Five years ago we blogged the problem FedEx would inevitably run into in Massachusetts, where the definition of “employee” is so inclusive, it’s almost impossible to find a truly “independent contractor.” Well, the proverbial chickens have come home to roost.
Attorney General Martha Coakley has announced a settlement with FedEx, wherein the delivery giant has agreed to pay a little more than $3 million relating to the status of 13 “misclassified” delivery drivers. Without admitting liability or wrongdoing, FedEx has agreed to refrain from using the “independent contractor” strategy in response to claims for benefit coverage, including payroll taxes, unemployment insurance, and workers comp. In exchange, Massachusetts will refrain from any further legal action for one year. In other words, for the modest sum of $3 million, FedEx has bought itself a year to clarify its business strategy. Therein lies a tale of attorneys, well worth the telling.
FedEx maintains a steadfast commitment to a business model for its ground delivery system where the work is performed by independent contractors. With a healthy scepticism in our hearts, we have frequently blogged the barriers to independence: the drivers wear FedEx uniforms, drive FedEx trucks, adhere to FedEx dress codes and schedules, etc. FedEx ground does not exist without these drivers and that makes them, in effect, employees. The response to the fundamental query “who controls the work?” has been unambiguously, FedEx.
ISP to the Rescue?
As part of its agreement with the Commonwealth, FedEx has outlined its rationale for the independent contractor model. They propose entering into an Independent Service Agreement (ISP) with driver/managers in each service area. Appended to the MA settlement in draft form, the ISP agreement tries diligently to carve out a middle ground where the work is performed independently, but to FedEx standards.
Here are a few of the details:
As you can see, FedEx is trying to establish independence while still maintaining its identity and its standards. The Attorney General has not made any judgment about the validity of this strategy; she has simply cashed a nice check, in exchange for which she has given FedEx a year to work out the kinks. After the year is up, the FedEx model will likely be challenged once again.
Not Quite Independent?
You have to credit the presumably well-paid FedEx team: they have tackled head on the thorny issue of “free from control and direction.” On the surface at least, the ISP approach offers a credible if not totally convincing appearance of independence.
Unfortunately for FedEx, the MA standards have two additional components, neither of which appear to be addressed in the draft ISP agreement: independent contractors must provide a service outside of the general contractor’s usual course of business (no way FedEx can do this) and their independence is reflected in their marketing of services beyond a single customer (what would this look like?).
It will be interesting to see how FedEx responds when local driver/managers stretch the rules and standards in an attempt to assert some real independence. That’s where the rubber will meet the road in this seemingly endless saga: a company with a ferocious need to control, giving up control in order to preserve their idiosyncratic business model.
And some folks say employment law is boring….Stay tuned.
Tags: drivers, FedEx, independent contractors, Massachusetts