The Fedex Case

[AthenaAwakened]

It probably isn't.

Part of my job at the hospital system was managing the contract database. Non-compete clauses were not uncommon. We paid our law firm $5k per month just to keep them on retainer. They wrote most of our contracts (for additional money, of course). I don't think these people would routinely include illegal clauses in the contracts they wrote. I am open to any hard data saying otherwise.

that is pretty much what I found browsing the internet.

And it makes sense, especially in right to starve, I mean, right to work states.

 

[Bronzeage]

For many years, the classification "independent contractor" was one of the biggest tax dodges in the world. It saves the company the matching social security and payroll taxes and shifts this burden to the worker, while giving the company the benefit of a full time employee. The IRS issued very strict guidelines to define a contractor about 30 years ago, but a lot of companies still try to get away with it.

The essential element of being a contractor is the ability to dictate when the service is provided. The employer can only give a window of time and a deadline. Fedex keeps their drivers on the road about 60 hours a week, so windows and deadlines are superfluous.

My wife is an independent contractor as a personal fitness instructor. But despite being independent, she has a clause that doesn't allow her to work for other companies while working for that company. I have no bloody clue how that is legal. WWE (the wrestling company) is likewise.

I think that alone makes her an employee, since the employer is dictating what she can and cannot do when she is not actually working.

The essential element of defining a contractor is to be paid for the work performed, not the time one commits to the job. Your wife could be considered a contractor if the fitness company sends her a name and phone number, then it is her task to contact the person and arrange a time and place for the training.

I am an independent contractor. Most of my income comes from that kind of work. I have a very nice deal with a local upscale antique dealer. About three times a year, they bring in a cargo container of European light fixtures, which are anything from 200 to 100 years old. Most of them have been converted to electric lights sometime in the past century. It is my job to take each piece, decide what is needed to bring it up to current electrical code and then perform the work. All they want is salable merchandise and my bill. When I am paid, it goes on my small business owner's tax report. I am responsible for all income taxes and self employment tax. This is why the health club wants to call your wife a contractor. If she is paid as an employee, first, they have to pay withholding tax. This means a good deal of clerical work and usually requires either a business service(another contractor) or a full time employee. Beyond that there is payroll taxes, which go to pay unemployment benefits. Finally, there is Social Security matching contributions.

When the money is counted, a full time employee can cost 15% or more, beyond their actual payroll check. It is very tempting to call them a contractor.

 

[AthenaAwakened]

From the wiki on independent contractors

While some independent contractors may work for a number of different organizations throughout the year, there are also many who retain independent contractor status even though they work for the same organization for the entire year.

Generally speaking, independent contractors retain control over their schedule and number of hours worked, jobs accepted, and performance of their job. In addition, they may have a major investment in equipment, furnish all their own supplies, provide their own insurance, repairs, and all other expenses related to their business. They may also perform a special service that is not in the normal course of business of the employer. This contrasts with the situation for regular employees, who usually work at the schedule required by the employer and whose performance is directly supervised by the employer. However many companies (particularly in the freight transport industry) specify the contractor's schedule, require purchase of vehicles from the company and prohibit work for other companies

 

[EricK]

Are the drivers who are working as contractors getting paid more on average (per hour, say) than equivalent drivers who are being counted as employees? i.e. are they effectively trading in the non-monetary benefits of being an employee for cash? Certainly that's the case with the contractors I know within my industry.

 

[NobleSavage]

Are the drivers who are working as contractors getting paid more on average (per hour, say) than equivalent drivers who are being counted as employees? i.e. are they effectively trading in the non-monetary benefits of being an employee for cash? Certainly that's the case with the contractors I know within my industry.

I tried to figure that out but couldn't. The FedEx guys were making anything from minimum wage to raking it it. They could hire drivers and "build a business". I'm not sure if the third in a chain workers were employees of the contractor or subcontractors of the contractor. Anyhow, the average was quoted as 70K. (Before or after expenses, I don't know. I'd be surprised but not shocked if it was before expenses). The UPS guys get 74K on average (but does that include benefits and 401K-- most likely). The down side of UPS is that you have to work 8 years of your life stacking boxes for $10 an hour. And they don't like full time package handlers.

 

[Axulus]

http://www.huffingtonpost.com/2014/08/27/fedex-independent-contractors_n_5725076.html

The 9th circuit has decided in favor of drivers and against FedEx in a suit to have drivers declared employees and not independent contractors.

Glad to see it. This will hasten the implementation of driverless vehicles and delivery drones. Can't wait - will usher in an era of reduced traffic accidents, less congestion and more free time

 

[Axulus]

What doesn't make any sense in the logic I'm seeing here: if companies are trying to save money by calling the worker an independent contractor, why is it the case that these positions almost always pay more than minimum wage? Wouldn't there be more savings to be had by calling them an employee and paying them minimum wage without benefits?

 

[NobleSavage]

What doesn't make any sense in the logic I'm seeing here: if companies are trying to save money by calling the worker an independent contractor, why is it the case that these positions almost always pay more than minimum wage? Wouldn't there be more savings to be had by calling them an employee and paying them minimum wage without benefits?

FedEx purchased their ground fleet from another company that already had the independent contractor model in place. Now that they are employees I'm sure they'll knock down their wage.

 

[Bronzeage]

Are the drivers who are working as contractors getting paid more on average (per hour, say) than equivalent drivers who are being counted as employees? i.e. are they effectively trading in the non-monetary benefits of being an employee for cash? Certainly that's the case with the contractors I know within my industry.

I find it hard to imagine Fedex could operate efficiently if they had to deal with every single Fedex Ground driver as an individual contractor. What Fedex does is require a person to invest a good deal of money to provide their corporate infrastructure in order to become a contractor, and then treats them like an employee.

One will notice, there are no contractors who have employees. If this was a true contractor relationship, a person could buy three trucks and hire three drivers. He/she would be responsible to Fedex for delivering the packages. It's unlikely Fedex would ever allow this. It puts too much leverage in the hands of the contractor. Such a person could control delivery times for a large portion of an entire city. This takes away the "do what we say, or else," power they currently have over individual drivers.

 

[NobleSavage]

Are the drivers who are working as contractors getting paid more on average (per hour, say) than equivalent drivers who are being counted as employees? i.e. are they effectively trading in the non-monetary benefits of being an employee for cash? Certainly that's the case with the contractors I know within my industry.

I find it hard to imagine Fedex could operate efficiently if they had to deal with every single Fedex Ground driver as an individual contractor. What Fedex does is require a person to invest a good deal of money to provide their corporate infrastructure in order to become a contractor, and then treats them like an employee.

One will notice, there are no contractors who have employees. If this was a true contractor relationship, a person could buy three trucks and hire three drivers. He/she would be responsible to Fedex for delivering the packages. It's unlikely Fedex would ever allow this. It puts too much leverage in the hands of the contractor. Such a person could control delivery times for a large portion of an entire city. This takes away the "do what we say, or else," power they currently have over individual drivers.

If you read the info linked in this thread and search on Google you will find that the FedEx contractors could hire employees. That was their selling point -- you can build a business.

 

[Bronzeage]

I find it hard to imagine Fedex could operate efficiently if they had to deal with every single Fedex Ground driver as an individual contractor. What Fedex does is require a person to invest a good deal of money to provide their corporate infrastructure in order to become a contractor, and then treats them like an employee.

One will notice, there are no contractors who have employees. If this was a true contractor relationship, a person could buy three trucks and hire three drivers. He/she would be responsible to Fedex for delivering the packages. It's unlikely Fedex would ever allow this. It puts too much leverage in the hands of the contractor. Such a person could control delivery times for a large portion of an entire city. This takes away the "do what we say, or else," power they currently have over individual drivers.

If you read the info linked in this thread and search on Google you will find that the FedEx contractors could hire employees. That was their selling point -- you can build a business.

How many have done this?

 

[NobleSavage]

I don't know, I'll have to look into it. You don't even have to be a driver to invest and start a business (before the court case).

 

[Bronzeage]

I don't know, I'll have to look into it. You don't even have to be a driver to invest and start a business (before the court case).

This is a C&P from the PDF linked in a previous post:

9. The proprietary interest in customer accounts is not based upon contracts or
arrangements between the drivers and the clients but rather, the customer accounts
are based upon contracts between FedEx and the customer.
10. The ability of the drivers to sell their routes is limited. Over a review of ten years
the NLRB found very limited evidence that drivers realized any significant gain
or profit from route sales and concluded that a route had little or no clear
economic value.
11. Drivers could not significantly increase their compensation through soliciting new
customers.
12. Looking at FedEx’s major competition in the arena of package pick up and
delivery service, (UPS, the US Post Office and DHL/Airborne, the primary model
is that of an employment relationship.
13. The owner-drivers have little or no opportunity for profit or loss based upon their
own entrepreneurial activities.
Judge Schwab stated in his ruling, “The court finds that in entering the relationship, FEG
(FedEx Ground) purposely created controls of an employment nature, hoping that in spite
of those strictures, the status would still be seen and considered to be that of an
independent contractor.” He went on to quote Borello & Sons V. Department of
Industrial Relations (1989) 48 Cal3d341, 350-355, “The label placed by the parties on
their relationship is not dispositive, and subterfuges are not countenanced.”

Line 13 alone, is enough to show the futility of "starting a business" as a Fedex Contractor. Once a contractor has purchased trucks and hired and trained drivers, his investment is solely at the mercy of Fedex, who can modify routes and customer lists at anytime.

 

[NobleSavage]

^^ Agreed. However, I doubt the life of the contractors/employees will get any better after the court case. FedEx will figure something out.

 

[Bronzeage]

^^ Agreed. However, I doubt the life of the contractors/employees will get any better after the court case. FedEx will figure something out.

Which is probably drop the contractor subterfuge and operate under the law. Labeling an employee as a contractor is simply a tax dodge. The contractor agreement maybe modified to meet the requirements, but much more likely, Fedex will buy out their contractors to compensate for their investments and offer them jobs as bonafide employees.

 

[dismal]

^^ Agreed. However, I doubt the life of the contractors/employees will get any better after the court case. FedEx will figure something out.

Which is probably drop the contractor subterfuge and operate under the law. Labeling an employee as a contractor is simply a tax dodge. The contractor agreement maybe modified to meet the requirements, but much more likely, Fedex will buy out their contractors to compensate for their investments and offer them jobs as bonafide employees.

I believe the taxes still get paid. There is no dodging of them.

 

[Bronzeage]

Which is probably drop the contractor subterfuge and operate under the law. Labeling an employee as a contractor is simply a tax dodge. The contractor agreement maybe modified to meet the requirements, but much more likely, Fedex will buy out their contractors to compensate for their investments and offer them jobs as bonafide employees.

I believe the taxes still get paid. There is no dodging of them.

They get paid by the person driving the truck. It is Fedex who dodges them.

 

[dismal]

I believe the taxes still get paid. There is no dodging of them.

They get paid by the person driving the truck. It is Fedex who dodges them.

They don't dodge them. They have to pay enough to make it worth it to the drivers net of taxes. If they paid the taxes they would pay the drivers less. Since the total taxes paid in the transaction are the same either way its hard to imagine tax avoidance is the motive.

 

[Loren Pechtel]

It probably isn't.

Part of my job at the hospital system was managing the contract database. Non-compete clauses were not uncommon. We paid our law firm $5k per month just to keep them on retainer. They wrote most of our contracts (for additional money, of course). I don't think these people would routinely include illegal clauses in the contracts they wrote. I am open to any hard data saying otherwise.

Non-compete is fine. Non-complete and 1099 is a problem.

 

[Loren Pechtel]

^^ Agreed. However, I doubt the life of the contractors/employees will get any better after the court case. FedEx will figure something out.

Which is probably drop the contractor subterfuge and operate under the law. Labeling an employee as a contractor is simply a tax dodge. The contractor agreement maybe modified to meet the requirements, but much more likely, Fedex will buy out their contractors to compensate for their investments and offer them jobs as bonafide employees.

In some cases it's a paperwork dodge.

And in some cases there's no other option--under local law it's illegal for my wife to work for anyone without a doctor's license.

- - - Updated - - -

They get paid by the person driving the truck. It is Fedex who dodges them.

They don't dodge them. They have to pay enough to make it worth it to the drivers net of taxes. If they paid the taxes they would pay the drivers less. Since the total taxes paid in the transaction are the same either way its hard to imagine tax avoidance is the motive.

With naive workers, maybe.

You do avoid unemployment and worker's comp costs, though.