Interesting story from Bloomberg:
A secret report from a lobbyist who represents United Parcel Service Inc. prompted an Ohio state investigation into employment practices of FedEx Corp., leading to a finding that FedEx owed back taxes and interest.
Kenneth Kies, a Washington tax lawyer and lobbyist whose firm has been paid $540,000 by UPS since 2002, sent Ohio officials a 562-page report in December 2006 alleging that FedEx misclassified truck drivers as contractors. A copy of the report, including a cover letter in which Kies asked for confidentiality, was released to Bloomberg News by Ohio officials.
“We took it and opened our own investigation,” said Judi Cicatiello, Ohio’s unemployment compensation deputy director. She said it was “very” unusual to get such detailed allegations. Her agency determined in May 2007 that the drivers were employees and FedEx owed $654,000 in taxes and interest. The company is appealing.
The report is the first disclosure indicating that UPS may have played a role in prompting an investigation of FedEx’s employment of 15,000 drivers as independent contractors. The strategy gives FedEx a cost advantage over UPS, whose 91,800 drivers are covered by a contract with the Teamsters Union.
FedEx’s labor practices have been under investigation in 25 states and prompted a lawsuit as a class action covering drivers in 20 states. FedEx said in December that it may have to pay $319 million in back taxes and penalties to the Internal Revenue Service for worker misclassification in 2002.
The IRS also was auditing FedEx’s trucking unit for 2004 to 2006, the company said. The potential liability may rise to $1 billion if the U.S. review results in an adverse ruling, said Jon Langenfeld, an analyst at Robert W. Baird & Co. in Milwaukee, in an interview last week.