FedEx's classification woes

There's a battle looming on the horizon. Eight states have joined efforts to express concern around Fed Ex Ground drivers' employment classification. These states' representatives--Iowa, Kansas, Kentucky, Missouri, New Jersey, Ohio, Rhode Island and Vermont--are arguing that the misclassification allows companies like FedEx to avoid paying taxes, and prevents them from fulfilling obligations to their employees.

This follows on the heals of the U.S. Court of Appeals overturning the National Labor Relations Board's (NLRA) assessment that FedEx drivers are common law employees. After reviewing the common law factors, the Court ruled that they favor independent contractor status.

This is additional support of a topic we've written about several times in June: states seeking revenue will not stop scrutinizing firms they believe to be in violation of state employment and tax laws, and will aggressively try to recoup lost tax revenue and fees associated with misclassification.

The increasing number of co-employment violation allegations underscores the importance of taking time to evaluate the entire composition of the workforce, ensuring every segment is well managed and monitored for compliance and fiscal performance. This effort becomes even more critical as firms begin to prepare for an economic turnaround. The increased volume of pending litigation also confirms that we are truly at a turning point in the way in which the workforce is managed. In fact, it's likely that states will not stop such tactics, and after realizing the amount of revenue available from procedural audits, will standardize the practice as a permanent part of their revenue departments.

Business and HR leadership must collaborate to respond with clear strategies for evaluating the composition of the entire workforce and develop well documented procedures that allow them to build the talent inventory to remain in compliance in the states they do business. This means a willingness to face resistance head on. For instance, firms will occasionally look to independent contractors to avoid internal headcount restrictions. Ironically, by doing so, they open themselves up to co-employment risk, and also end up paying premiums on this talent.

HR must provide the infrastructure to enable the business to find quality talent at more affordable rates and ensure the mitigation of co-employment risk. And the business must change its behavior to leverage such tactics. Implicit in these changes, leadership must remove prohibitive head count restrictions and eliminate end-runs around policy.

The fight between the aforementioned states, FedEx and the NLRA will be an interesting one to watch.