FedEx yesterday defended the business model of its US parcels business, FedEx Ground, and said itdid not plan to change the “owner-operator” status of its pick-up and delivery drivers despite a
challenge from the US tax authority which views them as company employees.In a meeting with analysts and media called at short notice, FedEx executives reiteratedtheir confidence in the company’s ability to continue to grow the FedEx Ground business, gainmarket share and provide excellent service to customers.
“FedEx recognizes its ground-contractor model faces challenges on several fronts,” saidFrederick W. Smith, chairman, president and chief executive officer of FedEx Corp. “We continue toaggressively address these issues, and we have strong defenses to these challenges. We continue tobelieve that FedEx Grounds owner-operators are properly classified, and the business remainsfundamentally strong. It is business as usual at FedEx Ground.”
US media cited FedEx Ground chief executive Dave Rebholz as saying the parcels company wascontinuing to use its independent contractors, while chairman Fred Smith said the use ofindependent contractors was common US business practice across several industries.
The public comments followed news that the Internal Revenue Service (IRS) had decided toclassify FedEx Ground’s parcel collection and delivery drivers as company employees for taxpurposes rather than independent contractors (“owner-operators”). It was thus seeking payment of$319 million in taxes, penalties and interest for 2002, and was also reviewing the situation forcalendar years 2004 – 2006.
In response, FedEx rejected the decision, stressing its owner-operators were self-employedcontractors, and said it would be meeting with IRS officials in the spring to discuss the issue.
