Article

The Latest Threat to the Owner-Operator Model

New guidance from the Department of Labor could spell trouble for trucking

November 2015, TruckingInfo.com - WebXclusive

by Deborah Lockridge, Editor-in-Chief - Also by this author

SHARING TOOLS        | Print Subscribe
Photo by Jim Park
Photo by Jim Park

New guidance from the Department of Labor issued in July could pose a threat to the trucking industry's use of owner-operator drivers as independent contractors.

The American Trucking Associations calls it "an aggressive departure from prevailing classification standards," saying it "no doubt signals an attack on industries like trucking that rely significantly on contractors."

Administrator's Interpretation No. 2015-1 is aimed at "misclassification" of employees as independent contractors. The issue has been a focus of the Obama administration and is being pushed by labor unions, most visible among port drayage firms and in recent highly publicized and successful lawsuits against FedEx.

It's "a shot across the bow by the Department of Labor," says Ben Menzel, relationship manager and legal advisor at HNI, a non-traditional insurance brokerage that offers clients advice on reducing risk.

HNI CEO Mike Natalizio says this guidance seems to threaten the owner-operator model used in trucking.

"Many, many motor carriers are following the law, treating independent contractors appropriately, and it's working for both sides," Natalizio says. "This could take away that model. So we are concerned that this is maybe heading down a path of threatening that, and changing the way independent contractors in the trucking industry will survive."

The Department of Labor is far from the only agency that determines independent contractor status. There's the IRS and many state-level agencies, including those governing worker's comp as well as state income taxes.

However, according to the guidance notice, the DOL's Wage and Hour Division has entered into memoranda of understanding with many of these states as well as the Internal Revenue Service. In conjunction with these efforts, the DOL says, it decided to put out this guidance regarding the application of the standards for determining who is an employee under the Fair Labor Standards Act.

According to a legal alert from Barnes & Thornburg LLP, the interpretation is significant from a number of standpoints:

  • It states the DOL’s unequivocal opinion that “most workers are employees,” under the FLSA.
  • It fully embraces the “economic realities” test as the DOL’s preferred approach to determining whether a worker is an employee or a contractor.
  • It downplays the significance of an employer’s exertion of control over the tasks performed by the worker.
  • It reinforces the DOL’s pattern over the last several years of aggressively examining the classification of workers as contractors.

While much of the guidance in the document is not new, the "economic realities" emphasis "is going to be problematic," says Rob Moseley, transportation attorney with Smith Moore Leatherwood LLP. "A trucking company is not going to be able to say having truckers move your freight isn't an integral part of your business.

The 'economic realities' focus "is a test we're set up to fail."

"It's a test we're set up to fail," he says. "Basically,they're saying the only guys who could be an independent contractor at a trucking company are the plumber and the guy that cuts the grass."

Moseley says if the guidance is interpreted literally, trucking companies that want to use independent contractors may be forced to go to a model where their core business is not moving freight, but brokering loads to those independent contractors – even to a pure broker model where those owner-operators must have their own authority.

"What it may have the affect of doing is pushing a lot more one-man, one-truck operations into the motor carrier model rather than being independent contractors leased on to somebody else."

The “economic realities” test has been used by several courts and regulatory agencies for years and includes the following factors:

  1. The extent to which the work performed is an integral part of the employer’s business;
  2. The worker’s opportunity for profit or loss depending on his or her managerial skill;
  3. The extent of the relative investments of the employer and the worker;
  4. Whether the work performed requires special skills and initiative;
  5. The permanency of the relationship; and
  6. The degree of control exercised or retained by the employer

The guidance repeatedly de-emphasizes the element of control over how tasks are to be performed. Historically, note the attorneys at Barnes & Thornburg, the issue of control has been regarded as one of the most important factors in assessing whether a contractor actually is an employee.

"Although not abandoning the issue of control by any means, the fact the Department is downplaying the issue does call into question how control will be regarded in the future and more importantly, whether other factors might surpass it in prominence."

Smart trucking fleets have learned how to structure their operations to win the control test, Moseley says, which may be one reason this guidance is de-emphasizing it. "The reason they're saying the control test is bad is that truckers can win the control test; they can do that right."

HNI's Menzel says this is a signal that the DOL is going to err on the side of there being an employee/employer relationship.

That, he says, "makes it even more important for companies and independent contractors to maintain the independent nature of that relationship."

And that needs to not just be in the written documents, adds Menzel. "Even if you have a contract with a driver that says she's an independent contractor, that's not a safeguard," he says. "It's the old adage of if it walks like a duck and quacks like a duck, it probably is a duck."

HNI recommends that companies check with their own legal counsel to see what steps they may need to take to protect their independent contractor relationships.

However, ATA points out that it is too soon to tell what impact this new guidance will have. "Whether DOL's new view of the law will successfully upset well-settled legal precedent is a question that will have to be worked out in the courts."

Related: Driver Dilemma Part 4 - The Search for Owner-Operators

Comments

  1. 1. Big Yellower [ September 01, 2015 @ 03:24AM ]

    Ironically a true independent contractor is a small carrier concept. Myself I'm a small carrier less than 5 tractors . Primary 2 rig operations. I work for various brokers and other small Carriers, large carriers too. I get offers quite often to do power only for large mega carriers as an "outside Carrier". Since my safer score is 7.5 . It would be nice if There were more opptunities for small carriers to contract to larger ones . Since larger "mega" carriers safer score are in the dog house...

  2. 2. Rick Gaskill [ September 01, 2015 @ 03:25AM ]

    There are very few real O/O's left in the industry. The major carriers' idea of "independent contractors" is Lease Operators. If the DOL puts an end to that exploitation it would be a good thing.

  3. 3. big red [ September 01, 2015 @ 03:50AM ]

    As a small carrier one bad inspection will make your safer score bad. How many good inspections will it take to get out? My truck has not ever had a level one in 14 years. Its always stupid fine generating stuff like ,form and manner.

  4. 4. SQ609 [ September 01, 2015 @ 04:08AM ]

    What used to be a good profession is no more. Trucking has been going down the dumps for the past couple of years. It's being attacked from every angle. With all the regulation and bullsh*t being shoved down our throats, the ever increasing price of truck ownership, and the slow and stagnate rates makes trucking not to be a good option anymore. They're slowly but surely destroying the independent model as we know it. Soon the only trucking left will be owned by all the mega carriers. And I think that's what *THEY* really want including the ATA. Don't let the ATA fool you with their rhetoric. They're not for the independent model. They represent the mega carriers who wish to eliminate the competition - the independent carriers.

  5. 5. Bill Hood [ September 01, 2015 @ 07:10AM ]

    At Farm2Fleet we are looking at this very closely. With 80 Owner Operators, we have adopted a 100% self-dispatch model. All of our Owner Operator Partners find and negotiate their own loads.

    And no one can answer if our model will be looked at positively or lumped with all the other carriers that lease an "independent" contractor but effectively dispatch them like a company driver.

    Where does it stop? Think about the single truck carrier that has a single customer. Would they be considered a employee of that customer?

    Run too much freight for a single broker - are you now an employee of that broker?

    What about having the Owner Operator incorporate? Now you are leasing on a company and need to make sure that they are following the employment laws of the appropriate state. Will that work?

    We all understand what is driving this and the scare tactics may just work in driving some carriers from this. It is working on the state level. We relocated from IL to protect our business model.

    Lots to consider and think about with all this.

    Bill Hood
    CEO
    www.Farm2Fleet.com

  6. 6. Lowboy43 [ September 01, 2015 @ 07:13AM ]

    All of you above have good comments.
    You are correct about the ATA.
    They areally nit concerned about the small guys. We do not pay their advertising .
    All of you guys out here can sit and point fingers at the big guys. But why is nothing being done?
    I grew up in this business. It was a great living. Today things change. We all need to adjust to change.
    When the government pushes, we need to push back. Not just a few. All of us need to get it together. What all of you out here forget is without trucks,drivers is this country stops.
    How long do you think it would take if all independent,Owner ops would take a vacation for a week. The problem is no one has the balls to shut down for a week.
    It would only better the industry.
    The big guys would fall apart .
    The Government does like the big mega carriers. Easier to control, us small guys are like the last stand out here. I can only pray that the ass hole in DC. goes away soon. But until we all decide enough is enough it's just a Bolg.
    So everyone reading this ask yourself how would you change this industry. Keep in mind we live by the rule of law.
    We all need them .but reality is we are getting crushed with rules and regs It's up to us to do something. If we let them destroy our living we mays as well throw it in
    ATA. wake up. We are the small guys. We out number the Mega Carrier. It time to pay attention to the small guys needs. The state and local governments squeeze this industry so bad a guy can't afford to be in it.
    Work comp insurance is a scam. All of the ambulance chasing lawyers out to rape the trucking industries is crazy. But yet all of us put up with it.
    Blame each other.
    Not the ATA.
    They are just like the horse with the carrot dangling in front of its face.
    So until we all decide it's I'm to stop this let's all go to work and drive safe.
    Your family cares.

  7. 7. Retired Trucker [ September 01, 2015 @ 08:42AM ]

    I'm curious as to what impact this will have on the Construction Industry as 90% of the trucking on a project is done by independents or small fleets that negotiate a yearly rate. And since they are told what time to report each day, what route to use and who knows what other regulations have been placed on them by the construction company. Fuel for thought, I even know of one construction company that puts GPS units in the hire trucks to track them through-out the day, so that they don't go off route or even stop at a convenience store. Will these small fleets and independents become employees of the construction company's?

  8. 8. Joe [ September 01, 2015 @ 11:26AM ]

    The key part of this story for me is the part that says many companies follow the rules and treat O/O properly. Laws are passed because a few people abuse the system. There are companies out there who are abusing the law and they are giving the entire industry a bad name. The good companies know who the bad companies are. If they had spent a portion of the money they will spend to fight this law to go after the scofflaws maybe they wouldn't be fighting this fight.

  9. 9. Paul [ September 01, 2015 @ 07:23PM ]

    I think there may be some misunderstanding here. I run 2 trucks based out of California and drive one myself. I compete against guys who classify their drivers as independent contractors instead of employees. It gives them a tremendous advantage. Even though I have never had s workers comp claim my rate is 25%...that means for every dollar I pay him in wages I pay 25 cents to the workers comp company. If you own the truck and trailer, and you give him direction, he is an employee....plain and simple, it does not apply to owner operators who own their equipment. Some of the big dray age companies that own everything and the only thing the drivers do is drive, I'm sorry, they are employees.....level the field...all. States play by the same rules.

  10. 10. jenkins [ September 03, 2015 @ 10:42AM ]

    All of my life i have been around and in the trucking industry. Ever since the deregulation in the mid 70s the trucking industry has been on the decline. Rates are still the same and fuel,parts.tires,everything for trucks have sky rocketed. and again 2015 rates to haul are the same as they was back then. What ever happend to the men of this country, Jimmy Hoffa had a belief in the working man and the independent contractor that is no more also. all i can say is this country and the independents have grown weaker and we all sit back and just let it happen. kind of reminds me of the jewish people in world war 2 lambs being led to slaughter. yes being a owner operator is a dying breed. and id like these so called new drivers try and move a 13 wide load grossing 130,000 lbs down the road. half the new age era drivers are lucky to be in business for a few months . were is the men of this industry its time to stand again

  11. 11. Ron [ September 03, 2015 @ 02:25PM ]

    Jenkins..Good day too you sir..Well too answer your question as too where are all the men in this industry..They are all retired or dead,or working for the man..There are no real men left..Only the sheep..I myself am retired but was involved with this industry for 45yrs as am o/o..and as you mentioned when deregulation came about the industry went down hill..Jimmy Hoffa is likely rolling in his grave(where ever that is) If all the trucks in America where too take a week off at the same time this country would be brought too it's knees ..No food,clothing,fuel,lumber,steel..then maybe we could get back too getting a decent living..Maybe..Have a great day and keep the shine uo and IRS outa your jeans

  12. 12. Wayne Schooling [ September 04, 2015 @ 08:44AM ]

    I've read all the comments and you all have good points.

    The ATA is actually comprised of about only 10% of the trucking industry yet this "mouse" has a loud roar simply because this 10% are the big boys with lots of money.

    The Department of Labor is controlled by three democrats appointed by Obama. Two of these DOL members have past history with unions. Thus, the other two DOL members are Republicans who really can't do much.

    No one cannot deny that the DOL has a vendetta on against Fedex. If you remember they reversed a case that was settled back in 2006. This cost Fedex about $228 million just in California alone.

    It's all bout TAXES. You have a democratic party who wants to feed the sick, lame and lazy of the world. Don't forget the climate change bit.

    Both the National Oceanic and Atmosphere administration (NOAA) and NASA calculated that in 2014 the world temperature only raised 1.22 to 1.24 degrees in the LAST 135 YEARS. Do I hear "Chicken little" calling..

    But there is hope on the horizon. When the Republicans finally took over both houses they voted in a bill which would place a sixth person on the DOL board. But this won't take place until this January..

    NOW, what the transportation industry needs to do next is vote REPUBLICAN in the next election, so we can turn some of this BS.
    around.

    In the meantime, learn how to play their silly little game and beat them at their own game.

    Join the NTA and find out how. ntassoc.org.

  13. 13. Dave Becker [ September 12, 2015 @ 08:02AM ]

    I find it amusing at the constant referral to the FLSA by the DOL in "justifying" their "drivers are employees" opinion. How does that reflect upon their totally opposing opinion that truckers AREN'T covered under the FLSA due to their coverage under the DOT and HOS regs? Either the FLSA applies.... or it doesn't. The old "no such thing as a little pregnant" seems it should be the operative thing here. How can the DOL pick & choose what parts of the FLSA apply to truckers? Can drivers apply the same "reasoning" to, say, the HOS regs? If not, why not. I sense the presence of the old "what's good goose is good for the the gander" regarding ANY regs the gov't. wants to apply.

  14. 14. Moblife56 [ December 04, 2015 @ 06:29PM ]

    You wish they would both every public in there but that's not going to happen we need a Democrat in the ass to continue to change these laws to continue to get these appointments. Use an independent contractors as employees keep both Democratic in there they're going to change that's all the way I look at California a democratic state

 

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