Parcel shipping: FedEx receives more good news from the IRS regarding independent contractor classification
Jeff Berman, Group News Editor -- Logistics Management, 11/10/2009
A little more than a week after receiving good news from the Internal Revenue Service regarding how it classifies independent contractors, FedEx got some more positive feedback, when it stated today that the IRS audit team has decided not to assess any tax or penalty to any of FedEx Ground's independent contractors, including its FedEx Home Delivery independent contractors for the years 2004-2006.
Company officials added that similar issues may be audited for calendar years 2007 and 2008, but they said that they believe the IRS audit team should reach the same conclusion on these issues for each of these years.
On October 30, the IRS audit team issued a decision, stating it would not assess any tax or penalty with respect to any of FedEx Ground's independent contractors, including FedEx Ground independent contractors for 2002. FedEx disclosed this information in an 8-K filing with the Securities and Exchange Commission.
"FedEx Ground's independent contractor model has been tremendously successful for our customers, the hard-working independent contractors and FedEx Ground for more than 20 years," read a FedEx statement. "It is clear that the IRS decision today further validates this business model and we look forward to continue growing the model for many decades to come."
In a recent interview with LM, Jerry Hempstead, president of Orlando-based Hempstead Consulting, said these rulings are a positive for FedEx in its argument that the drivers for their ground operation are in fact not employees of FedEx but independent businessmen who provide pick up and delivery services for FedEx ground and FedEx Home Delivery.
"This in no way is the end of the litigation," cautioned Hempstead. "Several more states have piled on of late claiming that the drivers are FedEx employees. If it were ever ruled that they are in fact FedEx employees, it could significantly increase the company's operating expense, which would then be passed onto shippers as higher prices. For now there is no immediate threat of that."
The issue of how FedEx classifies its independent contractors has come under scrutiny in various forms in the past.
On October 20, state attorney generals in New York, New Jersey, and Montana said they are considering suing FedEx Ground for violations of state labor laws in an effort to protect their states' workforces and enforce labor laws.
The attorney generals wrote in a letter to FedEx Ground that they contend the company unlawfully misclassifies its drivers as independent contactors, leaving these drivers without workers compensation coverage and protection by anti-discrimination and labor relations laws, among other laws. The letter also noted that these "drivers are required to spend thousands of dollars out-of-pocket for their trucks, repairs, fuel, and uniforms while being held to strict FedEx Ground rules that control the hours they work, the way they dress, and their ability to contract with anyone else outside the company."
And in September, the Teamsters Union said in a letter to FedEx shareholders that its business model for FedEx Ground is highly flawed, as well as "an unlawful and unsustainable business model. The Teamsters also said that FedEx' "misclassification" of independent contractors has allowed the company "to evade expenses like payroll taxes, overtime pay, and benefits."
Despite its travails over independent contractor classification, FedEx benefited from a ruling in April, when the U.S. Court of Appeals issued a ruling that stated FedEx Ground independent contractors are independent business owners rather than employees and are outside the jurisdiction of the National Labor Relations Board.
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