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FedEx Reports Sharp Decline In Quarterly Profits
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Wage Watch: FedEx endures another legal blow

Oct 10, 2014

FedEx loses again in battle over driver status

The Supreme Court of Kansas ruled late last week that FedEx had illegally classified truck drivers as independent contractors instead of as employees, notching a victory for the class of 479 workers who are seeking to recoup retroactive expenses and costs in addition to overtime pay they were prohibited from collecting under the contractor arrangement.

The decision in favor of the drivers is just the latest blow to the model long employed by the shipping company, which requires contracted workers to pay for uniforms and truck maintenance out of their own pockets. Last week, in assessing the status of FedEx drivers seeking to join a union in Connecticut, the National Labor Relations Board also found that the drivers are employees. The Ninth Circuit Court of Appeals in Portland, Ore. made the same determination in August, a ruling that ended FedEx's long winning streak in cases challenging its independent contractor structure.

The ruling in Kansas noted that FedEx's lawyers acknowledged in oral arguments that the company "carefully structured its drivers' operating agreements so that it could label the drivers as independent contractors in order to gain a competitive advantage, i.e., to avoid the additional costs associated with employees." The court based its decision on the company's control over the drivers, which it says undermines the benefit that a driver could potentially derive from an independent contractor arrangement. "The ability to make more money than a delivery driver who is an employee is diminished, if not destroyed, by FedEx's control over the number of deliveries a driver can make, as well as essentially dictating the driver's required expenditures for vehicles, tools, equipment, and clothing," the court said. It concluded that "FedEx has established an employment relationship with its delivery drivers but dressed that relationship in independent contractor clothing."

The decision in Kansas is part of a larger consolidated class action before the Seventh Circuit Court of Appeals, which is reviewing district court decisions in 20 class action suits over the FedEx model, all of which sided with FedEx.

FedEx, for its part, says it fundamentally disagrees with the rulings. "[We] are committed to protecting the rights of thousands of independent business owners to continue owning and operating their own businesses," according to a statement it provided to Fortune. It says that the model reviewed in each decision is no longer in use. "Since 2011, FedEx Ground has only contracted with incorporated businesses that agree to treat their drivers as their employees." The company pointed to "more than 100 state and federal decisions—including that of the U.S. Court of Appeals for the D.C. Circuit" that have upheld its contractual relationships with independent businesses. "We have asked the Ninth Circuit to reconsider its decision," the company said, "and are considering available options in response to other decisions.”

Home care workers will have to wait for a raise

The Obama administration on Wednesday caved to industry groups and states asking for a delay in the enforcement of new wage regulations for home care workers, who hold the worst-paying, fastest-growing job in the country.

Last year, the Department of Labor heralded a new rule that would extend minimum wage and overtime protections of the Fair Labor Standards Act to home health care workers. These workers have been excluded from such rights for 38 years.

The new rule prompted complaints from the home care industry, which warned that the added expense of increased wages would make home care too costly for many consumers, pushing more elderly and disabled people into nursing homes. State politicians also expressed concern that the overtime pay requirement would balloon Medicaid costs by millions of dollars.

In response, the Labor Department announced this week that the rule would go into effect as planned on January 1, 2015, but enforcement of the rule would not begin until June 1. The department also also warned that it would “exercise prosecutorial discretion” in how it would force employers to comply with the rule in the second half of the year.

Labor groups expressed outrage at the decision. The Paraprofessional Healthcare Institute, which advocates for home caregivers, said it was disappointed with the delay since it means that "the nation's 2 million home care workers—largely low-income women, and disproportionately women of color—will have to wait as long as another 12 months to receive even the most basic labor protections, guarantees that most other American workers take for granted."

Wal-Mart cuts health benefits from some part-timers

Wal-Mart has long been criticized for its employee pay and benefits. The world's largest retailer didn't do itself any favors on Tuesday when it announced in a blog post that it would no longer provide health benefits to workers who logged fewer than 30 hours per week.

In announcing the benefits cut—which will affect some 2% of its U.S. workforce, or 26,000 people—the store chain cited cost concerns. Based on that same rationale, the retail giant will require employees who will be able to keep their health insurance coverage to pay more for the benefit. Its lowest cost plan for associates will go up by 19% to $21.90 per pay period.

The announcement came two years after Wal-Mart announced increases to its employee health insurance premiums and said it would stop providing health benefits to newly hired part-time employees who worked fewer than 30 hours per week.

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