December 2, 2008 William V. Conley, Esq. Managing Director-Legal FedEx Ground Package Systems, Inc. 1000 FedEx Drive Moon Township, PA 15108 RE: Civil Penalty Assessment Decision Cases Number: 32427, 32535, 33517, 33541, 33550, 33580, 33599 Invoices Number: 204969, 204904, 204903, 204905, 204943, 204970, 204971 Dear Mr. Conley, A consolidated hearing was held before this Department on September 10, 2008 and October 27, 2008 to discuss the proposed assessment of civil penalties (in consolidation with a proposed wage adjustment and a proposed Workers' Compensation civil penalty) for violations cited by Labor Inspectors Bemard and Guiler durtng their June 6, 2008 inspection of your seven FedEx Ground and FedEx Home locations in New Hampshire. Labor Inspectors Bemard and Guiler, and Supenrisor Hathorn, represented the Department at the hearing. You attended the hearing, represented by James C. Rehnquist, Esq., Katherine G. McKenney, Esq., and Andrea K. Johnstone, Esq. You presented testimony from witnesses Shane Robinson, James Krappa, Kevin Terwilliger, David Walker, and David Durette, along with approximately 1858 pages of evidence. The record in this matter was left open to allow you to submit a Post-Hearing Memorandum, received by this Department on November 3, 2008. A review of the files, and testimony presented by Labor Inspectors Bemard and Guiler, indicate that you were cited for the following violations: 275 violations of RSA 275:43-a, failure to pay the required two hours' pay; 448 violations of RSA 275:48 l, making illegal deductions from wages; 109 violations of RSA 275:49, failure to notify employees, in writing at the times of hire, of their rates of pay; RSA 275:43 l, paying employees biweekly without permission to do so from this Department; and 99 violations of RSA 275-A:4-a, failure to maintain adequate documentation to show that employees have a legal right to work in the United States. This Department proposed civil penalties for these violations in the grand total of $91,300, calculated at $100 per violation. Also cited, with no civil penalty proposed, were 98 violations of RSA 275:4 ll, classifying certain employees as independent contractors when they did not meet the statutory criteria, specifically that: Page 2 the employees in question did not have control and discretion over the means and manner of performance of the work, in that the result of the work, rather than the means or manner by which the work was perfonned. They were told on occasion in what order to complete their routes, was the primary element bargained for be use FedEx Ground Package Systems, Inc. controlled employees by telling them how to perfomi their jobs by requiring employees to deliver and pick up packages even if outside of their regular deliveries zones, with no right to refuse a delivery or pickup, that employees were required to the escrow $1000 with the employer and were required to purchase specific insurance coverage including workers' compensation coverage, that employees were required to wear unifomns and use a scanner and software provided by FedEx Ground Package Systems, Inc., that FedEx Ground Package Systems, Inc. specified particular makes and models of vehicles to purchase and required specitic markings on the vehicles, and that the loading of trucks was controlled by employees of FedEx Ground Package Systems, Inc.; the employees in question did not have control over the time when the work was to be perfomied because the time of perfomiance was dictated by FedEx Ground Package Systems, Inc. who detemiined the time that work was to begin, and because the employees had to wait for the packages to be loaded; the employees did not hold themselves out to be in business for themselves because they were required to wear unifomis and drive vehicles identified with the corporate markings of FedEx Ground Package Systems, Inc. the employees received remuneration for their work in a manner detennined unilaterally by FedEx Ground Package Systems, Inc. who set the rates per delivery; the employees could not be held contractually responsible for failure to complete the work; and the employees were required to work exclusively for FedEx Ground Package Systems, Inc. because they were not able to deliver packages for other employers at the same tine as they were delivering for FedEx Ground Package Systems, Inc., and they were not able to utilize their marked with the corporate logos of FedEx Ground Package Systems, Inc., without first covering up the logos. You disagreed that the independent contractors were employees, and that, therefore, most of the cited violations did not occur because the workers were not employees. You argued: the independent contractors had control and discretion over the means and manner of perfonnance of their work because the result of the work, rather than the means or manner by which the work was perfomied, was the primary element bargained for between FedEx Ground Package Systems, Inc. and the independent contractors. You argued that this was specified in the Operating Agreements between FedEx Ground Package Systems, Inc. and the independent contractors, that the independent contractors were free to trade packages with other contractors, that they could determine the manner in which they would deliver packages, that contractors could negotiate adjustments to their "core zones" or delivery areas, that FedEx Ground Package Systems, Inc. exercised no control whatsoever over the make or model of vehicles utilized by the independent contractors, that independent contractors were not required to use a scanner or software and that they could, in fact, perform their jobs without Page 3 a scanner, and that the required unifomis were beneficial to the independent contractors because they provided them immediate identification and access to businesses and govemment buildings. You further asserted that many of the examples of control identified by the Labor Inspectors were mandated by federal regulations, such as the display of your corporate logos on the vehicles and road tests of drivers. You further argued that, presumably, the legislature did not intend for these sorts of restriction on a worker's freedom, imposed by law and not by the hirin party, to be indicative ofthe hirin parIy's control of the means and manner of the workers' performance; that FedEx Ground Package Systems, Inc. did not control the time when the work was to be perfomied, and that independent contractors started the workday anywhere from 5:30 a.m. through 10 a.m. This was substantiated by testimony of independent contractors; the statute identifying "The person holds himself or herself out to be in business for himself or herself" was ambiguous as to whom, or in what context, the independent contractors "hold themselves" out, and that the Labor Inspectors utilized an "unduly narrow interpretation" of the statutory factor. You argued that several of the independent contractors incorporated their businesses or decided to use the designation "doing business as" and, therefore, held themselves out to be in business for themselves. You presented testimony and evidence that at least one of the independent contractors had an additional logo identifying his LLC as the "owner operator" of the route and that he also passed out his personal business cards to customers in an effort to build his business in the area. You asserted that the independent contractors, when they signed the Operating Agreements, stated that they would be providing their senrices strictly as independent contractors and not as employee for any purpose, and that they identified their businesses as such to the IRS when they paid their taxes; the statute did not require independent contractors to bid or negotiate their rates of pay, and that this assertion by the Labor Inspectors was a "narrow view" of the factor. You argued that remuneration was not detemiined unilaterally by the hiring party because contractors can influence their compensation by participating in the flex program (delivering packages outside of their regular work area), by negotiating adjustments in the size or their delivery area (core zone), by increasing route effrciency by adding equipment vehicles, andlor employees, controlling expenses such as vehicle maintenance, and by growing their businesses by purchasing additional routes or adding new stops to existing routes; the independent contractors could be contractually responsible for non-delivery of packages because they would not receive a settlement for undelivered packages, and that contractual violations could lead to a tennination of their Operating Agreements; and the Operating Agreements did not require the independent contractors to perform services exclusively for FedEx Ground Package Systems, Inc., and that some of the independent contractors can, and do, engage in other business activities. You disagreed as when the independent contractors were performing services for FedEx Ground Package Systems, Inc. that their vehicles would be used for no other purpose other than delivering packages for FedEx Ground or FedEx Home, per the tenns of the Operating Agreements, and that this provision was "consistent with DOT's exclusive use regulations". You also argued that the requirement that contractors cover the required corporate logos on their trucks Page 4 when performing the other senrices contemplated that contractors could use the vehicles for other commercial purposes and "simpIy requires proper identification of the vehicle consistent with DOT regulations". You also testified that the independent contractors could be divided into three distinct groups, those who were party to only one Operating Agreement consisting of one route or "oore zone" known as a Single Work Area those who were party to more than one Operating Agreement consisting of more than one route or "oore zone" known as a Multiple Work Area who employed their ovrm employees, and those who were party to a single or multiple Operating Agreement who perfomned "Linehaul?' work moving trailers belonging to FedEx Ground Package Systems, Inc. from place to place utilizing their own tractors. This Department must first detemrine whether the signatories to the Operating Agreements were employees or independent contractors. RSA 275:42 ll (effective January 1, 2008, stating the same criteria as found in RSA 281 VI defines "employee" as, "means and every person who may be permitted, required, or directed by any employer, in consideration of direct or indirect gain or profit, to engage in any employment, but shall not include any person exempted from the definition of employee as stated in RSA (3), or (4), or RSA VIl(b), or a person providing senrices as part of a residential placement for individuals with developmental, acquired, or emotional disabilities, or any person who meets all of the following criteria: The person possesses or has applied for a federal employer identification number or social security number, or in the altemative, has agreed in writing to carry out the responsibilities imposed on employers under this chapter. The person has control and discretion over the means and manner of performance of the work, in that the result of the work, ratl1er than the means or manner by which the work is perfomted, is the primary element bargained for by the employer. The person has control over the time when the work is perfonned, and the time of performance is not dictated by the employer. However, this shall not prohibit the employer from reaching an agreement with the person as to completion schedule, range of work hours, and maximum number of work hours to be provided by the person, and in the case of entertainment, the time such entertainment is to be presented. The person hires and pays the person's assistants, if any. and to the extent such assistants are employees, supervises the details of the assistants' work. The person holds himself or herself out to be in business for himself or herself. The person has continuing or recunring business liabilities or obligations. The success or failure of the person's business depends on the relationship of business receipts to expenditures. The person receives compensation for work or services performed and remuneration is not determined unilaterally by the hiring party. The person is responsible in the first instance for the main expenses related to the service or work perfomred. However, this shall not prohibit Page 5 the employer or person offering work from providing the supplies or materials necessary to perfomr the work. The person is responsible for satisfactory completion of work and may be held contractually responsible for failure to complete the work. The person supplies the principal tools and instrumentalities used in the work, except that the employer may fumish tools or instrumentalities that are unique to the employers special requirements or are located on the employers premises. (I) The person is not required to work exclusively for the employer". At issue are the criteria listed in and (I). The Hearing Officer finds that the criteria must be analyzed separately for each of the three classes of workers, those in a Single Work Area, those in a Multiple Work Area, and those performing Linehaul duties. Single Work Area The workers who are party to these Operating Agreements have significant, but not exclusive, control and discretion over the means and manner of the perfomlance of their work. They have discretion over the order in which the route is completed, taking into consideration customer requirements. They are able to trade packages with other routes without the approval of FedEx Ground Package Systems, Inc. They are required to deliver the package wearing a specific uniform in a truck with specific markings. Because of the significant amount of control and discretion over the means and manner of the perfomiance of their work, the Hearing Officer finds that the workers meet the criterion established in The workers have control over the time of the work is to be performed. The time of the perfomrance, except for the requirement that FedEx Ground trucks retum of the garage by 8:30 p.m. so that they may be loaded for the next day, is not controlled by FedEx Ground Package Systems, Inc. The Hearing Officer finds that the workers meet the criterion established in The workers do not hold themselves out to be in business for themselves. Rather, they are required to hold themselves out to give the appearance of being in business for themselves. They are given no choice in the matter. FedEx Ground Package Systems, Inc. argues that the contractors do hold themselves up to be in business for themselves through truck markings, business cards, their signature to the Operating Agreement, to the lntemal Revenue Service, to any employees they may hire, and to creditors. The Hearing Officer finds that the workers actually hold themselves out to be representatives of FedEx Ground Package Systems, Inc. They wear required uniforms and ID badges identifying themselves as representatives of FedEx Ground Package Systems, Inc. They operate vehicles that ovenrvhelmingly identify them as representatives of FedEx Ground Package Systems, Inc. The workers, therefore, do not meet the criterion established in The workers receive compensation for their work and services in a manner that is unilaterally determined by FedEx Ground Package Systems, Inc. There is no opportunity for negotiation of the amount of payment for the delivery of packages, and other remuneration which may be paid to the workers such as availability pay, flex pay, and bonuses. The workers are essentially working for a piece rate and they can Page 6 increase their wages by increasing the amount of work they perfomn. This is signiticantly different than having the ability to be able to negotiate their pay other than having it unilaterally detemrined by the employer. The workers, therefore, do not meet the criterion established in The workers are responsible for the satisfactory completion ofthe work, and they may be held contractually responsible for failure to complete the work because they would receive no remuneration if they do not complete the work. The workers, therefore, meet the criterion established in The workers are required to work exclusively for FedEx Ground Package Systems, Inc. While perfomiing their delivery duties, they are unable to perform delivery duties for anyone other than FedEx Ground Package Systems, Inc. A true independent contractor, under the statute, would be able to make deliveries from anybody they wanted to. The fact that they can cover the identifying FedEx Ground or FedEx Home identifying markings on their trucks when not making deliveries is not a persuasive argument. The identifying markings take up virtually the entire truck body, and the workers would not be able to routinely or regularly cover them up as a practical matter. The workers, therefore, do not meet the criterion established in (I). Because the workers who are parties to Operating Agreements for a Single Work Area do not meet the criteria established in or (I), the workers are found to be employees of an employer, not independent contractors. Multiple Work Areas The workers who are parties to Operating Agreements for Multiple Work Areas own and operate more than one vehicle in more than one work area, therefore requiring them to hire their own employees and to run their own businesses as employers of those employees. Because they are required to hire their own employe and act as employers, the Hearing Officer tinds that these workers to hold themselves up to be in business for themselves in a manner different from the Single Work Area employees. They do not, however, meet the criteria established in or (I). Their compensation is unilaterally detemiined by FedEx Ground Package Systems, Inc. ln an identical manner to the Single Work Area employees, they are required to work exclusively for FedEx Ground Package Systems, lnc. Because these workers do not meet these criteria, the workers are found to be employees of an employer, not independent contractors. Linehaul The inspection included 4 linehaul workers (tab K, Defendant's Exhibit but did not identify whether these Operating Agreements were for one, or more than one, work areas. These workers perform duties separate from the SWA and MWA workers. These workers move tractor-trailers loaded with packages between customers, the employer's hubs, and terminals. They are paid by the mile rather than by the package. These workers do not have control and discretion over the means and manner of the perfomiance of the work in that the result of the work, rather than the means or manner by which the work is perfomred, is the primary element bargained for. The Page 7 workers also do not have control over the time when work is to be perfonned. They are controlled by FedEx Ground Package Systems, Inc. as to when, and where, to perfomi their work. These workers, therefore, do not meet the criteria in and The compensation is unilaterally detemrined by the hiring party, FedEx Ground Package Systems, Inc. These workers, therefore, do not meet the criterion in They are required to work exclusively for FedEx Ground Package Systems, Inc. These workers, therefore, do not meet the criterion in (I). Be use the Linehaul workers do not meet these criteria, they are found to be employees of an employer, not independent contractors. FedEx Ground Package Systems, Inc. references, in their Post-Hearing Memorandum, United States v. Silk, 331 U.S. 704, finding that tmckers are independent contractors. 'llie Hearing Officer notes that decision utilized a different set of criteria. DECISION The 275 violations of RSA 275:43-a did occur. For the purpose of this civil penalty decision, those violations are considered as one violation and you are hereby assessed a civil penalty in the grand total of $2500, assessed at $2500 per violation under RSA 273:11-a. This Department finds that the 448 cited violations of RSA 275:48 I did occur. You are hereby assessed a civil penalty in the grand total of $44,800, assessed at $100 per violation under RSA 273:11-a. This Department finds that the 109 cited violations of RSA 275:43 I did occur. For the purpose of this civil penalty assessment, these violations are considered as one violation, and you are hereby assessed a civil penalty for this one violation in the grand total of $2500, assessed at $2500 per violation under RSA 273:11-a. This Department finds that the one cited violation of RSA 275:43 I did occur, and you are hereby assessed a civil penalty in the grand total of $100, assessed at $100 per violation under RSA 273:11-a. This Department finds that the 99 cited violations of RSA 275-A:4-a did occur. For the purpose of this civil penalty assessment, these violations are considered as one violation, and you are hereby assessed a civil penalty in the grand total of $1000, assessed at $1000 per violation under RSA You are hereby ordered to send a check to this Department payable to "Treasurer State of in the total of $50,900 within 15 business days of the date of this Order. RSA 273:11-c allows you to appeal this Civil Penalty Assessment. If you choose to appeal, you are required to file a Notice of Appeal within fifteen (15) business days of the date of this Order with: Page 8 Penalty Appeal Board CIO NH Department of Labor PO Box 2076 Concord, NH 03302-2076. James P. McDonough Hearing Officer JPM/all Copy: James C. Rhenquist, Esq. Katherine G. McKenney, Esq. Goodwin Procter LLP 53 State Street Boston, MA 02109 Andrea K. Johnstone Bemstein Shur 670 N. Commercial Street, Suite 108 Manchester, NH 03105-1120