The head of a renegade association of FedEx Ground contractors said those businesses have a strong case to be reclassified as franchisees, which would challenge the very contractor model the unit is built upon.
Spencer Patton, founder of the Trade Association for Logistics Professionals (TALP), said many contractors could meet the three-pronged test to determine their reclassification as franchisees, giving them more legal rights and benefits.
The three-prong test covers whether the business is authorized to use the trademark of the franchisor; whether the franchisor has substantial control over how the franchisee runs their business; and whether 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, it would force FedEx Ground to adjust its fundamental model, which Patton called an “enormous win” for contractors. Patton has insisted that many Ground contractors are in such financial distress that a third or more are in danger of going out of business, which would have an enormous impact on network operations and service levels. The increase in less-profitable home deliveries via Ground, vs. the higher density per stop of B2B volumes, has also hit contractors hard.
Patton said last week FedEx executives have told him privately that the company has exceeded its budget in contingency pay to outside carriers brought in to handle excess volume due to Ground contractors exiting the network.
“Legal protections for franchisees are magnitudes better,” he said. “They have the right to create associations, to collectively bargain, and there are contractual protection and disclosure requirements on the part of the franchisor. It’s an enormous opportunity to even the scales between contractors and FedEx Ground. We can take this battle on a state-by-state challenge.”
FedEx continues to maintain it will not negotiate with TALP, but will continue to do so on an individual basis with each contractor, based on their individual circumstances. The company did move to suspend Sunday delivery in less-dense markets, soon after TALP made that one of its asks.
“We have a long history of maintaining open lines of communication directly with individual service provider businesses and their owners and not through the media,” said a FedEx spokesperson. “We remain committed to engaging in a productive dialogue with each business to understand and address any challenges they may be facing.”
TALP says it is simply advocating on behalf of contractors burdened with excessive costs due to market factors, while FedEx is making profit on things like fuel surcharges imposed on shippers which they don’t benefit from. Other grievances include changes to the way FedEx handles indemnification of contractors against accidents and provides bonuses for accident-free operation.
Despite FedEx’s entrenched position, TALP has extended an offer to FedEx Ground President and CEO John Smith to attend and speak at Contractor + Expo and Party, Patton’s tradeshow for FedEx and Amazon contractors to be held Aug. 20-21 in Las Vegas.
“With more than half of all contractors in the nation scheduled to attend, I have to imagine that FedEx Ground would want to be present,” Patton said in a video response to a letter from Smith to all contractors.
Patton said 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.”
“FedEx Ground expects every business under contract to honor its obligation to provide service,” Smith added in the letter. Patton countered that no TALP member intended to do otherwise, and that they were not violating operating agreements.
“You know what all of that tells me? I’ve got their attention,” Patton said in the video to Smith’s letter. “I’m accused of violating antitrust laws and other misconduct.”