independent contractor status of owner operators contractor...independent contractor status of owner...

Presented by:Robert J. Henry

Christopher C. McNatt, Jr.

Independent Contractor Status of Owner Operators

Independent ContractorStatus of Owner-Operators

I. Legal TestsII. Recent DevelopmentsIII. Class Action ReportIV. Specific Practical ApplicationsV. Preventive StrategiesVI. Problems & SolutionsVII. Q & A

I. Legal Tests

Independent ContractorStatus of Owner-Operators

Right to Control Test“An Independent Contractor is defined as ‘any person who renders service for a specified recompense for a specified result under the control of his principal as to the result of his work only, and not as to the means by which such result is accomplished’”

Other factors considered by courts1) Does the contractor have a substantial

investment in the tools of the trade (e.g.truck, communication equipment)?

2) Is the contractor engaged in a distinct occupation?

3) Is the contractor’s occupation typically closely supervised in the work segment at issue?

4) Is there a level of skill required to perform the work?

Other factors considered by courts5) Is the work performed exclusively for the

principal?6) Is the work part of the regular business of

the principal?7) Is the method of payment by the job and

results or by the hour?8) Does the work being performed and the

method of compensation allow for the opportunity of profit or loss?

Other factors considered by courts9) Do the principal and contractor intend to

create an Independent Contractor relationship?

10) Does the contractor have the right to hire and use helpers and replacements?

11) Is the contractor treated for tax purposes by the principal as an Independent Contractor (1099 vs. W2)?

12) Does the principal provide typical employment-type benefits and support (e.g.health insurance, uniforms)?

Independent ContractorStatus of Owner-Operators

II. Recent Developments

Recent Rulings on IC Status

Recent RulingsRuiz v Affinity (S.D.Cal.-Ga. Law)

Issued Monday this week Heavy emphasis on contract’s stated

intent to form IC relationship “Most prominent evidence” of no control:

right to hire other drivers Considered but gave less weight to

requirements of government and customers

Recent RulingsRuiz v Affinity (S.D.Cal.-Ga. Law)

Route selection, start times selected by contractor

Contractors “established their own businesses”—profit or loss

To “monitor, evaluate, and improve the results or ends of the worker’s performance” is not control

Recent RulingsSmith v. Prime (Louisiana Ct. Appeal)

Prime and Zurich (occ-acc carrier) named as defendants

Court upheld summary judgment in favor of Prime Applied control test to hold IC Injury occurred prior to enactment of

owner-operator exemption Allegations that occ-acc was

misrepresented as WC were ignored

Recent RulingsDeSouza v. EGL Eagle Global Logistics LP (D. Conn.) Multiple factor test – emphasizing

actual control Control is (a) route selection, (b)

break time freedom, (c) realize profit and loss, not uniforms, logos or start and stop times.

Recent Rulings

DeSouza v. EGL Eagle Global Logistics LP (D. Conn.) CDL-skill noted Contractor provides tools – truck, gloves and

pallet jack Annually expiring contract No requirement to take after hours loads No regular work schedule each week or month Could hire others

Recent RulingsFedEx Home Delivery v. NLRB

Court of Appeals acknowledges “right to control” and other common law factors as being the applicable test - it calls them “animating principles” to determining the existence of entrepreneurial risk and reward.

Recent RulingsFedEx Home Deliv. v. NLRB “Control” can be far too abstract a

concept to capture the distinction between employee and independent contractor:

“Full–time cook is regarded as a servant and not ‘an independent contractor’ –although it is understood that the employer will exercise no control over the cooking”

Recent RulingsFedEx Home Deliv. v. NLRB

Customer requirements and government compliance not control

Contract reality, very important Key considerations Opportunity for gain/loss Ability to hire others Right to buy/sell routes

Recent RulingsWilkinson v. Palmetto State Transportation Co.

Dawkins Test – 4 factors all must be present or employment – rejected Contractor has control Furnishes equipment Paid by work Cannot be fired

Recent RulingsWilkinson v. Palmetto State Transportation Co.

Adopted a balancing of factors Including reality of contract

terms GPS tracking is irrelevant

customer requirement Where regulation equates to

control - irrelevant

Jury Verdicts

Cristler v. Express Messenger Systems, Inc. (Cal. Ct. App.) Court upheld jury verdict in favor of

IC status Jury applied Borello factors to find

parcel delivery drivers are ICs Court summarily distinguished

Estrada and Air Couriers case in dicta

Recent RulingsCalifornia (Brown) v. PAC Anchor Transportation

California AG alleges Unfair Business Practices Purported misclassification AG’s goal to have contractors

reclassified as employees Trial Court grants PAC Anchor

judgment on the pleadings

Recent RulingsCalifornia (Brown) v. PAC Anchor Transportation

As applied to motor carriers, California’s UCL is preempted by FAAAA

Court also rules that UCL as applied to motor carriers violates deregulatory purposes

On appeal

Recent RulingsCalifornia (Brown) v. Pacifica Trucks

This suit and 4 others are identical in form to the PAC Anchor matter, but AG is not being met with same level of resistance.

Motor carrier stipulates to judgment without contesting AG

Injunction on classification and $5,000 fine

Recent Legislation

Recent Legislation – U.S.Federal LegislationIRS Safe Harbor 530 ErosionExisting Favorable Law: IRS Safe Harbor Provision (Section 530 of the Revenue Act of 1978)

Provides safe harbor provisions for motor carriers classifying drivers as independent contractors. IRS cannot reclassify O/Os as employees where the motor carrier: Consistently treated O/Os as contractors; Filed all required forms (such as Form 1099); And could show one of the following three bases for classifying the

worker as an independent contractor:1. Judicial precedent2. Past IRS audit3. Industry practice

Recent Legislation – U.S.

Federal LegislationIRS Safe Harbor 530 Erosion“Taxpayer Responsibility, Accountability, and Consistency Act” HR 3408 Introduced July 30, 2009 by Rep. McDermott SR 2882 Introduced Dec. 15, 2009 by Sen. Kerry Substantially identical FY 2011 Budget submitted by administration targets §

530 and misclassification

Recent Legislation – U.S.Federal LegislationIRS Safe Harbor 530 Erosion Requires IRS “written determination” of job position

OR Concluded IRS examination of job position

employment status with no determination that job position is employment

AND Job position has not been held by employee Worker may request IRS audit

Recent Legislation - Trucking

Owner-Operator as Independent Contractor –Enacted Laws North Dakota: SB 2071, Codified at ND

Cent. Code § 65-01-02 Enacted March 19, 2009 Creates O/O exemption where satisfy

7-factor test and operate CMV with GVWR greater than 26,000 lbs.

Recent Legislation - Trucking

Owner-Operator as Independent Contractor –Enacted Laws Utah: HB 308

Enacted March 24, 2009 Exempts O/O where waive coverage and

have occupational accident insurance

Recent Additional Legislation of NoteColorado Employee Classification Act (HB 1310) Enacted June 2, 2009 Creates Office of Employee

Misclassification Department of Labor

Authorizes any party to request review of employment practices

Working to reduce impact of onerous application in trucking

Recent Additional Legislation of NoteMaryland Joint Task Force on Workplace Fraud (EO 8)

Issued July 14, 2009

Creates Task Force purportedly in conjunction with Workplace Fraud Act of 2009 (SB 909)

Effectively broadens scope of Act beyond construction and landscaping Not limited to construction and landscaping No new definition of employment Facilitates inter-agency communication regarding

misclassification

Recent Additional Legislation of NoteNew Jersey AB 3569 Enacted July 10, 2009 Authorizes stop work orders and

penalties in event of misclassification Hearing only after stop work order is

issued

2010 Legislative Activity

Early legislative activity indicates continued focus on misclassification

Misclassification Acts are primary vehicle

Oklahoma, Rhode Island, Virginia, Nebraska have introduced bills

2010 Legislative Activity

National Conference of Insurance Legislators (“NCOIL”)

2010 Workers’ Compensation Committee “charge” to “Examine workers’ compensation in the trucking industry”

March 5 meeting held to consider issue

Independent ContractorStatus of Owner-Operators

III. Class Action Report

Class Action Report

Challenges to IC StatusEmployee DriversClass Certification

Class Action Report-Challenges to IC status

Drivers may bring suit only if shown to be employeesState statutory and common law claims

focus on obligations of employers to employees, not economic regulation of business arrangements• Tests vary by State

Class Action Report-Challenges to IC status Factors that impact reclassification

may not impact financial benefit to contractorPlaintiffs tend to focus on structure of

operations, delivery windows, uniforms and truck marking that have no impact on money contractor receives.

Of course, if carrier uses employee drivers, plaintiffs need not demonstrate reclassification

Class Action Report-Who’s Being Sued Industry Segments

Over the roadLast mileTruckloadLTL IntermodalCourier

Plaintiffs suing large and small carriers

Class Action Report-Who’s Being Sued Cases have been filed in:

California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas, Massachusetts, Maryland, Minnesota, Missouri, Mississippi, New Jersey, New York, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Washington, Wisconsin

Class Action Report-Who Has Been Sued AEX, Inc., APL, 3PD, Inc., Cardinal

Logistics, CEVA, C.R. England, CRST Van Expedited, Diakon Logistics, EGL, Fed Ex, Fed Ex Ground, Gordon Trucking, J.B. Hunt, Jevic Transportation, McLane, Panther Expedited, Roadway Express, Schneider National, Summit Logistics

Plaintiffs attempt to demonstrate uniform practices Assertion that all employees are

subjected to same policies and practices Assertion that damages can only be

effectively recovered on behalf of class Mixed results

Class Action Report-Class Certification

IV. Specific Practical Applications

Independent ContractorStatus of Owner-Operators

Specific Practical Applications-Proper terminology helps

Employment Term Independent Contractor Term

1) Employee 1) Independent “contractor” owner-operator

2) Driver 2) Fleet driver or contractor’s driver

3) Wages or pay 3) Compensation/settlements/ contract pay

4) Company requirements 4) Government requirements and/or customer requirements

5) Training 5) Orientation and/or verification of contract service skills/regulatory compliance/customer procedures

6) Hire 6) Contract with

7) Fire 7) Contract termination

Specific Practical Applications-Proper terminology helps

Employment Term Independent Contractor Term

8) Work duties 8) Contractual obligations

9) Supervisor 9) Contract administrator

10) “Contractor quit” 10) Contractor voluntarily terminated his contract

11) Instruct 11) Recommend or provide guidelines

12) Our insurance program 12) Contractor insurance policies facilitated by us

13) Vacation or holiday 13) Out of service

14) Disciplinary action 14) Notice of breach

Specific Practical Applications-Load tracking vs. contractor control Customer driven load tracking solution Offers easy to use load status interface – no

need for discussions, just follow prompts Quick and easy way to review next available

“work opportunity” Communications focus on status of timely

delivery components and nothing else► Ready status ► Ending trip► Starting trip ► Trip complete► Trip underway

Specific Practical Applications-Insurance Requirements Policies required by the motor carrier for

contractor to do business with the motor carrier

No obligation to buy any policy facilitated by the motor carrier

The contractor simply needs to provide evidence of proper insurance Non-trucking liability Workers’ compensation [or in some states

occupational accident may be an acceptable alternative]

Specific Practical Applications-“Exclusive Possession” Federal Leasing Regulations require

“Exclusive possession, control and use” of equipment—the “magic language”

This language merely clarifies that the motor carrier is initially liable for highway accidents and cannot avoid liability by pointing a finger at the contractor

The motor carrier is allowed by law to obtain “indemnification” – or reimbursement from contractor for accidents they cause

Specific Practical Applications-Requirements mandated by law Use of qualified drivers Submission of logs and shipping

documents Random drug and alcohol testing Bi-annual physicals Maintenance and inspection of equipment Safe operations

Specific Practical Applications-Other requirements and options Payment of fines caused by contractor Payment for licenses, permits and plates Determination of overweight and overlength Obtain passenger authorization Keeping trailers/chassis free from damage License plate rental Fuel tax reporting Fuel card services

Independent ContractorStatus of Owner-Operators

V. Preventive Strategies

Preventive Strategies-Contractor Relations

Give ample notice to drivers Advertise broadly for I.C.’s Alert drivers of their need to take

initiative Recruit fleets and tell drivers of

fleet-employment opportunities

Preventive Strategies-Avoid Unneeded Relationships For contractors needing a truck –

Beware of certain unrelated leasing-co. deals involving carrier guarantees

Carrier itself should not be lessorUse capital lease, not operating lease If conversion, don’t lease to a driver the

same truck he/she drove as an employee Avoid long-term loans or business

coaching

Preventive Strategies-Maximize Contractor Choice Make it easy for I.C.’s to haul

occasionally for others Look for ways for drivers to net more as

I.C. than as employees Enable I.C.’s to make more or less

money based on own decisions Allow maximum choice in charge-backs

and practices

Draft a contractor manual different from employee-driver manual

Include statement that policies apply “unless otherwise prohibited by law”

Preventive Strategies-Handbooks

VI. Specific Problems and Solutions

Independent ContractorStatus of Owner-Operators

Problem: “Forced Dispatch” – What if the contractor refuses the load?

Solution: Re-offer load and move to next contractor Do not put contractor at bottom of priority

list Repeated refusals may require either:

a) voluntary request for work status clarification; or

b) notice of request for placards and temporary contract suspension

Problem: Restriction on vehicle use despite contractor’s ownership

Solution: Free usage when contractor is operating

vehicle for personal reasons Free usage when the motor carrier’s

authority as a for-hire motor carrier is not “in play” (e.g. intrastate carriage on contractor’s California motor carrier authority)

Trip leasing

Problem: Strict appearance requirements

Solution: Only as stringent as required by customer

[do we need to prohibit delivery?] Only related to security and safety issues To the extent used as a marketing tool,

motor carrier pays a marketing and advertising fee to contractor

Q & A