The office of Massachusetts Attorney General Martha Coakley recently announced a settlement with FedEx Ground over claims that FedEx Ground misclassified drivers as independent contractors rather than employees. As a result, it was alleged that FedEx Ground underpaid payroll taxes, workers’ compensation and unemployment assistance.

“We have made enforcement against employer misclassification a priority because employers who misclassify workers are gaining an unfair advantage over their competitors and unfairly depriving the Commonwealth of tax and other revenues,” AG Coakley said. “With today’s agreement, we have recovered $3 million owed to taxpayers and taken a step to level the playing field for businesses. I want to thank Governor Patrick and his Executive Office of Labor and Workforce Development and the Department of Revenue for assisting in the investigation and resolution of this matter.”

In 2007, the Attorney General’s Office cited FedEx Ground for violation of the Independent Contractor Law, by misclassifying its drivers, failing to provide a proper paystub, failing to provide workers’ compensation, not paying overtime to certain drivers, and neglecting to deduct and withhold state income taxes. FedEx Ground appealed the matter to the Division of Administrative Law Appeals (DALA). The Attorney General’s Office citations against Fed Ex Ground included penalties of more than $190,000.

While FedEx Ground’s appeal was pending before DALA, the Attorney General’s Office coordinated further investigation with the Executive Office of Labor and Workforce Development and the Department of Revenue into FedEx Ground’s business practices. The joint investigation revealed that FedEx Ground’s misclassification of employees had resulted in significant underpayments to the Department of Revenue, Division of Industrial Accidents and Department of Unemployment Assistance.

The settlement amount includes these significant underpayments. The settlement also provides for a payment for the 13 drivers named in the Attorney General’s citation. FedEx Ground drivers in Massachusetts have brought their own lawsuit against FedEx Ground that remains pending and is not affected by this settlement. FedEx Ground denies liability in the settlement.

Massachusetts uses a three-factor test to determine if service providers should be considered employees or independent contractors. Due to increased enforcement and significant penalties for misclassification, Vision Payroll strongly recommends employers consult with a competent labor law attorney to help determine status of workers as employees or independent contractors.