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A federal court judge in Helena says mandatory arbitration clauses in FedEx contracts with its drivers are so one-sided they are “unconscionable” and “unenforceable” and he’s ordered that a lawsuit filed against the shipping magnate move forward without the arbitration.

In a ruling issued Friday, U.S. District Court Senior Judge Charles Lovell agreed to dismiss four of the eight complaints made by Tracy LaSalle in his wrongful discharge lawsuit filed against FedEx Ground Package System. The dismissed complaints were: malice; violation of Montana’s independent contractor law by misclassifying him as an independent contractor instead of an employee; unjust enrichment; and not paying him for overtime.

However, while FedEx had argued that the case couldn’t proceed to trial until arbitration ensued for the complaints of breach of contract, fraud, constructive fraud and violation of Montana’s wage laws, the judge struck down that theory.

In his nine-page order, Lovell wrote that under the law, an arbitration provision is unenforceable where it is both “procedurally and substantively unconscionable,” and this case falls into that arena. He cites certain parts of the arbitration clause as proof of that, including how each party must bear the costs of arbitration, which in a similar case — Openshaw vs. FedEx Ground Package Systems — totaled $12,700 in arbitration fees to be paid by the contractor “just for the opportunity to arbitrate his claim.”

“The Openshaw court found this to be a significant disincentive to the contractor, and an unconscionable one,” Lovell wrote.

Another problem he found with the arbitration provision is that it prohibits the arbitrator from producing a written opinion on the outcome.

“As the Openshaw court points out, this provision has no purpose other than to ‘hamper a reviewing court’s ability to determine whether to vacate or otherwise correct the arbitrator’s opinion,’” the judge wrote, quoting from that opinion.

But the most one-sided provision, Lovell said, is “while the contractor must arbitrate his claims of wrongful termination of the contract, FedEx does not have to arbitrate its claims of wrongful termination by the contractor.”

“Such a unilateral provision is unconscionable because it requires ‘binding arbitration of the weaker bargaining party’s claims, but allows the stronger bargaining party the opportunity to see judicial remedies to enforce contractual obligations,’” Lovell wrote, again partially quoting a previous opinion. “This type of disparity can become so one-sided and unreasonable ‘that the agreement becomes unconscionable and oppressive.’

“This arbitration clause is a procedurally unconscionable contract of adhesion, i.e. a ‘take-it-or-leave-it’ agreement prepared by a party with excessive bargaining power, which contains numerous substantively unconscionable provisions.”

LaSalle’s lawsuit is part of a larger issue in which FedEx drivers argued that they in fact were employees rather than independent contractors, and as such should be awarded benefits such as overtime and holiday pay, and not be required to pay operating expenses like purchasing or leasing delivery vehicles that meet FedEx expectations, renting their uniforms and paying for fuel.

Montana Attorney General Steve Bullock sued FedEx in 2009, as did other states, saying the company was engaging in “widespread, long-term and unlawful employment practices.”

In October 2010, Bullock reached a settlement with FedEx that said the delivery drivers were in fact employees, but outlined a business model in which they could still be private contractors if they handled numerous routes instead of just one. Initially, they put the number at three and LaSalle tried to sell his route, but when FedEx changed the number of routes to two, LaSalle’s sale fell through and he claims to have lost close to $175,000.

David Gallik, LaSalle’s attorney, said during a recent court hearing Lovell mentioned that the state‘s settlement is like the 1,000-pound gorilla in the room in this case.

“I think what he meant was they have a different set of facts now, after the settlement, the consolidation (of routes) and the new program,” Gallik said. “The settlement was a determination by the state of Montana that they are FedEx employees and that’s a big issue in this case.”

Marcia Davenport, the attorney for FedEx, declined to comment 

on Lovell’s most recent order since the case is still pending. A trial date has been set for March 11, 2013.

Gallik said he has 10 days to file an amended complaint as the result of the dismissal of the four counts, but hasn’t decided yet how to proceed.


Reporter Eve Byron: 447-4076 or eve.byron@helenair.com

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