FedEx Defends Treatment of its Drivers as Independent Contractors, Not Employees

There has been a lot of recent press commentary over FedEx's defense of its treatment of its drivers as independent contractors rather than as employees in the face of challenges by the IRS, state tax authorities, and its drivers' union:

• Associated Press
• Bloomberg
• CNN Money
• Wall Street Journal

Here is FedEx's statement in its latest Form 10-Q filing with the SEC:

On December 20, 2007, the Internal Revenue Service (“IRS”) informed us that its audit team had concluded an audit for the 2002 calendar year regarding the classification of owner-operators at FedEx Ground. The IRS has tentatively concluded, subject to further discussion with us, that FedEx Ground’s pick-up-and-delivery owner-operators should be reclassified as employees for federal employment tax purposes. The IRS has indicated that it anticipates assessing tax and penalties of $319 million plus interest for 2002. Similar issues are under audit by the IRS for calendar years 2004 through 2006. 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. Given the preliminary status of this matter, we cannot yet determine the amount or a reasonable range of potential loss. However, we do not believe that any loss is probable.

Fed Ex's defense is based in large part on a 1994 Letter of Assurance from the IRS that FedEx’s were properly treated as independent contractors, as well as this 1995 closing agreement between Roadway Package Systems and the IRS.reaching a similar conclusion.