UPDATE: FedEx Wins 'Significant' Court Ruling Over Driver Status

FedEx Corp. (FDX) said Tuesday it had won another round in a legal battle to maintain the employment status of its U.S. delivery drivers and avoid a potentially hefty rise in operating costs and possible damages.

The shipping and delivery group is being sued by a group of drivers seeking union representation in more than 20 states. They claim they have been improperly classified as independent contractors rather than company employees, and were excluded from some benefits. The suits were consolidated into a single class-action case in Indiana, and Judge Robert Miller Jr. ruled Tuesday that in 20 of the 28 cases before him, plaintiffs were independent contractors. The court ruled against the FedEx Ground delivery unit in three cases, while the company claimed a partial victory in some of the remaining ones.

"We are very pleased with today's significant rulings from the Federal District Court in Indiana in favor of FedEx Ground related to the independent contractor business model," the company said in a statement. Lawyers for the drivers were not immediately available for comment.

The uncertainty spawned by the legal battle has seen some analysts estimate that FedEx could have faced a multi-billion dollar bill if it had to reclassify drivers as employees, eroding what is seen as a competitive advantage it has over rival United Parcel Service Inc. (UPS), whose drivers are represented by the Teamsters. The use of independent contractors by FedEx Ground has long been the target of complaints and legal action by critics, who contend the strategy was designed to save money by denying legitimate employee benefits.

The final outcome of the various lawsuits and state administrative actions will determine if FedEx could be forced to pay hundreds of millions of dollars more to cover such costs as operating expenses and pension and health-care benefits.

FedEx has maintained it doesn't have a significant exposure. Executives, who in recent months have said they were "winning" the legal battle, are expected to be quizzed on the development when it reports quarterly earnings Thursday.

The company doesn't have an unblemished record in defending the independent-contractor model. In late 2008, for instance, FedEx agreed to pay $26.8 million to settle a California lawsuit after a state court ruled that 203 current and former drivers were employees and not contractors.

FedEx also has tinkered with its independent-contractor model in some states, such as Maryland and New Hampshire, by moving to a so-called "independent service provider" model whereby drivers operate in larger territories and negotiate independent agreements.

The company's shares were down three cents at $93.30 in after hours trading.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com

--Bob Sechler contributed to this article.

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