So what do these two companies share? Both flagrantly misclassify employees as "independent contractors." Together, and with an increasing number of other companies, they steal billions of dollars from state and federal coffers, robbing from essential social programs.
And, according to a report released today by The Leadership Conference on Civil Rights and American Rights at Work, robbing Americans of established social safety nets and their basic civil rights.
The LCCR-American Rights at Work study focuses exclusively on FedEx because it "is a striking example of a company widely considered to be a pillar of American success and corporate responsibility.
"Unfortunately," the report says, "FedEx is contributing to the deepening problem of inequality in our society. ...Most Americans remain unaware of what has become an insidious pattern of anti-union conduct and efforts to subvert labor and discrimination law that call FedEx's reputation into question."
This "deepening problem" made headlines earlier this week when Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, accused Blackwater USA of engaging in an "illegal tax scheme" that avoided an estimated $31 million in employment-related taxes.
What's even more deplorable is that the money Blackwater is stealing comes directly out of your pocket in the form government contracts -- worth more than $1 billion since 2001.
According to the Washington Post:
The latest allegations stem from a March letter from the Internal Revenue Service to Blackwater that Waxman's committee obtained. The letter informs Blackwater that the IRS reviewed the case of a Blackwater worker in Afghanistan and determined that the individual should rightfully and legally be classed as an employee -- not an independent contractor -- for tax purposes.
Such a finding would require the company to pay Social Security and Medicare taxes and unemployment insurance premiums for its employees. The letter finds the ruling "may be applicable to any other individuals engaged by the firm under similar circumstances."
But Blackwater said the company appealed the ruling, and "no final determination by the IRS has been made."
And that is typically the case. Blackwater is following the FedEx model of lose, appeal, lose, appeal, lose, appeal, lose... delaying settlements and benefits for years by dragging its feet through the legal process.
Quoting data from a Coopers & Lybrand study that used data from the IRS and the Bureau of Labor Statistics, the FedEx report states, "the proper classification of all misclassified employees would have yielded nearly $35 billion in federal tax receipts from 1996 to 2004."
Now, even without inflation -- both in dollar terms and in the growing number of employers who are misclassifying workers -- that is the exact price tag placed on the recent proposals to expand SCHIP.
Granted, some of the taxes involved here are earmarked for certain funds, but that is still $35 billion stolen from the U.S. Treasury that could have been spent on social programs rather than on corporate jets and CEO bonuses.
Unfortunately, these firms have every motivation to break the law and few reasons to obey it.
By employing "independent contractors," companies can save upwards of 30% of their payroll costs. They don't have to pay payroll taxes, social security, medicare or unemployment insurance. Instead, shifting those costs onto the people that can least afford them, the workers.
And, they can avoid liability for workplace injury and disability claims.
As "independent contractors," these employees also are excluded from fundamental protections offered by many federal laws the rest of us take for granted, including:
- The National Labor Relations Act (the right to organize and form unions)
- Title IV of the Civil Rights Act (discrimination and harassment based on race, religion, sex, national origin and pregnancy).
- Fair Labor Standards Act (minimum wage and overtime)
- Occupational Safety and Health Act
- Family Medical Leave Act
- Age Discrimination in Employement Act
- Americans With Disabilities Act
- Uniform Services Employment and Reemployment Rights Act
These companies are not paying their fair share. They are not living up to their responsibility to their workers. And they are stealing from national and state social programs -- both by failing to meet their tax obligations and by forcing more people into the system.
A growing workforce of "contractors"
So how many people does this affect? According to the FedEx report, the Department of Labor classified 10.3 million individuals as independent contractors in 2005, or 7.4% of the total workforce.
The report concedes, however, that hard numbers of misclassified workers are hard to determine. One IRS estimate in 1988 put the figure somewhere between 187,000 and 1.6 million. A 1994 Coopers & Lybrand report estimated that the number of misclassified workers would grow to 5 million workers by 2005. And the DOL, in 2005, estimated that between 10% and 30% of employers misclassify employees.
FedEx alone misclassifies 15,000 drivers in its Ground and Home Delivery subsidiary.
Are you misclassified? Here's the general rule: The individual or company you are providing services for has the right to control or direct only the result of the work and not the means or methods of accomplishing the result. If you are told what to wear, when to show up, when you can take off, etc. You are misclassified. If, like in the FedEx Home model, you are forced to buy a company-approved truck, stick to their routes, work their hours, wear their uniforms ... well, most of us would call that an employee.
Personal stories
The FedEx report offers a number of personal examples, including Rich Farrell, who serves as a medic in the National Guard. In 2003, Farrell told his terminal manager that he would be deployed overseas for six months. The next month Farrell was notified that FedEx Ground would not renew his contract. When a co-worker asked the manager why his friend was terminated, he was told "What do you think we were going to hold his contract until he gets done playing Army?"
Farrell returned home in January 2005 and was not able to find full-time work until April 2006.
On August 8, 2006, Tony Marcellino was killed in a traffic accident while delivering packages for FedEx Ground. His widow and two young children are not eligible to collect death benefits awarded to families of employees killed on the job through California's Workers Compensation Act. Instead, they receive half as much through the company's accident policy.
Two Lebanese drivers Edgar Rizkallah and Kamil Issa, brought a case against FedEx Ground for racial harassment. According to testimony, several drivers and managers physically assaulted the men; called them "camel jockeys," "sand niggers," and "terrorists." When the men complained to managers, nothing was done. The men eventually sued, and won.
FedEx is also notoriously anti-union, and I'm sure I will write many more diaries about that, so I will save it for another day. In fact, I could write for days about the injustices the FedEx report uncovers, but I'll spare you. Instead, I suggest that you download it, read it, and blog about it.
Then do something. Write to your governors and attorneys general, call your representatives in Congress and tell them to close these loopholes that are not only stealing your tax dollars, but also people's dignity.