After fighting off forces seeking to have FedEx Ground drivers classified as employees, now the threat may be drivers becoming franchisees.
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| If contractors were reclassified as franchisees, FedEx Ground would need to adjust its fundamental model, which Patton says would be an “enormous win” for contractors. |
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Unlike rival UPS, FedEx Ground generally uses owner-operators and independent drivers who are contracted to manage individual delivery routes. In fact, FedEx delivery routes are bought and sold on the open marker. UPS Ground drivers, by contract, are unionized company employees.
But right now, many if not most of those contractors are said to be struggling financially, according to one of FedEx Ground’s largest contractors. Patton Logistics founder and president Spencer Patton said last week that inflation and the resulting increase in the cost of fuel and other expenses, with no change in pay from FedEx, is likely to take out many contractors if something doesn’t change soon.
“If Wall Street analysts, if FedEx corporate and FedEx Ground understood the degree to which the network is in danger, there would be widespread panic,” Patton said in a video released on July 20 and sent to company FedEx executives.
Patton is also founder of the Trade Association for Logistics Professionals (TALP).
In response, FedEx Ground president and CEO John Smith wrote in a July 27 letter that was reviewed by The Daily Memphian that “FedEx Ground recognizes the challenges of current market conditions and cost pressures,” adding that “We remain committed to engaging in a productive dialog with service provider businesses to understand and address these issues.”
The pay for contractors varies by route, and FedEx negotiates each contract individually. And the company aims to keep it that way.
“FedEx Ground will not discuss, negotiate, or renegotiate service provider agreements or financial terms with a committee or any individual purporting to represent a collective body of service provider businesses,” Smith said in his letter to contracted service providers
Now this week, a new twist: As reported by Multi-Channel Merchant magazine, Patton now says that FedEx contractors have a strong case to be reclassified as franchisees.
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He said many contractors could meet the current three-pronged test to determine their reclassification as franchisees, which could give them more legal rights and benefits.
 The three-prong test is this:
• Is the business is authorized to use the trademark of the franchisor?
• Does the franchisor has substantial control over how the franchisee runs its business?
• Does the franchisor charges a fee to the franchisee?
“We’ve had some of best franchise attorneys in the country, who have worked with franchisees of McDonald’s and 7 Eleven, tell us contractors meet the classification test,” Patton said. “And there are 18 states where only the first two prongs have to be met.”
If contractors were reclassified as franchisees, FedEx Ground would need to adjust its fundamental model, which Patton says would be an “enormous win” for contractors.
Repeating his early theme, Patton said many Ground contractors are in such financial jeopardy that one-third or more are in danger failing, which would have an enormous impact on FedEx’s network and service levels.
Patton says that as franchisees, the current contractors would have the right to create associations, to collectively bargain, and would enjoy contractual protection and disclosure requirements on the part of the franchisor.
Patton told Multi-Channel Merchant that FedEx has sent him a cease-and-desist letter, and also made “veiled threats” of legal action against TALP members in general. Smith’s letter said “any effort by service providers to negotiate financial terms as a group is a breach of the contract with FedEx Ground.”
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