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For the past several months, FedEx Express has been the target of an extensive lobbying campaign by UPS and the Teamsters to have Congress pass legislation that would change our status under the Railway Labor Act (RLA). This campaign resulted in language being inserted into the House version of the FAA Reauthorization Bill that would alter the status of most FedEx Express employees. That provision is not in the Senate version of the bill at this time. The Senate will likely complete a second version of the bill, and the two versions will then be reconciled into a final bill to be voted upon by both houses of Congress in the coming months.
With Congressional deliberations underway on the FAA Reauthorization Bill, you will hear and read much more about the issue. This is a vital issue for the future of FedEx Express and we are taking the appropriate steps to communicate our position to legislators. It is also important for the investment community to understand the issues surrounding our RLA status.
Since the company's founding in 1971, FedEx Express has remained under the jurisdiction of the RLA. We firmly believe that is the proper classification for our company. Unlike our competition, we operate an integrated air/ground network and handle air shipments separately in that network. RLA jurisdiction gives us the best opportunity to deliver reliable, uninterrupted service to customers. It is that superior service that has allowed us to grow in spite of the best efforts of a larger, more profitable competitor -- UPS. Their current lobbying campaign, working hand-in-hand with the Teamsters, is another attempt by UPS to gain a competitive advantage that they have been unable to gain through their service performance.
Railway Labor Act (RLA) History and Purpose
The Railway Labor Act is a law that was originally passed by the U.S. Congress in 1926 to govern railroad labor negotiations and limit economically crippling strikes. The law was a direct response to several damaging local strikes that had bottle-necked railroads, which were the only national transportation systems of that period. As transportation systems evolved, the law expanded to cover airlines and express carriers, which are the dominant national transportation systems of today. As an air express carrier with a combined air / ground network, FedEx Express has been correctly covered under the Railway Labor Act since the founding of the company in 1971.
The purpose of the RLA -- then and now -- is to offer employees a process by which to unionize if they choose and engage in collective bargaining while also protecting national (now global) commerce from damaging work stoppages and delays. Specifically, the RLA ensures that an entire transportation system, like FedEx Express, cannot be shut down by the actions of a local segment of the network. Removing FedEx Express from RLA jurisdiction could expose our customers to the type of service disruptions that the RLA was designed to prevent- local work stoppages in key areas that interrupt the timely flow of shipments of vital, time-sensitive, high-value goods throughout our global network. Such protection is a vital business need for a company like FedEx Express because it gives our customers the ability to count on the reliability of our service.
FedEx Express and the RLA
FedEx Express has been correctly covered by the RLA since our first day of operation in 1973. All employees at U.S. airlines have always been covered by the RLA. FedEx Express remains an airline-centered operation, with our pickup and delivery network fully integrated with our air network to move shipments door-to-door.
The RLA status of FedEx Express has been continually reaffirmed by courts and federal agencies. The Ninth Circuit Court of Appeals decided in 1991 that FedEx is exactly the kind of integrated system that Congress intended to be covered by the Railway Labor Act - the Supreme Court declined to even hear the case because the ruling was so clear.
In Federal Express Corporation vs. California Public Utilities Commission (936 F.2d 1075, 1078 9th Cir. 1991), the court wrote:
"Federal Express is exactly the kind of an expedited all-cargo service that Congress specified and the kind of integrated transportation system that was federally desired. Because it is an integrated system, it is a hybrid, an air carrier employing trucks. Those trucks do not destroy its status as an air carrier. They are an essential part of the all-cargo air service that Federal Express innovatively developed to meet the demands of an increasingly interlinked nation."
In 1996, Congress also reaffirmed that FedEx Express employees were classified properly under the RLA. Every court or agency that has looked at the issue has ruled that FedEx Express belongs under the RLA. That is why UPS and the Teamsters are now putting so much time, money and effort into changing the RLA itself.
Like UPS, FedEx Ground and FedEx Freight are covered by the National Labor Relations Act (NLRA). The FedEx Express integrated air and ground network differentiates it from FedEx Ground and FedEx Freight. The fact that FedEx Express is a separate and distinct network for air shipments is what separates FedEx Express from UPS.
RLA Current Legislation Status
As a direct result of lobbying by UPS and the Teamsters working closely together, a provision has been added to the House of Representatives version to the FAA Reauthorization Bill now under review by Congress. That provision aims to amend the RLA to cover only FAA licensed employees such as pilots, aircraft maintenance technicians, and aircraft dispatchers. If the provision passes into law, about 100,000 other employees at FedEx Express would be covered by the National Labor Relations Act (NLRA). The provision is not in the Senate version of the bill at this time.
RLA and Unions
FedEx Express has long provided superior express service to customers. Handling air express shipments in a separate, dedicated network at FedEx Express is a big reason for that. UPS is desperate to close the service gap with FedEx Express, and the Teamsters are desperate for new dues-paying members to pay for their sagging pension funds and expensive political agendas. UPS apparently thinks removing many FedEx Express employees from RLA jurisdiction would allow them to gain a competitive advantage, possibly by making our express service less reliable in the eyes of customers. At the same time, the Teamsters, who represent 250,000 UPS employees, only stand to gain if UPS beats FedEx in the marketplace.
FedEx Express has always acknowledged that employees have the right to unionize if they so choose, and respects all the laws and regulations that ensure that right. FedEx Express prefers to deal directly with employees without a third party in between. Our 38 year track record as one of America's best places to work and best service providers shows that formula works very well for our employees and our customers. The Teamsters have said that changing our employees to NLRA status will make it easier for them to unionize. Interestingly, only 8% of private sector employees covered under the NLRA are unionized today. In contrast, approximately 70% of private sector employees covered by the RLA are unionized.
Differences in the RLA and the NLRA
The RLA and NLRA are both laws that govern union organizing and collective bargaining. The main difference is the RLA was specifically designed to govern the unique circumstances of national transportation systems to protect the flow of commerce.
Under the RLA, groups that wish to unionize must do so across nationwide classes of employees. The RLA also requires mandatory government-led mediation of contract disputes supervised by the National Mediation Board before a union can strike or an employer can replace employees or impose contract terms. This part of the RLA helps minimize the chances of crippling strikes that would shut down large portions of the economy.
The NLRA is a more general piece of legislation geared to general and local labor situations. The NLRA covers the vast majority of American workers because only a small percentage of them work in national transportation systems. Under the NLRA, employees can unionize in small localized groups, and government led mediation is not a required step in the negotiation process.
Most UPS employees are classified under the NLRA
UPS has been under the NLRA since that law was passed in 1935 because they have always been a ground company. When UPS began its airline segment in the early 1980s, the employees in that segment were classified under the RLA - like all other airlines, including FedEx Express. UPS does not handle their air shipments in a separate and distinct network that ties directly into their air operation, as FedEx Express does. That is the reason their pickup and delivery employees have remained covered by the NLRA. It is noteworthy that throughout the 1990s, UPS sought to have their drivers reclassified from the NLRA to the RLA. Only after a decade of failure at that effort did UPS join the Teamsters in trying to reclassify FedEx Express.
Competitive Wages
We are very competitive with UPS on all fronts, including wage rates. Our express driver pay compares favorably with what they pay their air drivers. As a matter of fact, we pay our express drivers more on an average, starting pay and maximum pay basis than UPS. In addition, we provide our express drivers with a full time opportunity whereas UPS mostly hires part-time air drivers. New part-time UPS drivers wait one year for benefits while new FedEx Express workers wait only three months.
Differences between the RLA amendment and the Employee Free
Choice Act (EFCA).
The Employee Free Choice Act (also called "Card Check") is a separate, unrelated piece of proposed legislation that seeks to amend the National Labor Relations Act. Among other things, EFCA would eliminate employees' absolute right to a secret ballet vote in union elections, making it easier for unions to directly pressure people to sign up. The goal of EFCA is to reverse the half-century decline of unions that has seen their membership drop to 8% of the private sector workforce. The RLA amendment to the FAA Reauthorization Bill benefits only one company -- UPS. It is also important to note that as long as FedEx Express remains covered by the RLA, the Employee Free Choice Act would not apply to Express employees. Under the RLA, Express employees would still have a right to secret ballot elections if they choose to unionize.
Impact of RLA status on B-777 purchases at FedEx Express
In our latest B-777 contract with Boeing, a provision was included that cancels 15 orders if FedEx Express or any of its employees is removed from the jurisdiction of the RLA. This clause does not affect the first 15 B-777s we have on order, only the last 15 aircraft currently on order. This provision was included in the contract as a prudent precaution against a possible major change in the circumstances of our business. It is a reasonable contingency to put in place because a change of that magnitude could affect the structure of our network or the fundamentals of our business model. At this time, we still plan to complete the purchases of all 30 B-777s.
