New Resource: MDL Class Cert Orders and Denials - April 01, 2008

There has been a back and forth exchange of press releases from FedEx and from the drivers' lawyers.  We've uploaded Judge Miller's order from March 25 to our Multi-district Litigation resource page.

It seems like this split the baby in two-thirds ruling is making no one completely happy.  Drivers who are named plaintiffs will know the most about the views and developing strategies of their lawyers.

As for FedEx, two-thirds of a loss still is a loss.  This isn't NHL hockey.  The Orwellian talk of 'future of the majority'  is the best spin they could muster.

To understand the size of FedEx's misclassification problem, one can ignore the company's yes-men and spokespodpeople but one must pay attention to the company's lawyers.  Here is what the FedEx Corporation said in its quarterly regulatory filing (enter FDX and read the latest 10-Q on Edgar)  with the Securities and Exchange Commission on March 20:

Independent Contractor - Estrada. Estrada v. FedEx Ground is a class action involving single-route contractors in California. In August 2007, the California appellate court affirmed the trial court's ruling in Estrada that a limited number of California single-route contractors (most of whom have not contracted with FedEx Ground since 2001) should be reimbursed as employees for some of their operating expenses. The Supreme Court of California has affirmed the appellate court's liability and class certification decisions. The case has been remanded to the trial court for reconsideration of the amount of such reimbursable expenses and attorneys' fees. We do not expect to incur a material loss in the Estrada matter.

Independent Contractor - Other Lawsuits and State Administrative Proceedings. FedEx Ground is involved in approximately 45 other purported class-action lawsuits (including two that have been certified as class actions), several individual lawsuits and approximately 25 state tax and other administrative proceedings that claim that the company's owner-operators should be treated as employees, rather than independent contractors. Most (approximately 40) of the class-action lawsuits have been consolidated for administration of the pre-trial proceedings by a single federal court, the U.S. District Court for the Northern District of Indiana. With the exception of recently filed cases that have been or will be transferred to the multidistrict litigation, discovery and class certification briefing are now complete.

In October 2007, we received a decision from the court granting class certification in a Kansas action alleging state law claims on behalf of a statewide class and federal law claims under the Employee Retirement Income Security Act of 1974 on behalf of a nationwide class. The court also required the parties to submit briefs on the issue of whether the decision should be applied to the other actions pending class certification determination in the multidistrict litigation. In January 2008, the U.S. Court of Appeals for the Seventh Circuit declined our request for appellate review of the class certification decision.

In January 2008, one of the contractor-model lawsuits that is not part of the multidistrict litigation, Anfinson v. FedEx Ground, was certified as a class action by a Washington state court. The plaintiffs in Anfinson represent a class of FedEx Ground single-route, pick-up-and-delivery owner-operators in Washington from December 21, 2001 through December 31, 2005 and allege that the class members should be reimbursed as employees for their operating expenses and should receive overtime pay. The Anfinson case is scheduled for trial in June 2008. The other contractor-model lawsuits that are not part of the multidistrict litigation are not as far along procedurally as Anfinson.

FedEx Ground is also involved in several lawsuits, including three purported class actions, brought by drivers of the company's independent contractors who claim that they are jointly employed by the contractor and FedEx Ground.

Adverse determinations in these matters could, among other things, entitle certain of our contractors and their drivers to the reimbursement of certain expenses and to the benefit of wage-and-hour laws and result in employment and withholding tax and benefit liability for FedEx Ground, and could result in changes to the independent contractor status of FedEx Ground's owner-operators. We believe that FedEx Ground's owner-operators are properly classified as independent contractors and that FedEx Ground is not an employer of the drivers of the company's independent contractors.

Given the nature and status of these lawsuits, we cannot yet determine the amount or a reasonable range of potential loss, if any, but it is reasonably possible that such potential loss or such changes to the independent contractor status of FedEx Ground's owner-operators could be material. However, we do not believe that any loss is probable.

Independent Contractor - IRS Audit. On December 20, 2007, the Internal Revenue Service informed us that its audit team had concluded an audit for the 2002 calendar year regarding the classification of owner-operators at FedEx Ground. The IRS has tentatively concluded, subject to further discussion with us, that FedEx Ground's pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes. The IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002. Substantially all of the IRS's tentative assessment relates to employment and withholding taxes for the 2002 calendar year and, if paid by the company, would be fully deductible. Similar issues are under audit by the IRS for calendar years 2004 through 2006. We are preparing to meet with the IRS audit team to review their tentative assessment and to provide an initial response. We expect that the meeting will occur during the fourth quarter of 2008 and that a final resolution of this matter will not occur for some time. We believe that we have strong defenses to the IRS's tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground's owner-operators are independent contractors. Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable.

Soundbites are meaningless.  The damage control is hard to mask.  State court judges, federal court judges, National Labor Relations Board, state tax officials, and the IRS are putting the lie to FedEx's claim that a small group of former drivers are 'wrong' and the company's 'contractor' scam is right.

FedEx Ground and Home Delivery drivers need to keep their attention on the larger picture.