From: Reuters
Published May 8, 2008 02:03 PM

FedEx holder sues board over contractor problems

CHICAGO (Reuters) - A shareholder of FedEx Corp <FDX.N> filed a lawsuit against the package delivery company's board on Thursday alleging the directors exposed the company to damages by misclassifying employees as contractors.

A FedEx spokesman dismissed the lawsuit as frivolous.

The lawsuit was filed on behalf of FedEx Corp against the board by the Plumbers and Pipefitters Local 51 Pension Fund, a shareholder since 2000, in the U.S. District Court for the Western District of Tennessee. FedEx is based in Memphis.

The pension fund did not disclose the size of its stake in FedEx.

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The focus of the suit is FedEx's ground delivery unit, FedEx Ground, which uses some 15,000 independent contractors as drivers. FedEx describes these contractors as entrepreneurs.

Drivers at rival United Parcel Service Inc <UPS.N> are represented by the Teamsters union. The Teamsters have been trying to unionize drivers at FedEx Ground at a number of facilities.

FedEx is fighting lawsuits in more than 30 states against this business model, which claim that FedEx exerts so much control over the behavior and time of these drivers, including forcing them to buy their own trucks, that they should be classified as employees. As employees, the lawsuits claim these drivers should be entitled to benefits.

In November California's Supreme Court rejected an appeal by FedEx against a state court ruling that the company's drivers are employees.

The Internal Revenue Service has also tentatively concluded that the contractors at FedEx Ground should be reclassified as employees and that the company owes more than $319 million in taxes and penalties for 2002.

In the lawsuit filed on Thursday, the Plumbers and Pipefitters Local 51 Pension Fund alleges the use of independent contractors has exposed FedEx to problems with the IRS, forced the company to incur tens of millions of dollars in legal expenses, and exposed it to hundreds of millions of dollars in damages in lawsuits. The plaintiff also argues the contractor model has "severely damaged the company's reputation and goodwill."

"Defendants breached the fiduciary duties that each of them owed to FedEx Corp and caused FedEx Corp and FedEx Ground to incur hundreds of millions of dollars in damages, legal fees and other injuries," the filing said.

The lawsuit seeks damages for FedEx from the board of directors, and have the company reform its corporate governance and internal procedures to comply with IRS regulations plus state and federal labor laws.

"This lawsuit is clearly without merit and frivolous," said FedEx spokesman Maury Lane. "FedEx has a long record of providing outstanding shareholder value and is led by a board of successful and experienced directors who are committed to the highest quality of corporate governance."

(Reporting by Nick Carey, editing by Phil Berlowitz)

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