FedEx Corp. (FDX) has agreed to pay $26.8 million to settle a California lawsuit over whether some drivers were independent contractors or employees.
The agreement, presented in a hearing Friday, requires court approval.
In 2007, the California Appeals Court affirmed a 2004 district court ruling that about 200 drivers who operated in the state six to 10 years ago were employees and therefore entitled to reimbursement of business expenses.
Similar lawsuits have been filed in other states, alleging that - although drivers for the FedEx Ground unit buy their trucks - the company so tightly controls their work that they should be considered employees rather than independent contractors.
A federal suit filed in Tennessee claimed FedEx regulates the smallest details about how the trucks are used, maintained and even painted. Drivers, wearing uniforms purchased from FedEx, are told what packages to deliver and when to deliver them, the suit says.
"FedEx Ground engaged in this 10-year legal battle because we firmly believe that the thousands of contractors who serve California and every other state in the nation are independent business owners, not employees," said FedEx spokesman Maury Lane. "While we disagree with the original ruling by the California Court of Appeals, we are pleased to put the matter behind us."
Lane said the settlement would not affect the company's relationship with its network of independent contractors in California.
Lynn Rossman Faris, lead counsel for the California drivers, said the 203 drivers involved in the case will receive damages ranging from $2,000 to $280,000, with an average of about $70,000.
Separately, FedEx announced its FedEx Freight and FedEx National LTL would raise rates 5.7% effective Jan. 5. Both less-than-truckload companies are part of the FedEx Freight Corp. segment.
Rates for other units, such as FedEx Express and FedEx Ground, already had announced increases. FedEx Ground and FedEx Home Delivery will raise rates by an average of 5.9% starting Jan. 5, matching rival United Parcel Service Inc. (UPS). Air-service rates will climb 6.9%, but the actual increase will be two percentage points less as fuel surcharges are reduced. UPS' air increase is also 4.9%.
FedEx's shares were at $73.25, down 0.6%, in after-hours trading.
-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975; Kathy.Shwiff@dowjones.com
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(END) Dow Jones Newswires
December 05, 2008 19:00 ET (00:00 GMT)