IRS Reverses FedEx Ground Ruling

In what appears to be the latest chapter in a series of long-awaited FedEx rulings on their independent contractor woes, the IRS announced that it has dropped the last audit of FedEx. At present, FedEx does not expect any more audits on the company for this matter.

The IRS ruled in late October that it will reverse its earlier stance and previous assessment that FedEx had misclassified some of its package delivery drivers as independent contractors. The reversal squarely backs the FedEx stance that its classification of certain drivers in the network as independent contractors is appropriate. Furthermore, the ruling drops a potential $319 million assessment by the IRS. FedEx broke the news in their SEC filing.

For the past three years, it has been common for us to hear UPS warn our clients during presentations about the status of FedEx independent contractors and to watch for a huge move by the federal government to push for the classification of these drivers to employees. That would open the door for potential  labor union representation and a more level playing field when it comes to how this part of FedEx's business is managed (UPS drivers and other parts of UPS are represented by the Teamsters). Now that appears to not be the case.

What we're seeing as we complete a record number of projects in 2009 and slated for 2010 is that FedEx has made aggressive moves to gain market share among dwindling and finite package volume. Most recently, FedEx announced the introduction of their SmartPost service; a low-priced ground residential delivery service that has significant cost savings in the 1-10 lb range. The delivery of SmartPost packages is handled by both FedEx and the US Postal Service.

At the same time and within the same climate, we're seeing backward moves by UPS. Although most pricing remains competitive, UPS is tendering odd documents with their new rounds of pricing; including loosely-worded early termination agreements. For nearly two decades, UPS has been overt in their education to the shipper that their pricing documents are "Carrier Agreements" (as worded clearly on the top of every document) and not a "contract". With the advent of early termination, one would construe that there must be a term...and with the statement of penalties for early termination, it would appear that these are now contracts.

The months of January and February are always interesting in our organization, as we're fielding calls and requests from clients and prospects for assistance with the rate increases that they knew were coming, but didn't know how they would affect their bottom line. This winter will also be an interesting time to watch the continued jockeying of the two remaining global service providers in this space.

IRS Drops Last FedEx Audit
IRS Reverses FedEx Ground Ruling