FedEx Sued by Shareholders

May 13th, 2008 by

As if Fed Ex did not have enough problems, the company with the unusual staffing model is now being sued by some shareholders. Given that the suit has been filed by Local 51 of the Plumbers and Pipefitters Pension Fund, it’s no surprise to find that the suit attacks the business model of hiring “independent contractors” to carry out the core activities of the company. FedEx has hired over 15,000 of these “contractors” to deliver the goods: in FedEx uniforms and FedEx trucks, along company assigned routes, with company approved hair styles …and no white socks!
FedEx dismisses the suit as “frivolous.” Company spokesman Maury Lane asserts that “FedEx has a long record of providing outstanding shareholder value and is led by a board of successful and experienced directors…” To which Dan Newman, attorney for the disgruntled stockholders, replies: “There’s nothing frivolous about illegally exploiting workers and cheating on taxes — it’s gross mismanagement and a grave breach of fiduciary duty.” Ouch!
The lawsuit includes a chart of compensation for FedEx directors, which has risen from a minimum of $48,000 in 2002 to the current minimum of $160,000. For most directors, the annual pay is $220,000. Not bad for independent board members (who don’t have to wear uniforms, who wear any color socks they like and who can drive any vehicle, the fancier the better).
Despite a series of losses in state courts and with the IRS, the company continues to defend the fundamental business model. They say that drivers can buy multiple routes and hire people to work those routes for them, thus making the route owners “entrepreneurs.” True enough. But the key word is “can.” Most can’t and most don’t. The vast majority of the 15,000 drivers have no employees and are not entrepreneurs. They are by any reasonable standard employees of FedEx, carrying out the basic work of the company.
At some point, sooner or later, FedEx will probably have to throw in the towel. Then they will face a huge bill for retroactive benefits (including workers comp) owed to their employees. The stock will surely take a big hit. I’d like to think that the directors who have managed this dubious experiment in outsourcing might actually be held accountable. But FedEx’s team of seasoned (and I do mean seasoned) litigators will make sure that never happens.
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