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FedEx Corp. has agreed to pay $2.3 million to settle a dispute with Montana over the classification of its FedEx Ground delivery drivers as independent contractors and not employees, the state attorney general said Wednesday.
FedEx Ground also will change its business model as part of the settlement from 40 independent contractors to an unknown number "independent service providers" who would cover larger regions of the state.
But the company doesn't have to reclassify its drivers as employees, and as little as $100,000 will go to reimburse drivers who had to pay their own unemployment insurance. The vast majority of the settlement money will go into the state's general fund, and reimburse state agencies that are owed unemployment insurance taxes or participated in the audit of FedEx.
It is also unclear whether the new business model will fix the problems Attorney General Steve Bullock raised.
"This settlement does not provide any assurance that we won't be back fighting a year from now," Bullock said. "One thing we do know, it's not going to be the degree of control that the state found they've been exercising over these guys the last few years."
FedEx Ground is involved in numerous lawsuits and tax proceedings with states over claims that the drivers the company calls its "owner-operators" should be treated as employees. There have been at least 30 class-action lawsuits filed, the company said in a Security and Exchange Commission filing in August.
FedEx Ground drivers must spend their own money for trucks, repairs, fuel and uniforms but they are subject to FedEx ground rules when it comes to their hours, dress and their ability to contract with anybody else, Bullock said.
The drivers' status as independent contractors means the drivers don't receive worker's compensation or unemployment insurance and aren't covered by labor laws designed to protect workers.
FedEx admits no wrongdoing in the settlement, which spokesman Maury Lane said simply resolves questions related to the independent contractors' tax obligations.
"FedEx Ground remains committed to the independent-contractor model," Lane said.
However, the company will change its business model to one it is now using in New Hampshire, Maryland, Tennessee and most recently Massachusetts, after a similar settlement was reached this summer with officials in that state.
Independent service providers that contract with FedEx will have to register as independent incorporated businesses and they will be responsible for hiring, training and supervising all their employees. These independent service providers will have to provide unemployment and worker's compensation insurance.
The company's move from independent contractors to independent service providers in Montana will be complete by June 2011, Lane said.
But there are questions as to whether FedEx will retain the same control over the independent service providers and its employees that caused the state to raise the complaint in the first place.
Montana agreed in the settlement not to interfere in the first six months of the new business model. After that period, the company will have to provide the state with documentation the attorney general's office will use to decide if the company is in compliance.
"I don't know what the new model will look like," Bullock said. But "we will continue to be vigilant to make sure that workers get the protection they deserve."