FedEx to Pay $26.8M in California Contractor Settlement

FedEx Corp. said it will pay $26.8 million to settle a case in its ongoing battle over whether its Ground unit workers are illegally classified as independent contractors instead of employees.

The California Appeals Court ruled last year that about 200 contractors who operated in the state were employees.

The company had long asserted that its drivers, who have the ability to own multiple delivery routes, should be classified as independent contractors. But drivers under this classification do not receive benefits and are prevented from organizing under federal labor laws.

Memphis, Tenn.-based FedEx said about 900 workers at FedEx Ground still operate in California as contractors. The company has about 13,000 drivers classified as contractors nationwide.

“While we disagree with the original ruling by the California Court of Appeals, we are pleased to put the matter behind us,” FedEx spokesman Maury Lane said. “Throughout this legal challenge, our primary concern was to ensure that the actions of some 200 contractors — most of whom no longer have a connection to or financial stake in FedEx Ground — would not jeopardize the successful businesses operated by hundreds of other California-based FedEx Ground independent contractors.”

Lane says the bulk of the settlement — $19 million — is for plaintiff attorneys fees, interest and court costs.

The company in October announced the Internal Revenue Service withdrew a $319 million tax penalty relating to the model.

FedEx Ground drivers had filed more than 50 lawsuits challenging FedEx Ground’s business model for independent contractors. The suits have been consolidated into a single federal court case in South Bend, Ind.

The California case was filed earlier and was not included in the federal case. There is still one other outstanding state claim against FedEx in Washington.

“The payment shows that the driver’s status argument in California was justified,” said David Welker, campaign coordinator for International Brotherhood of the Teamsters’ package division. The Teamsters have worked as adversaries to drivers in the battle.

“The next chapter will be to see how the court in Washington and Indiana views those claims,” Welker added. “While (the California decision) doesn’t have direct bearing on the other courts, certainly judges will look to this case as helpful in making their decisions.”

Shares of FedEx rose $2.78, or 3.9 percent, to close at $73.71 Friday, Dec. 5, 2008.