and schedules, etc. FedEx ground does not exist without these drivers and that makes them, in effect, employees. The response to the fundamental query "who controls the work?" has been unambiguously, FedEx.

ISP to the Rescue?

As part of its agreement with the Commonwealth, FedEx has outlined its rationale for the independent contractor model. They propose entering into an Independent Service Agreement (ISP) with driver/managers in each service area. Appended to the MA settlement in draft form, the ISP agreement tries diligently to carve out a middle ground where the work is performed independently, but to FedEx standards.

Here are a few of the details:

• The local driver/manager must operate under a corporate entity recognized by the state(s) in which he or she operates.
• The driver/manager can hire and fire employees and must provide all mandated benefits to employees, including workers comp
• Theoretically at least, the driver/manager can be a sole proprietor without employees; in this case, the issue of workers comp coverage is governed by the state statute on sole proprietors (who usually can opt out)
• The agreement states that FedEx Ground has no authority to "direct as to methods, manner or means" the provision of services.
• The ISP manager has "exclusive rights" in a specific geographic area
• While the ISP has the right to decline service, in such cases this triggers the right of FedEx to ensure services
• Drivers are not compelled to wear FedEx uniforms or drive FedEx vehicles, but they are paid a weekly incentive to do so.