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FedEx case at the heart of debate over independent contractors

Two of the biggest package delivery companies in the U.S. are United Parcel Service and Federal Express. UPS delivery drivers and FedEx delivery drivers do substantially similar work. Most of us couldn’t tell the difference between the two, save for the uniforms that they wear and the logos on the trucks that they drive.

But UPS drivers are considered company employees. They are even represented by a union. FedEx, on the other hand, considers many of its drivers to be “independent contractors.” What’s the difference? In the case of FedEx, the differences mean that the company saves a lot of money while its workers lose overtime pay, have to pay for their uniforms and equipment and lose out on other important benefits.

Misclassification of employees is illegal, but only if it is deemed to be misclassification. FedEx has been embroiled in legal battles for years to defend its assertion that its drivers should be considered independent contractors.

Of course, FedEx has huge financial incentives for wanting these drivers to be independent contractors rather than full employees. As independent contractors, drivers:

  • Do not need to be paid for overtime
  • Do not have the right to unionize
  • Can be required to pay for their uniforms and for maintenance on their delivery trucks
  • Do not have any substantial protections against employment discrimination or sexual harassment
  • Can be required to pay a larger share in taxes; a share which is usually paid by employers

This issue will eventually need to be decided in court, and probably the U.S. Supreme Court. What is frustrating for all sides, however, is that courts so far have delivered inconsistent rulings, sometimes in favor of FedEx and sometimes in favor of drivers.

However the issue is ultimately decided could have financial implications of hundreds of millions of dollars for FedEx and the drivers who deliver its packages. But beyond that, it could have larger implications for the American economy as a whole. Independent contractors often save businesses a lot of money, but those financial burdens may then be transferred to the workers themselves. The eventual FedEx ruling could either move many businesses toward or away from the independent contractor model.

Source: Bloomberg Businessweek, “FedEx Ground Says Its Drivers Aren't Employees. The Courts Will Decide,” Josh Eidelson, Oct. 16, 2014

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