A recent front page story in the New York Times on “wage theft” cited six companies that have been accused of failing to pay overtime and other employee benefits, and three of them were some of the largest companies in freight transportation: Walmart, Schneider and FedEx.
The trucking industry needs to take note that FedEx late last month lost a federal appeals court case that could cost it hundreds of millions of dollars in damages to workers that the court found were actually employees of the shipping giant, and not — as FedEx has long maintained — independent contractors. There were 2,300 drivers directly covered by the ruling.
Just a few days later, a federal judge in California signed off on a $4 million settlement between FedEx and 7,400 other of its drivers who claimed they were short-changed on overtime wages.
Even though the status of many of FedEx’s drivers and warehouse workers has long been in dispute, a number of other companies in the freight industry have adopted plans similar to FedEx’s model of seeking to spin off various workers into subsidiary companies and classifying them as independent contractors.
As Forbes magazine contributor Robert W. Wood wrote after the court ruling, “There will be a flap about this case not only at FedEx but across the package delivery and transportation industries. Many trucking companies use a similar ‘model,’ calling — and paying — their drivers as independent contractors.”
While FedEx said it has modified the operating agreements with its FedEx Ground drivers that the 9th U.S. Circuit Court of Appeals ruled on, there are a number of similar pending suits that involve other drivers. Wood told Forbes’ readers that FedEx in total “may owe its workforce of drivers hundreds of millions of dollars.”
In his column, Wood wrote, “It this case about a little overtime? Hardly. FedEx avoided health care, workers compensation, paid sick leave and vacation, retirement and more.”
As for Schneider, its Schneider Logistics subsidiary agreed to a $21 million settlement of a class-action suit in May with some 1,800 workers at warehouses in California that the trucking firm operated for Wal-Mart Stores. The settlement came after a federal judge agreed that workers had been underpaid and denied overtime compensation. Also, the workers claimed that employees who complained about their treatment were then retaliated against.
Schneider had claimed that since it had hired two other firms to handle loading and unloading at the warehouses it ran for Wal-Mart, it wasn’t liable. The federal judge disagreed.
The lead attorney in the case, Theresa Traber, told the Milwaukee Journal Sentinel, that the case showed what can happen when retail giants such as Wal-Mart “team up with huge logistics companies like Schneider and they hire employees through subcontractors and then claim they have no responsibility for complying with the labor laws with respect to those workers.” It appears that Schneider will pay all of the $21 million settlement, and not its client, Wal-Mart, according to the newspaper.
In December of 2013, Schneider agreed to settle another lawsuit by 568 workers at these warehouses for $4.7 million. The workers claimed they weren’t paid appropriate overtime and had bogus deductions taken from their paychecks.
While some industry executives see the lawsuits alleging “wage theft” as a drive by organized labor to undermine their operations, it seems clear that the arguments against some of the freight industry’s independent contractor practices are finding a receptive audience in federal courthouses. So fleet executives need to tread carefully when they move to spin off labor costs by changing the work status of employees.