$319 Million Fine for FedEx?
On the heels of a $17.4 million verdict and the filing of a 20,000+-member class action, it now appears that FedEx may also be facing a $319 million fine from the IRS due to the company’s alleged misclassification of employees as independent contractors.
The potential fine was disclosed in FedEx’s most recent Form 10-Q filing, which stated that IRS auditors have “tentatively concluded, subject to further discussion,” that the company’s delivery operators should be reclassified as employees for federal employment tax purposes.
FedEx maintains that it has “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.” However, the company also disclosed that it is making “changes to its relationship with the contractors that, among other things, provide incentives for improved service and enhanced regulatory and other compliance by our contractors.”
Reactions from organized labor were decidedly different. “What a great Christmas gift to FedEx Ground workers who have suffered under FedEx’s illegal independent contractor scam,” Teamsters President Jim Hoffa said. “FedEx has been skirting the law, and the Teamsters welcome the IRS decision.”
The IRS audit and fine apparently only relate to the 2002 tax year. Additional fines totalling well over a billion dollars could be forthcoming as the IRS audits additional years.
The lesson? As we’ve said many times before, misclassifying employees as independent contractors can be hazardous to your company’s health. The rule of thumb: If an employer has behavioral or financial control over a person, that person is an employee, not an independent contractor.
