Though FedEx Corp. was built on a cargo airline, its trucking business is now a big-time moneymaker and a tough competitor for its chief rival, UPS Inc.
But the shipping giant's trucking division, FedEx Ground, is now embroiled in a growing labor fight that could raise operating costs by millions and lead to an overhaul of its work force.
The argument centers on the more than 14,000 drivers of those trucks with the purple and green "FedEx" on the side that make thousands of stops each day at homes and businesses across America.
The drivers are independent contractors who own the trucks, pay all operating costs and get no company benefits.
But drivers in Tennessee, California, Massachusetts, Minnesota, South Dakota and elsewhere are suing FedEx, arguing the company skirts worker protection laws by refusing to hire them as employees eligible for overtime pay, health insurance, workers' compensation and other benefits. They also want to be reimbursed for back operating expenses and lost benefits.
FedEx Ground, headquartered in Pittsburgh, was created seven years ago amid a reorganization of the parent company, which also owns FedEx Express, the world's largest cargo airline.
The unit brought in almost $4.7 billion in revenue out of Fedex Corp.'s $29.4 billion total for the last fiscal year that ended May 31. The company has consistently described the FedEx Ground division as one of the primary reasons for a steady increase in corporate earnings. Ground's operating income grew 16 percent to $604 million in fiscal 2005.
A victory by the unhappy drivers would raise employee costs and force FedEx Ground to maintain its own fleet of trucks, said University of Memphis business professor David Ciscel.
"FedEx Ground would feel this dramatically," Ciscel said. "It would have to be reorganized."
Spokesman Perry Colosimo said FedEx Ground is confident it can win in court and has no intention of changing the way it does business. The independent-contractor system, he said, keeps shipping prices competitive and allows the drivers to run their own small businesses.
"It has served our customers well," Colosimo said.
The drivers say FedEx controls just about everything they do — the hours they work, where and when they pick up or deliver packages, how they maintain their trucks, even how they dress. FedEx also prohibits drivers from using their trucks to carry non-FedEx shipments.
"They're calling these drivers independent contractors, but they're really employees," said Christopher Gilreath, a lawyer for a group of Memphis drivers who filed suit against FedEx in federal court last month.
Gilreath said more than a dozen similar suits are planned or have been filed around the country. The lawsuits directly affect small groups of current or former drivers, and some plaintiffs have already sought class-action status that could expand the reach of court rulings.
A state court in Los Angeles decided last year that one category of contract drivers for FedEx Ground should be treated as company employees. FedEx has said it will appeal.
FedEx Corp. referred to the contract-driver dispute in a Securities and Exchange Commission report early this year saying the company "cannot yet determine the amount of potential loss in these matters, if any."
Despite FedEx Ground's confidence, court fights over the use of independent contractors are complicated, said Gary Johnson, whose Fort Wayne, Ind., law firm advises businesses on labor matters.
The arguments center on how much independence contractors have. If work is too tightly controlled, courts can order employers to hire them with the same benefits and legal protections other company workers enjoy.
"It's always a balancing test," Johnson said.
Many companies run into legal trouble, he said, when they try to categorize workers who should be on regular payrolls as temporary employees or independent contractors.
"The true independent contractor is the guy you hire to put a new roof on your house," he said. "You've hired him for a job to be done, and you exert very little control over how he does it."
FedEx cranked up its competition with Atlanta-based UPS in 1998 when it bought several trucking operations, including RPS Inc. which later became FedEx Ground. RPS had relied on contract drivers since its creation in 1985.
Drivers for UPS are company employees driving company-owned trucks.
FedEx Express is still the heart of FedEx Corp., and the airline has a fleet of 40,000 trucks, with purple and orange logos, driven by company employees.
The Colography Group Inc., an Atlanta-based company that advises clients on shipping and logistics, says about half the packages delivered by FedEx in the United States are now carried by FedEx Ground.
Ted Scherck, Colography Group's president, said customers don't care who owns the trucks that deliver their packages.
"I don't think the marketplace issues would be as severe as just the institutional disruption," he said. "You would, in effect, have to figure out how to set up a whole new work force, and that's not an easy thing to do."
Independent drivers who own their own trucks have long played a major role in the shipping industry, Scherck said.
"I believe the vast majority of FedEx's owner-operators consider themselves just that," he said. "They don't consider themselves employees."
FedEx Corp. has often been praised as a good company to work for, but it has had labor troubles before.
It has steadfastly held off attempts by the Teamsters to unionize company drivers, and when the expansion into trucking began, FedEx was wrapping up a bitter five-year fight with its airline pilots.
The pilots, the corporation's only U.S. employees represented by a union, threatened a Christmas-holiday strike in 1998 but backed down when FedEx started leasing planes and flight crews from other companies.
While the struggle with FedEx Ground drivers is not about organized labor, "it's really a union demand without a union," Ciscel said. "These truckers are trying to tell them how to run FedEx Ground, and they don't like it."