In 2015 and 2016, FedEx Ground paid more than $450 million to settle multiple lawsuits alleging that the FedEx Corp. ground delivery unit classified its delivery driver workforce as independent contractors when in reality they functioned as employees entitled to the benefits that come with that status.
The matter lay dormant until mid-November, when PYNQ Logistics Services Inc., a former FedEx Ground contractor that operated on the California-Oregon border, sued the unit on grounds that it violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by fraudulently inducing the company to enter into a contract with the understanding that it would be independent but was instead subject to controls that required it to function like an employee.
The 99-page lawsuit, filed Nov. 14 in U.S. District Court for the Northern District of California, could open up a new legal frontier for the FedEx unit (NYSE: FDX) and its nearly 7,000 driver contractors, especially if the case evolves into a class action as PYNQ said it reserves the right to ask for.
In the pleading, PYNQ’s attorneys said the unit requires its contractors to “represent they are each” independent contractors but then implements policies and procedures to exercise the “same level of control over the operations of the contractors and their employees an employer would. The system integrates the contractors into the FedEx Ground system with very little practical distinction” between the operations of the unit and its contractors.
The suit alleges that FedEx Ground can change business policies and requirements without having to compensate contractors for any losses as a result of the policy changes. FedEx Ground also intentionally limits the operations, growth and size of its contractors, which constitutes an illegal restraint of trade, the suit alleges.
FedEx Ground did not respond to a request for comment.
A person familiar with the matter said the strategy of suing under the RICO statute has the effect of setting aside certain provisions of the contract that could be interpreted as unfavorable to contractors. Under the contracts, contractors waive the right to seek class-action status. The contracts also limit a contractor’s monetary damages to the prior 12 months of profitability, which could vary significantly from contractor to contractor. In addition, disputes are subject to mandatory arbitration, which means that a case cannot be heard in front of a jury and the outcome be kept confidential, the person said.
A plaintiff that prevails under the RICO statute could be entitled to significant monetary damages, including possible disgorgement of profits from the defendant, the latter being particularly devastating.
The case was filed in a jurisdiction regarded as friendly to labor and worker interests.
Around the time of the earlier settlements, FedEx Ground changed its operating structure so it would no longer deal directly with drivers but would insert a layer of Independent Service Providers that would hire and fire drivers and be responsible for investing in and managing their respective businesses. Since that time, however, contractors have been subject to a broader and more demanding litany of company requirements that put them even deeper under FedEx Ground’s control, the person said.
FedEx Ground’s contractors, all of whom are nonunion, are awarded routes that they are able to sell at a time of their choosing. Contractors are required by their contractors to maintain certain levels of performance standards.