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IRS differs with FedEx Ground
By Jill Dunn
The U.S. Internal Revenue Service has “tentatively concluded” that FedEx Ground’s pickup-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes, an issue central to other legal battles facing the company.
The IRS told the company Dec. 20 it had finished its 2002 audit regarding the classification of owner-operators at FedEx Ground, according to FedEx’s Dec. 21 quarterly report.
The IRS anticipates assessing tax and penalties of $319 million plus interest for 2002 and is auditing FedEx Ground for similar issues for the years 2004 through 2006, the FedEx report stated.
“We believe that we have strong defenses to the IRS’s tentative assessment and will vigorously defend our position, as we continue to believe that FedEx Ground’s owner-operators are independent contractors,” the quarterly report stated.
The report also noted FedEx Ground’s involvement in numerous class-action lawsuits and state administrative proceedings claiming the company’s owner-operators are employees. Most of the class actions have been consolidated by the U.S. District Court for the Northern District of Indiana.
FedEx Ground is appealing the district court’s Oct. 15 class-action ruling to the U.S. Court of Appeals for the 7th Circuit.
The quarterly report noted that a ruling against the company could force it to pay contractors’ expenses and wage-and-hour benefits and leave it open to withholding-tax liability as well. Another result could be changes in the independent contractor status of FedEx Ground owner-operators.
FedEx Ground also has appealed Massachusetts Attorney General Martha Coakley’s Dec. 19 assessment of more than $190,000 in penalties against the company for what she called “intentionally misclassifying” 13 employee drivers as independent contractors.
Massachusetts’ independent contractor test is “the most restrictive in the country,” said FedEx Ground spokesman Perry Colosimo, who noted that in the Bay State “No concerns were raised about our business practices until recently.” The state investigation began in summer 2007 after a driver filed a complaint.
“This decision will have a chilling effect on the ability of the state’s thousands of independent contractors -- including other truck drivers, doctors, dental hygienists, and many others -- to earn a living outside an employer-employee relationship,” Colosimo said.
Coakley charged that FedEx Ground “intentionally violated all three prongs of the independent contractor law by directing and controlling the activities of drivers and restricting the drivers’ ability to deliver for any other entity.”
Coakley charged that FedEx violated the state’s independent contractor law by misclassifying drivers, not providing a proper pay stub or workers’ compensation, not paying overtime and not deducting and withholding state income taxes. She said FedEx Ground must rectify the violations and provide restitution to the drivers involved.
FedEx Ground has at least 400 drivers in its service in Massachusetts, so the numbers involved in Coakley’s decision are relatively small. Yet the issues involved are great. Coakley said her investigators also determined drivers were “performing the core business of FedEx Ground” -- language especially troubling to any trucking fleet that operates on an owner-operator business model. |
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