FedEx Ground has agreed to pay the state more than $3
million to settle claims that the company misclassified its drivers as independent contractors, Attorney General Martha Coakley’s office announced Thursday.
Coakley’s office had alleged that Pittsburgh-based FedEx Ground had made insufficient payments to the state for payroll taxes, worker’s compensation and unemployment assistance as a result of the misclassification.
In the announcement of the settlement, Coakley called it a “step to level the playing field for businesses.”
The settlement followed a joint investigation by Coakley’s office, the Executive Office of Labor and Workforce Development and the Department of Revenue. The investigation revealed that FedEx Ground’s misclassification of employees had resulted in “significant underpayments” to the Department of Revenue, Division of Industrial Accidents and Department of Unemployment Assistance, according to Coakley’s office.
The settlement also provides for a payment for the 13 drivers named in the attorney general’s citation, according to Coakley’s office.
FedEx Ground drivers in the state have also brought their own lawsuit against FedEx Ground - which is pending and not affected by the settlement with Coakley’s office - and FedEx Ground denies liability in the settlement, according to Coakley’s office.
FIRST SUMMARY JUDGMENT RULING FROM THE FEDERAL MDL COURT HOLDS THAT ILLINOIS FEDEX DRIVERS ARE EMPLOYEES, NOT INDEPENDENT CONTRACTORS
In PSC's ongoing coverage of the Federal Express Cases on Employee Misclassification, we bring you the latest update from Illinois District Court.
June, 2010. Source: http://www.fedexdriverslawsuit.com/
FedEx Ground and Home Delivery drivers have been found to be employees under the Illinois Wage Act. The decision was issued by U.S. District Court Judge Robert Miller in the multi-district litigation that Judge Miller has been presiding over for the past five years. (In re: FedEx Ground Package System, Inc. Employment Practices Litigation, Cause No. 3:05-MD-527 RM) This holding came in a May 28, 2010 Opinion and Order granting summary judgment to the Illinois drivers under the Wage Act. The Court did not rule on other claims made by the Illinois drivers, but indicated it will address those claims separately. The decision is important in that it is one of a growing number of decisions in the past few years holding that the FedEx Ground drivers are employees and not, as FedEx claims, independent contractors. The essence of the cases consolidated before Judge Miller is that FedEx Ground has intentionally and consistently misclassified drivers as independent contractors, when they are in reality employees. Judge Miller specifically found that the Illinois drivers were employees under the Wage Act because their work was an essential and a necessary part of FedEx's business. As former CEO Dan Sullivan testified, the drivers are the "centerpiece" of FedEx's "workforce" and they are an "essential component" of the company's business. The Court noted the fact that drivers must wear FedEx uniforms and maintain a personal appearance satisfactory to FedEx. Contractors supply their own vehicles, but they must bear FedEx's logos and advertising. Further, FedEx structures the routes so that the trucks are in use 9 to 11 hours a day. Contractors can hire replacement drivers, but only with FedEx's approval. Finally, the Court noted that FedEx managers were obligated to have business discussions and customer service rides each year in order to maintain FedEx's image and reputation. Drivers' motions for Summary Judgment in 40 other states are pending. Currently, there are 63 lawsuits consolidated in the multi-district litigation. Motions for Summary Judgment have been filed, briefed and are awaiting decisions in almost all of these cases.
Most of us are aware of the past actions to Microsoft and more recently UPS and FedEx in the IRS's pursuit of tax revenue via misclassified worker investigations. 
But if misery loves company, these firms have lots of friends.
Here are some that have line up as their closest "friends":
- Hewlett-Packard (Marks v. Hewlett Packard Company)
- Time Warner Inc. (Herman v. Time Warner Inc.)
- Allstate Insurance Company (Equal Opportunity Employment Commission v. Allstate Insurance Company/Romero v. Allstate Insurance Company)
- S.G. Borello & Sons, Inc. (S.G. Borello & Sons, Inc. v Department of Industrial Relations)
- ...and many more have suffered the consequences of worker misclassification.
Perhaps FedEx Corporation’s legal battle will become the newest landmark case, with approximately 30 state class action suits and an Employee Retirement Income Security Act (ERISA) class action filed against the company; settlements are estimated by some to be $1 billion.
Already a California appeals court decision in August 2007 ruled in favor of the plaintiff and FedEx lost its appeal of a $5.3 million verdict. The verdict resulted from a class action that claimed FedEx treated its independent contractors as if they were employees but did not provide them with payment and benefits that full-time employees would receive. The ruling proved that the workers in question, delivery drivers for FedEx Ground, were in fact employees of FedEx and not independent contractors due to the level of control that the company exercised over them.
And if all of the recent legislative action, lawsuits and case studies aren’t eye-opening enough, employers now have more to be concerned with, as current data analysis tools on the market, already in use by several State Unemployment Insurance agencies, allow users to easily analyze the IRS 1099 abstract file with technology that searches and identifies triggers for an audit.
With this technology, a user can establish criteria for queries and can target employers for an audit if, for example, a worker received only one IRS Form 1099 within one year but is paid what the agency views as high-level income. In this case, the agency might suspect that the employer was concealing full-time employment in order to avoid paying unemployment taxes. In the event that an independent contractor is reclassified to employee status during an audit, the employer is responsible for all back taxes, including employer and employee contributions and of course, applicable penalties and fines.
According to CNNMoney.com, most states now share data with the IRS and a noncompliance finding by the IRS is likely to lead to issues with state labor
department and other state agencies as well.
All businesses that are trying to avoid paying unemployment insurance funds should take the steps needed to verify independent contractor classifications given the interconnectedness of the federal and state tax agencies as well as the new IRS compliance agenda.
So, you think the problem is the "Feds"? Nope, the states are all lining up in the exploration of revenue through misclassified employees. Over the past month, PSC has tracked articles and reports by; New York, Michigan, Iowa, Nebraska, Ohio, Tennessee, California, among others. Also, Montana, Maryland, New Hampshire & New Jersey have all filed suit against FED Ex for the misclassification of drivers. (a legal filing can be read citing the individual cases that the states are mounting against the Fed Ex Drivers Claim).
Tell us what's happening in your state?
Independent Contractor employer of record services is becoming more important than ever to prevent Compliance and Risk mitgation.
To learn more about Payment Services Corp's Risk/Reward Assessment, get a free assessment by clicking the icon below.
by Maria Ricci, GM, PSC The Contractor Engagement Checklist we produced last week prepares the employer of record for the proper on-boarding of a contractor to avoid any 
problems later. The continuity and ease of this administration ultimately gives the client, where the contractor is working, a positive experience.
However, you and your contractor have an important role to play to ensure that the relationship is a successful one. Below you will find some keys to professional conduct that will make the relationship go smoothly and insure a positive outcome for all involved.
CONTRACTOR RESPONSIBILITIES: