© 2012 The Texas Lawbook.
By Mark Curriden
Senior Writer for The Texas Lawbook
Texas political leaders frequently boast about how friendly state regulators are to businesses and how horrible the federal government treats business.
In a new lawsuit, global mail and package shipper Federal Express disagrees.
FedEx Ground Package System is suing the Texas Workforce Commission for illegally forcing the company to pay unemployment taxes for its drivers in Texas, which the company claims are independent contractors. The company claims that more than $1 million is at stake.
In addition, FedEx Ground, which is a subsidiary of the Memphis-based company, accuses the state of illegally double dipping by attempting to collect unemployment taxes from both the company and the hundreds of independent contractors across the state.
The lawsuit, which was filed Dec. 21, is quietly garnering a lot of attention from other major corporations doing business in Texas that use independent contractors as a key part of their operation, including AT&T, TimeWarner Cable and various energy retailers.
Texas Attorney General Greg Abbott’s office did not respond to requests for an interview, but in court documents, the state writes that it denies “each and every allegation.” The Texas AG cites “sovereign immunity” and “official immunity” as reasons why the lawsuit should be dismissed, but the state does not directly address any of the factual or legal arguments in FedEx’s claim.
“This case is being watched very closely by a lot of major companies, workers and the state because there’s a lot of money involved,” says Richard Carlson, who teaches employment law at South Texas College of Law.
“The courts have struggled with this debate for about 100 years and have gone back and forth on whether some workers are contractors or employees,” says Professor Carlson. “These cases are very close calls and are extremely fact intensive.”
FedEx is involved in more than two dozen lawsuits across the US regarding the classification of its drivers. Most of the lawsuits have been filed in federal court by FedEx drivers demanding they receive the benefits that come with full-time employment. Attorneys general in New Jersey, New York and Montana in October announced they would sue FedEx if the company doesn’t reclassify 12,000 of its drivers as employees. Those states claim they are owed tens of millions of dollars in payroll taxes.
In the cases that have progressed in the courts, judges have tended to side with FedEx.
Legal experts point out that, in an interesting twist, the IRS under the Obama Administration has actually been more friendly to the assertion that FedEx drivers are contractors, reversing a $319 million tax assessment against the delivery company in November.
The FedEx lawsuit against Texas primarily comes down to a single question: How much control does the company have over the worker?
In its petition, FedEx goes out of its way to point out how independent its drivers are.
“FedEx Ground Contractors are responsible for exercising significant independent discretion and business judgment to achieve the agreed upon business objectives and results,” the suit states. “FedEx Ground imposes no set work hours, routine or schedule on the Contractors or their workers.”
The company notes that the contractors own their trucks, that FedEx does not help them with financing of the equipment and that the contractors can deliver for other companies other than FedEx, though not for UPS, which lists its drivers as employees.
FedEx points out that the contractors create their own companies and then put the drivers under that separate company as an employee.
“FedEx appears to meet the tests of what is legally required for independent contractors,” says Mark Shank, a partner at Gruber Hurst Johansen Hail Shank.
“These FedEx contractors appear to own multiple trucks and have their own employees driving the trucks,” says Shank, who teaches employment law at SMU Dedman Law School. “I’m surprised by the position the TWC is taking in this case.”
Shank believes that a lot of a businesses and independent contractors will be watching the FedEx case proceed.
“The key is for the courts in deciding this is, how dependent are the drivers on the company for their livelihood?” says Michael Maslanka, an employment law expert at Constagy, Brooks & Smith in Dallas. “FedEx has had pretty good success winning this issue just about every time it has come up. The Texas Workforce ruling is the aberration.”
Sutherland Asbill & Brennan litigation partners Kent Sullivan and Sean Jordan represent FedEx in the suits filed in state court in Austin. Sullivan is a former state district judge in Austin. Jordan is a former deputy solicitor general for the Texas Attorney General’s office.
© 2012 The Texas Lawbook. Content of The Texas Lawbook is controlled and protected by specific licensing agreements with our subscribers and under federal copyright laws. Any distribution of this content without the consent of The Texas Lawbook is prohibited.