FedEx: Through the Looking Glass
By Kevin L. Kearns
Wednesday, June 17, 2009
There has always been a “wonderland” aspect to Federal Express. It is certainly a great corporate success story, in which one man’s vision rose as a global delivery dynamo from the banks of the Mississippi River in Memphis, Tennessee. More impressive yet, it has succeeded in an industry littered with the carcasses of other failed express delivery companies.
But as with most great corporate successes, there’s more to the story than genius, hard work, and mastery of free markets by FedEx’s leadership. Here’s the rub: Because of an unrealistic classification of its Express division employees, FedEx enjoys a permanent competitive advantage over its main rival, UPS, that is neither earned nor logical. .And it is this other part of the story that has set the stage for a political battle royal just getting underway.
The labor relations law that governs the operations of rivals FedEx and UPS is determined by two statutes: the Railway Labor Act (1926) and the National Labor Relations Act (1935). The RLA covers workers in the railroad and airline industries, while the NLRA governs most other private sector employees. The rights of employees are markedly different under the two laws, and the disparate treatment can be used to corporate advantage, as FedEx well knows.
Under the NLRA, workers can unionize facility by facility and need only a majority of those voting at each workplace to certify a bargaining agent. Work contracts have a finite term, and workers can strike if contract negotiations unfortunately reach an impasse.
The RLA, on the other hand, requires that workers organize system-wide, not by facility, and certification of a bargaining agent requires approval of a majority of all eligible voters, not just those present. Contracts do not expire, they are just amended. Minor disputes must go to binding arbitration and major disputes must go through lengthy mediation, from which only a federal agency, the National Mediation Board, can release workers to strike.
Because UPS was originally organized as a trucking company, its drivers are governed by the NLRA. But that was before UPS entered the airline package delivery business, in competition with FedEx. FedEx Express drivers, who do the same work as the UPS drivers, are governed solely by the RLA because the company was originally organized as an airline – according to FedEx. UPS’s ground-service workers are represented by a union, while FedEx Express ground-service workers are not.
FedEx touts the fact that it is routinely considered one of the best companies for which to work. But then it turns around and argues that if the NLRA were applied to its ground service workers, they would instantly unionize, causing a massive disruption in its timely delivery of packages and forcing its business model to crash. If it truly is a great place to work, FedEx has nothing to fear from the application of the NLRA to its Express division employees.
And some order and justice would be brought to federal labor law. Now, FedEx Express drivers delivering the same package from the same location to the same destination by the same mode (truck) as UPS drivers, have radically fewer rights and benefits. The one winner, of course, is FedEx, which turns this classification disparity into an unfair competitive advantage and takes it all the way to the bank.
The underlying reason for the perpetuation of this advantage is apparently how the corporations were organized decades ago rather than how they now operate. In other words, the past has been institutionalized at the expense of current reality. .Truck drivers, and in fact all employees, should be defined by the work that they do, not by corporate history, which is completely beside the point.
But, as Lewis Carroll would say, the case of FedEx gets “curiouser and curiouser.” While its Express division claims all its employees are governed by the RLA, its Ground division has classified its drivers as independent contractors -- despite the fact that the company dictates hours, uniforms, logos and colors, truck specifications, procedures, rules, policies, regulations and standards, and requires that they service only FedEx customers. Independent contractors are not governed by the NLRA and are thus beyond the rights and benefits of employees. They are made responsible, for example, for all taxes, including both the employer’s and employee’s share of social security.
Who cares how the drivers are classified? The drivers themselves, who have brought multiple suits and labor actions, to right what they believe is a wrong. And the U.S. Treasury, which likes to see taxes paid in a timely fashion by the proper party.
By engaging in these fictions, FedEx frees up a great deal of money to mobilize against the competition that would otherwise go to its employees in the form of wages and benefits. This pool of capital is not available to competitors, who perform the exact same function, to plow back into their businesses or pass on to their shareholders..
There is currently an effort in Congress to correct this injustice to both FedEx Express drivers and FedEx competitors. Section 806 of HR 2881, the FAA Reauthorization Act, would require that only those employees of express delivery companies who perform airline-specific functions (e.g., pilots and aircraft mechanics) would be covered by the Railway Labor Act. All others would be covered by the National Labor Relations Act.
This small provision has sent FedEx to the ramparts. The company has instituted an all out political war, some of it verging on a smear campaign, to try to shift the blame to UPS and divert attention from its own misclassification of its employees. FedEx argues that its employees are properly classified and the UPS and the Teamsters Union are trying to destabilize the company through unionization that would inevitably follow the change in the RLA. But, as mentioned above, if FedEx is as good a place to work as it says it is, and the Teamsters are as bad a union as FedEx apparently thinks they are, why all the fuss?
It is clear to any impartial observer that similar employees at both FedEx and UPS should be governed by the same law. It is also clear that the changes embodied in the House legislation merely create a level playing field by treating similar employees equally. Finally, it is clear that FedEx is the financial beneficiary of an unlevel playing field given how determined it is to preserve the status quo through the very expensive and very negative campaign it has launched.
In “Through the Looking Glass,” Alice declares “If I had a world of my own…nothing would be what it is, because everything would be what it isn’t….You see?” This is essentially the world created by FedEx and its selective application of labor law. Section 806 would return reality, fairness, and discipline to the regulation of the express delivery business. It deserves to remain in the bill that the Senate passes in spite of FedEx’s hysterical and hypocritical protests to the contrary.