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FedEx Corp. would be forced to stop investing in the growth of its flagship express company if Congress changes the company’s labor rules, founder Frederick W. Smith says.

That would mean a canceled $6.7 billion order for Boeing 777 freighters that connect Memphis to places like Hong Kong, Shanghai, Paris and Milan.

Johan Nilsson/Associated Press

Although they both offer ground and air service, FedEx Express and UPS are covered by different federal labor laws.

And there would be no more expansions at the World Hub and office buildings scattered from the airport to Collierville, where more than 30,000 employees make it the state’s largest private employer, he says.

The Teamsters and UPS are out to get most FedEx Express workers shifted to a labor law that FedEx officials believe would jeopardize the company’s famed reliability.

“If that were to happen, I can promise you that the board of directors of FedEx Corp. would reduce the amount that we invest in (FedEx Express) to the point where it was just purely a sustenance level,” Smith said in a recent interview with The Commercial Appeal.

With “level the playing field” as a rallying cry, FedEx foes are pushing an amendment to a Federal Aviation Administration reauthorization bill. Aimed solely at FedEx, it would bypass 32 years of administrative rulings and court cases validating coverage of the express company under the Railway Labor Act.

To the lay person, the companies do the same work. People in UPS brown or FedEx purple pick up packages by truck, process them at sorting hubs and distribute to delivery points worldwide through hub-and-spoke networks.

But there are crucial differences in how they’ve been treated under the country’s two flavors of labor law: the RLA, which covers all FedEx Express employees and UPS airline workers, and the National Labor Relations Act (NLRA), which covers the rest of UPS’s work force.

“Right now FedEx Express drivers are the only drivers in the country who are covered under the Railway Labor Act,” said UPS spokesman Malcolm Berkley.

“Whatever decisions have been made previously, it’s Congress’ role to assess the law and determine whether drivers of express delivery companies should be covered under the RLA,” Berkley said.

Smith asserted that the potential for a work stoppage under the NLRA would be too great.

“There is no Railway Labor Act carrier, whether it is Delta Air Lines or US Airways or Union Pacific, that would ever invest another dime in the business, because what you would do is you would go back to the future, back to the situation prior to 1926,” when Congress passed the RLA to end decades of crippling railroad strikes.

For starters, FedEx has a right to jettison a 15-plane order of its aircraft of the future, the 777, if FedEx Express’ 100,000-plus American workers are put under the NLRA.

“It’s just downright imprudent to invest billions of dollars in airplanes if, on a whim, a union in a local community could shut the whole network down,” said Donald Broughton, an analyst with Avondale Partners who follows both FedEx and UPS.

“It doesn’t make sense for 100 guys in Chicago to hold the rest of the country hostage.”

Courts and labor boards have treated FedEx and UPS differently for good reason, FedEx officials say. They contend UPS’s legislative effort is an attempt to remedy a “fatal mistake” by UPS management when it did not set up a separate pickup and delivery network for air express.

FedEx Corp., with Smith as chairman, president and CEO, is a holding company for several operating subsidiaries, including FedEx Express, FedEx Ground and FedEx Freight.

The biggest, FedEx Express, the original express delivery company, transports 85-90 percent of its volume on planes. A pickup and delivery network of 41,800 trucks “exists for no other reason than to put traffic on and off the airplanes,” Smith said.

FedEx Ground, which moves packages strictly by truck, was added in the 1990s to compete with UPS’ near-monopoly on ground delivery. FedEx Ground packages are less urgent, lower value and never travel by air.

FedEx Ground workers are covered by the NLRA, but union organizing efforts have been unsuccessful. FedEx Ground drivers are independent contractors, although that has been the subject of legal challenges.

UPS is a 103-year-old ground delivery company that essentially grafted an airline onto a trucking network in 1982. UPS touts itself as a fully integrated delivery service.

UPS statistics for 2009 indicate up to 16.5 percent of domestic packages were considered air freight. With domestic and international combined, the percentage increased to about 28 percent.

UPS has a nationwide master agreement with the International Brotherhood of Teamsters for ground-service employees. This avoids individual bargaining with union locals across the country, the same outcome as if it were covered by the Railway Labor Act.

FedEx officials say federal court, National Mediation Board and National Labor Relations Board rulings favor the status quo.

“There is not a scrap of paper, or now digital, any written document, or legislative history, or any other piece of substantive, quantitative data, in support of the other side’s position, not one,” Smith said.

A 1991 federal appeals court ruling affirmed FedEx Express trucking operations were integral to the airline, an RLA criterion.

In the mid-1990s, the United Auto Workers lost a bid to organize FedEx Express package sorters and drivers in the Northeast under the NLRA.

Labor author Frank N. Wilner, writing in Federal Lawyer magazine in January, quoted the salient point: “‘The RLA does not limit its coverage to air carrier employees who fly or maintain aircraft,’ the (National Mediation) Board said. ‘Rather, its coverage extends to virtually all employees engaged in performing a service for the carrier so that the carrier may transport passengers or freight.’”

On the other hand, an appeals court in 1996 upheld an administrative ruling that rebuffed a UPS attempt to switch its labor coverage to RLA. The ruling suggested too few packages were air freight to justify a move by UPS.

Berkley said the discussion of history, corporate structure and legal precedent is a FedEx attempt to confuse the issue.

“The suggestions that this should not be looked at because of previous determinations, that’s ridiculous. That’s the role of Congress,” Berkley said.

FedEx officials said they believe UPS also belongs under the RLA.

Smith said, “Today, UPS and FedEx probably have between the two of us, between 20 and 25 percent of the country’s GDP (gross domestic product) in our planes and trucks every day. If either of these companies were shut down, it would be an economic disaster that makes what happened with the volcano in Europe pale in comparison.”

“If the arteries of commerce was the issue, and I think that is right, UPS should be under the Railway Labor Act,” said Dave Bronczek, president and CEO of FedEx Express.

Smith added, “It may not be on my watch, but that’s what will happen.”

Analyst Broughton agreed. “They have billions invested in airplanes and terminals and it’s a network on which the rest of the country, you and I, rely.”

Wilner, an economist and public relations representative for the United Transportation Union, appeared to leave wiggle room for proponents of change.

Writing in Federal Lawyer, he says, “Clearly, FedEx Express has been increasing its use of trucks, and its business plan has been revised from the one that was developed when the company began operations in 1973. Indeed, one could argue that FedEx Express has experienced a material change in its operations…”

–Wayne Risher: 529-2874

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TIMELINE

May 21, 2009

House passes FAA reauthorization bill with language targeting FedEx added by U.S. Rep. James Oberstar, D-Minn.

June 9, 2009

FedEx rolls out its “Brown Bailout” message, targeting UPS.

July 2009

UPS workers are asked to write senators about the labor language. FedEx questions whether the letter writing is voluntary.

March 2010

FedEx CEO Frederick W. Smith circulates a letter to employees asking them to “engage with our elected officials” on the labor provision.

March 22, 2010

Senate passes its FAA bill without the FedEx provision.

April 27, 2010

The Teamsters’ “Fed Ex drivers aren’t pilots” campaign begins.

July 3, 2010

Current target date for a new FAA bill, with or without the FedEx labor provision.

——————–

Railway Labor Act

Enacted 1926

Covers railroads, airlines, express companies

Requires nationwide or systemwide union organizing and collective bargaining by craft or class of worker

Contains strong safeguards against extreme actions that might disrupt commerce: strikes or lockouts

Disputes resolved by National Mediation Board

National Labor Relations Act

Enacted 1935

Covers nonmanagerial employees at businesses engaged in interstate commerce, excluding workers under Railway Labor Act and certain other occupations

Allows unions to organize workers and bargain on location by location basis

Stalemates in contract negotiation can result in unions going on strike or companies locking out workers

Disputes overseen by National Labor Relations Board

——————–

Railway Labor Act

Enacted 1926

Covers railroads, airlines, express companies

Requires nationwide or systemwide union organizing and collective bargaining by craft or class of worker

Contains strong safeguards against extreme actions that might disrupt commerce: strikes or lockouts

Disputes resolved by National Mediation Board

National Labor Relations Act

Enacted 1935

Covers nonmanagerial employees at businesses engaged in interstate commerce, excluding workers under Railway Labor Act and certain other occupations

Allows unions to organize workers and bargain on location by location basis

Stalemates in contract negotiation can result in unions going on strike or companies locking out workers

Disputes overseen by National Labor Relations Board

——————–

By the numbers

FedEx / UPS

2009 revenues: $35.5 billion / $45.3 billion

Employees: 280,000 / 408,000

Trucks: 123,300* / 96,105

Planes: 660 / 267

Deliveries/day: 7.2 million / 15.1 million

* includes 22,500 owner-operated FedEx Ground trucks

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