Monday, January 02, 2006

A coming storm for trucking?

Braun Consulting:FedEx ground vs. UPS: Two Worldviews
Legally, independent contractors can't be directly supervised, supplied with workspace or tools, or otherwise treated like employees. FedEx Ground has successfully defended its contractor system from several legal challenges, but in July a California judge ruled that certain contract workers should be treated as employees.

Filed as a state wage and hour violation case by three contract drivers in California, the suit was expanded to a state class-action suit.

In the California case L.A. County Superior Court Judge Howard J. Schwab issued a 23-page ruling on July 26th, 2004. He ruled that those contractors with multiple routes were legitimate contractors who operate more like businesses than employees. But he decided that single-route contractors should be classified as employees.

The judge termed a single-route contract as a "Single Work Area".

He noted that the contractors have only one client, FedEx Ground. They must drive trucks with company logos, wear uniforms with company logos, and report daily to company distribution hubs. They attend regular briefings on safety and company issues and their contracts can be terminated for any number of infractions. This means that in effect they can be fired for failing to follow company policies.

Some of the more interesting aspects of the judges ruling follow:

"A close reading of the Operating Agreement, which all SWAs (Single Work Area, or Single-route contractors) must sign in order to be able to work for FedEx Ground, is comprised primarily of platitudes and guidelines."

"For all practical purposes, by the nature of their work, the SWAs are engaged in the exclusive and full-time pickup and delivery service for FedEx Ground and are identified as such. FedEx Ground also provides business cards for the SWAs with its logo."

"Of importance to the court is the clear evidence that SWAs are totally integrated into the FedEx Ground operation...The SWAs wear required uniforms and drive specifically mandated FedEx Ground logo-laden trucks. The SWAs are long term in years of service..."

"Most important of all, the court finds that the work of the SWAs is essential for FedEx Ground's core operation, the pickup and delivery of packages. If lightning were to strike so that there were to be no FedEx Ground, there would in fact be nothing left for the SWAs to do and they suddenly would be bereft of business."

"The court finds that in entering the relationship, FedEx Ground purposely created controls of an employment nature, hoping that in spite of those strictures, the status would still be seen and considered to be that of an independent contractor."

FedEx "respectfully disagreed" with the ruling. If the ruling holds up they will either have to convert single-route contractors into California employees or change the relationship to comply with the less restrictive control associated with an independent contractor.

This is most directly applicable to independent contractors in the courier industry, but there have been efforts to have port truck drivers considered employees. In OTR trucking there are three basic categories of driver. A company driver operates a company supplied truck pulling loads as directed by the company. He is not responsible for the operations costs of the truck. Some company drivers may have leeway as to what routes to run or even to choose which of the company's loads they will haul but the company has the prerogative to totally control the truck and driver. An independent contractor provides a tractor but operates exclusively for one employer. They will usually have a company truck number and the employer name and logo on their truck. By law, liability insurance is provided by the carrier (at leas Generally they are paid a certain per mile or percentage rate "to the truck" out of which they pay operating expenses and whatever is left over is their earnings. They have more control usually over the operation of the truck, but can still be fairly tightly supervised by the company. In theory though, the independent contractor can choose to quit his current company, take his tractor, and go to work for a different company so he has some leverage if the company makes onerous demands . An owner operator owns their own unit, generally both the tractor and trailer. They contract directly with shippers to haul freight, usually for a fixed dollar amount per load. They may haul loads for other motor carriers on an occasional basis. They run their own independent business, billing customers and providing their own operating authority and insurance.
The lines between the different categories get blurred sometimes. An individual may own multiple trucks which are leased to a carrier, in effect an independent contractor who is also an employer. Lease purchase plans may result in an independent contractor with very little freedom.
Many carriers use independent contractors to cut costs or to fill driving slots they cannot fill with company drivers. Independent contractors often operate trucks that are more expensive and less fuel efficient than fleet trucks (though much more attractive and comfortable).
So if independent contractors must be recategorized as employees then carriers will have to either accept the new status quo, only deal with owner operators, or only deal with company drivers. If the carriers have to pay wages plus operating costs they would be more inclined to restrict what types of tractors independent contractors may purchase as well as operational details such as how fast the truck is governed at, how many out of route miles, and out of route miles the truck runs.

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