US – FedEx ground-service drivers are suing the package delivery firm for treating them like employees, instead of independent contractors which they were initially hired for.

The workers say FedEx tells them when to work, what to charge customers and what kind of socks and shoes to wear. Hence, the drivers are demanding US$1 billion in damages from FedEx’s federal pension benefits, which are reserved for employees. Other than the huge financial loss, it may also force the company to overhaul the business model that has provided a cost advantage over its biggest competitor, United Parcel Service (UPS).

According to Bloomberg News, the company claims it doesn't prescribe the drivers' work methods or their days or hours of work, allowing them to pick up and deliver packages on their own schedules. Drivers are paid by the job, added FedEx.

“The case does not look good for FedEx,” Michael Harper, a Boston University law professor told Bloomberg News.

The solution would be how to overhaul the business model to make it compliant, say experts. Businesses that use contractors rather than employees enjoy an estimated cost savings of more than 30%, said Marick Masters, a business professor at the University of Pittsburgh.

Treating workers as contractors rather than employees has been gaining popularity among U.S. employers, with the numbers in the workforce rising 25% to about 10.3 million from 1999 to 2005, according to the U.S. Government Accountability Office. The reason for the increase is the cost differential, explained Masters.

If FedEx loses the national lawsuit, it will be expected to pay Social Security and Medicare taxes, unemployment and worker-compensation insurance, vacations, health insurance and 15 hours a week of overtime for the drivers.