Category: Industry News

Reggie Gray thought working for FedEx was his ticket to a better life.

It turned out to be anything but: His years as a driver for FedEx Ground ended with him filing for bankruptcy and taking the company to court.

FedEx drivers have won some significant legal battles recently. Courts in Oregon, California and Kansas have ruled that FedEx Ground drivers fit the legal definition of an employee. The National Labor Relations Board ruled on September 30 that drivers in Connecticut are FedEx employees. A decision is expected soon from the Seventh Circuit court of appeals, which has jurisdiction over cases in Indiana, Illinois and Wisconsin.

The company is currently facing 30 more active lawsuits from former contractors in several states.

FedEx loses again in battle over driver status

The Supreme Court of Kansas ruled late last week that FedEx had illegally classified truck drivers as independent contractors instead of as employees, notching a victory for the class of 479 workers who are seeking to recoup retroactive expenses and costs in addition to overtime pay they were prohibited from collecting under the contractor arrangement.

The decision in favor of the drivers is just the latest blow to the model long employed by the shipping company, which requires contracted workers to pay for uniforms and truck maintenance out of their own pockets. Last week, in assessing the status of FedEx drivers seeking to join a union in Connecticut, the National Labor Relations Board also found that the drivers are employees. The Ninth Circuit Court of Appeals in Portland, Ore. made the same determination in August, a ruling that ended FedEx’s long winning streak in cases challenging its independent contractor structure.

Essentially, the government is charging FedEx as a drug trafficker, although no specific company executives or employees have been indicted. FedEx is flatly denying any wrongdoing and is vowing to hotly contest the issue in court, unlike UPS, which paid $40 million in a settlement in a similar dispute with the feds.

What it all means for FedEx investors
If FedEx is convicted on the Justice Department’s charges, then the company would have to pony up big time. FedEx would be responsible for paying a whopping $1.6 billion fine, almost twice as much as the $820 million the feds say FedEx made off of illicit drug operations. To put this number in perspective, FedEx reported $11.6 billion of revenue and $730 million in net income in the fourth quarter of fiscal 2014.

So, if FedEx does lose its case in court, the company may take a relatively big hit in the short term, which would hurt the company’s bottom line. Investors may be spooked from the stock as well, driving down confidence in the brand.