LOS ANGELES, May 6 (Reuters) - A federal judge on Monday

ruled that a small business contracted to deliver packages for

FedEx on the California-Oregon border must arbitrate

with FedEx over claims it made against the company of

racketeering and other alleged legal violations.

In granting FedEx Ground's motion to compel arbitration,

Judge Sallie Kim wrote that PYNQ failed to show it would be

unconscionable to require arbitration. Most legal disputes

between FedEx Ground and its contractors are resolved outside

the courtroom.

FedEx has vowed to "vigorously defend the lawsuit" and has

asked the court to dismiss the case.

PYNQ Logistics Services sued FedEx Ground on Nov. 14 in

federal court in Northern California, alleging that it engages

in a systemic pattern of illegal and wrongful business practices

that violate U.S. anti-racketeering law.

PYNQ asked the court to determine that its relationship with

FedEx Ground is that of an employee rather than a contractor,

and reserved the right to pursue the case as a class action.

The case appeared to be the first where a former FedEx

Ground contractor has sued the global delivery giant under the

U.S. Racketeer Influenced and Corrupt Organizations Act (RICO),

PYNQ's attorney told Reuters.

If the court had determined that FedEx Ground's roughly

6,000 contractors are employees, it could have driven up its

labor costs and threatened the delivery giant's ongoing efforts

to slash costs.