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UPS Versus FedEx in Ohio Tax Showdown
June 24, 2008, By John Hughes, Bloomberg [Excerpt]
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 US$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 Mr. 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 US$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.
The benefit for companies such as Memphis, Tennessee-based FedEx may be as much as 30% compared
with treating the workers as employees and providing retirement and health benefits, said Marick Masters, a
professor at the University of Pittsburgh's Katz School of Business who studies labor issues.
Since 2002, FedEx has gained 9 percentage points in market share on Atlanta-based UPS. Neither company
discloses wage and benefit expenses by employee type.
The dispute may affect other industries. Companies that use some of the 10.3 million people working as
independent contractors in the U.S. include Home Depot Inc., Allstate Corp. and Avon Products Inc., FedEx
Chief Executive Officer Fred Smith said Jan. 10 on a call with analysts. Newspaper publishing companies also
have faced scrutiny over whether their carriers are employees or independent contractors.
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 US$319-million in back taxes
and penalties to the Internal Revenue Service for worker misclassification in 2002.
California Orders Allstate to Cut Home Insurance Rates 28.5%
July 10, 2008, By Lilla Zuill, Reuters
Allstate Corp. will have to lower its rates on California homeowner policies by 28.5 percent making an
estimated $255 million in annual savings for consumers, the state's Insurance Commissioner Steve Poizner
said.
Allstate spokesman Peter DeMarco, in a statement, said the company was "disappointed" in the order but
planned to comply.
Northbrook, Illinois-based Allstate had initially filed for a 9.3 percent increase in homeowners insurance rates,
according to Poizner's statement.
He ordered the rate reduction after an administrative law judge recommended the cut. Consumers will save an
average of $242 per policy on an annual basis, according to the statement.
The rate order follows one earlier this year, forcing Allstate to cut its auto policy rates in California by 15.9
percent