8/27/2009  Independent Contractor Status: The Good, the Bad and the Ugly
By Deborah Lockridge, Editor

There's both good news and bad news in the trucking industry's ongoing battle to preserve the independent contractor status of its owner-operators.

At attorney specializing in these issues says there have been some recent, significant court cases that appear to be good news for the trucking industry. But a bill in Congress could spell trouble.

Greg Feary, partner, Scopelitis, Garvin, Light, Hanson & Feary, works with the American Trucking Associations to track and provide counsel on these issues. He spoke on the topic to the Truckload Carriers Association's Independent Contractor Division.

The key issue in the court cases Feary cited involve the issue of the amount of "control" a company has over its independent contractors. In the past, factors such as requiring uniforms, satellite tracking/communications systems, and even federal safety requirements requiring a certain amount of control over an owner-operator in the past have been used to attack independent contractor status. But Feary says he sees a trend of the courts moving away from the "control" factor as a way to determine independent contractor status.

"Control is such an amorphous thing, it's hard to understand," Feary said. "The court is saying, we would like to see something that makes more sense, and we think that's the entrepreneurial relationship between the parties - looking at the opportunity for profit and loss, the entrepreneurial risks and rewards." For instance, contractors providing their own equipment, having the ability to hire their own employees, the right to buy and sell routes in a P&D case.

The other area where courts seem to be changing the "control" issue is in recognizing that some requirements are not "control" by an employer, but are requirements by the customer or by the federal government. "Finally, the judges have gotten it," Feary said. "When you say to the owner-operator, you have to do this, because the government says you have to, the courts are realizing that's just requiring compliance to the law, that's not control. Same thing with customer requirements. When you say you need them to wear uniforms because the customer wants to know they're with a particular trucking company, or the customer wants tracking, the trucking company has to move that requirement on to their vendors, the owner-operators."

One court, Feary said, gave this example of the pitfalls of using control to distinguish between an employee and an independent contractor: "A full-time cook is regarded a a servant, and not an independent contractor, although it is understood that the employer will exercise no control over the cooking."

Now for the bad news: a bill in the U.S. House of Representatives, H.R. 3408, the Taxpayer Responsibility, Accountability and Consistency Act of 2009, was introduced July 30. Sponsors say this bill will prevent "improper worker misclassification." And in some industries, Feary noted, you will find employers who wrongly make employees "independent contractors" in order to avoid paying taxes or benefits.

The bill would amend the Internal Revenue Code to get rid of the Section 530 "safe harbor" provisions. Part of the Revenue Act of 1978, these provisions allow workers to be classified as "independent contractors" rather than "employees" in industries where such designations are part of long-standing, recognized practice.

Over the years, Section 530 has been very valuable to trucking and other industries in eliminating expensive and contentious efforts by the IRS to reclassify contractors.

As the American Trucking Associations pointed out in a position paper when the bill was first introduced, "prospective reclassification by the IRS and by eliminating industry practice as a safe harbor. Taxpayers would be put back into the position of having to defend their independent contractor treatment in costly, fact-intensive litigation instead of simply invoking the protections of Section 530 as they are now able to do. The elimination of the industry-practice reasonable basis is also especially egregious because it strikes most heavily at industries like trucking where independent contractor participation is long standing and well-accepted. That legislation would create administrative nightmares for employers contracting with independent contractors."