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Owner Operator Legal StatusOwner Operator Legal Status

Overdrive and Truckers News

Editor

Max Heine Max Heine

Brought to you in partnership with:

Henry Seaton Henry Seaton

Specialist in Transportation Law

Seaton & Husk, LP

October 8, 2009

22

Tips for Tips for using the using the control control panelpanel

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Owner Operator Legal StatusOwner Operator Legal Status

Overdrive and Truckers News

Editor

Max Heine Max Heine

Brought to you in partnership with:

Henry Seaton Henry Seaton

Specialist in Transportation Law

Seaton & Husk, LP

October 8, 2009

44

The Owner-Operator ModelIs Under Attack

2009 Partners in Business Retention Forum Webinar 2009 Partners in Business Retention Forum Webinar SeriesSeries

October 8, 2009 – Henry E. Seaton, Esq.October 8, 2009 – Henry E. Seaton, Esq.

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Elements of SuccessElements of Success

Success is traditionally based on:Success is traditionally based on: Truth-in-leasingTruth-in-leasing Federal tax treatment as 1099 Federal tax treatment as 1099

independent contractorsindependent contractors State worker’s compensation exemptionState worker’s compensation exemption No unemployment compensation taxesNo unemployment compensation taxes

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Truth-in-LeasingTruth-in-Leasing Applies to “wet lease” Applies to “wet lease”

equipment with driverequipment with driver over 10,001 gross vehicle weightover 10,001 gross vehicle weight

Refer to 49 CFR 376 and Refer to 49 CFR 376 and Protecting Motor Protecting Motor Carrier Interests in ContractsCarrier Interests in Contracts, Chapter 4, Chapter 4 Carrier required to:Carrier required to:

PlacardPlacard InsuranceInsurance Safety Safety Pay and escrowPay and escrow Exclusive dominion and controlExclusive dominion and control

Source of OOIDA suits/self-help (49 USC 14704) Source of OOIDA suits/self-help (49 USC 14704) independent contractorsindependent contractors

Control requirements do not count against you Control requirements do not count against you in classification dispute - 376.12(c)(4)in classification dispute - 376.12(c)(4)

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Classification for Classification for Federal Tax PurposesFederal Tax Purposes

Benefits of classification:Benefits of classification: Paid on 1099Paid on 1099 Owner-operator is sole proprietor, Sub-S Owner-operator is sole proprietor, Sub-S

or LLC, free from Americans with or LLC, free from Americans with Disabilities Act, Family Medical Leave Disabilities Act, Family Medical Leave Act, Age Discrimination in Employment Act, Age Discrimination in Employment Act, National Labor Relations ActAct, National Labor Relations Act

No Social Security withholding – owner-No Social Security withholding – owner-operator gets lower self-employment taxoperator gets lower self-employment tax

No withholding – owner-operator gets No withholding – owner-operator gets deductions and estimatesdeductions and estimates

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The Classification StandardThe Classification Standard 20 point control test – Rev. Ruling 87-41 20 point control test – Rev. Ruling 87-41

(see (see PMCICPMCIC Chapter 5) Chapter 5) Most do not apply – for construction Most do not apply – for construction

industryindustry Separate trade or business, training, Separate trade or business, training,

method of payment, set hoursmethod of payment, set hours Significant investmentSignificant investment Realization of profit or loss making Realization of profit or loss making

services available to general public services available to general public et al.et al.

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At risk analysis:At risk analysis: InvestmentInvestment Avoid guarantees or revenue capsAvoid guarantees or revenue caps

Safe Harbor Provision – Section 530 Safe Harbor Provision – Section 530 of IRS Codeof IRS Code

Consistent with industry practicesConsistent with industry practices Pay records consistent with Pay records consistent with

independent contractor treatmentindependent contractor treatment Clear distinction in owner-operator and Clear distinction in owner-operator and

company employeescompany employees

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Requirements for Requirements for §§ 530 Safe Harbor Treatment 530 Safe Harbor Treatment Must give 1099Must give 1099 Cannot switch from employee to owner-operatorCannot switch from employee to owner-operator Cannot treat employee and owner-operator the Cannot treat employee and owner-operator the

samesame Must meet industry standardsMust meet industry standards Follow case precedentFollow case precedent Good faithGood faith

Lease-to-OwnLease-to-Own Applied in Applied in North American Van Lines v. NLRBNorth American Van Lines v. NLRB, 869 , 869

F.2d 596 (DC Cir. 1989) F.2d 596 (DC Cir. 1989)

(See also (See also http://www.irs.gov/pub/irs-utl/van-ops.pdfhttp://www.irs.gov/pub/irs-utl/van-ops.pdf)) PortabilityPortability Build equity/something to train and something to Build equity/something to train and something to

loselose

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State Laws and Worker’s State Laws and Worker’s CompensationCompensation

Based on combination of statutes and Based on combination of statutes and case lawcase law

A “patchwork quilt”A “patchwork quilt” At stake:At stake:

Worker’s compensation premiumsWorker’s compensation premiums As much as $20,000 per yearAs much as $20,000 per year Higher than comparable occ/acc (the malingerer Higher than comparable occ/acc (the malingerer

issue) – NCCI standardsissue) – NCCI standards State withholding and unemployment taxesState withholding and unemployment taxes

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The Patchwork QuiltThe Patchwork Quilt StatutesStatutes

Varied and confusingVaried and confusing Opt-in/Opt-out, occ/acc alternative availableOpt-in/Opt-out, occ/acc alternative available

Case lawCase law Control test modified by statesControl test modified by states Ambiguous and conflicting (state analysis available Ambiguous and conflicting (state analysis available

upon requestupon request The role of “one-size-fits-all plus occ/acc has The role of “one-size-fits-all plus occ/acc has

traditionally been used (PMCIC)traditionally been used (PMCIC) SavingsSavings TN/NC examplesTN/NC examples

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Winds of Political ChangeWinds of Political Change

What is causing the Turbulence?What is causing the Turbulence? Union Activity Union Activity Real abuses Real abuses

Low ball contractors in construction Low ball contractors in construction industry / hiring of illegals for whom industry / hiring of illegals for whom NONO taxes are paidtaxes are paid

State and Federal revenues shall fallState and Federal revenues shall fall GAO estimates $3.4 billion in uncollected at GAO estimates $3.4 billion in uncollected at

Federal levelFederal level

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Violent attack across industriesViolent attack across industries GAO estimates 30 million GAO estimates 30 million

independent contractorsindependent contractors The opposing forces:The opposing forces:

Includes welfare and safety advocates, Includes welfare and safety advocates, labor unionslabor unions

““a perfect storm of political change,” a perfect storm of political change,” increased union pressure and increased union pressure and aggressive government enforcementaggressive government enforcement

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Winds of Change at the State Winds of Change at the State LevelLevel

Tougher standards for evaluating independent Tougher standards for evaluating independent contractor classification issues and/or developed contractor classification issues and/or developed coordinated intergovernmental task forces (e.g. NY, coordinated intergovernmental task forces (e.g. NY, IL, TX, OK, NJ, CT, MA, CA, MI, GA IL, TX, OK, NJ, CT, MA, CA, MI, GA et al.et al.))

72 bills in state legislatures last year dealing with 72 bills in state legislatures last year dealing with worker’s comp and the owner-operatorworker’s comp and the owner-operator

Already in 2009, several states have introduced Already in 2009, several states have introduced new legislation including Minnesota, Indiana, new legislation including Minnesota, Indiana, Kentucky, Maryland, and Washington. Kentucky, Maryland, and Washington.

Unemployment taxes and arrearages – whistle Unemployment taxes and arrearages – whistle blowers and inter-agency task forcesblowers and inter-agency task forces

Collective response at state level urgently needed.Collective response at state level urgently needed.

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Worker’s Comp AuditWorker’s Comp Audit Carriers with owner-operators are subject to Carriers with owner-operators are subject to

expensive post-audit by worker’s comp insurer. expensive post-audit by worker’s comp insurer. The following worker’s comp insurers have post-The following worker’s comp insurers have post-audited carriers:audited carriers: AIGAIG CanalCanal The HartfordThe Hartford Liberty MutualLiberty Mutual

As a result carriers should exercise As a result carriers should exercise greatgreat caution in caution in placing worker’s compplacing worker’s comp Status of owner-operators should be stipulated in writing Status of owner-operators should be stipulated in writing

at time policy is writtenat time policy is written Full disclosure should be madeFull disclosure should be made Agent owes motor carrier duty of due diligence/E&O is an Agent owes motor carrier duty of due diligence/E&O is an

issueissue See “Get Assurances on Insurance” – etrucker.com See “Get Assurances on Insurance” – etrucker.com

March 2008March 2008

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Random state actions betray pro-Random state actions betray pro-labor, unsympathetic attitude toward labor, unsympathetic attitude toward owner-operatorowner-operator NY worker’s comp endorsementNY worker’s comp endorsement WA State overtime statuteWA State overtime statute Unfavorable decisions from state boards Unfavorable decisions from state boards

are increasingare increasing IL – ABC TestIL – ABC Test

If fail, have to pay overtime in arrearage, If fail, have to pay overtime in arrearage, back wages, back unemployment taxes, back wages, back unemployment taxes, state income taxstate income tax

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Trucking industry singled out for Trucking industry singled out for target audits aimed to prove target audits aimed to prove misclassification/tax evasion intentmisclassification/tax evasion intent Whistle-blowing encouragedWhistle-blowing encouraged Back taxes and penaltiesBack taxes and penalties Bad facts make bad lawBad facts make bad law

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California – Poster Child California – Poster Child of Anti-IC Activityof Anti-IC Activity

California Clear Air Action PlanCalifornia Clear Air Action Plan Exclude owner-operators from ports of L.A. and Long Beach in Exclude owner-operators from ports of L.A. and Long Beach in

name of “clean air”name of “clean air” Backed by Mayor of L.A. and unionsBacked by Mayor of L.A. and unions

ATA v. City of Los Angeles, 559 F. 3d 1046 (9ATA v. City of Los Angeles, 559 F. 3d 1046 (9thth Cir. 2009) Cir. 2009) People of CA v. Pac AnchorPeople of CA v. Pac Anchor

State AG task force produces suits alleging violations of:State AG task force produces suits alleging violations of: State worker’s compensationState worker’s compensation Disability and minimum wageDisability and minimum wage Seeks restitution, penalties and injunctive reliefSeeks restitution, penalties and injunctive relief

Judge White dismissed ComplaintJudge White dismissed Complaint PreemptivePreemptive 14501(c) FAAAA14501(c) FAAAA Great victory for owner-operator modelGreat victory for owner-operator model

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Federal Preemption and Federal Preemption and the Patchwork Quiltthe Patchwork Quilt

Pac Anchor gives hopePac Anchor gives hope Congress and Supreme Court could trump Congress and Supreme Court could trump

conflicting state treatment in name of uniformity conflicting state treatment in name of uniformity (e.g. FAAAA)(e.g. FAAAA)

Supreme Court followed precedent in WA State Supreme Court followed precedent in WA State appealappeal

D.C. Court of Appeals is allowing “self-appointed” D.C. Court of Appeals is allowing “self-appointed” driver welfare advocates in HOS appealdriver welfare advocates in HOS appeal

Congress is Congress is notnot the carrier’s friend the carrier’s friend Organized trucking is slugging it out state-by-stateOrganized trucking is slugging it out state-by-state SS8 – if independent contractor cannot pay taxes SS8 – if independent contractor cannot pay taxes

and fills out this form claiming employee status, and fills out this form claiming employee status, IRS uses it to investigate the alleged employerIRS uses it to investigate the alleged employer

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Winds of Change at the Federal Winds of Change at the Federal LevelLevel

President Obama labor initiatives:President Obama labor initiatives: On Friday, January 29, 2009, President Obama acted On Friday, January 29, 2009, President Obama acted

"boldly and swiftly" to "reverse policy affecting "boldly and swiftly" to "reverse policy affecting organized labor" and appointed Vice President Biden as organized labor" and appointed Vice President Biden as Chair of the Administration's new "White House Task Chair of the Administration's new "White House Task Force on Middle Class Working Families".Force on Middle Class Working Families".

Promising to "level the playing field for unionization" Promising to "level the playing field for unionization" Biden then "welcomed organized labor back to the White Biden then "welcomed organized labor back to the White House." House."

Labor’s objective is clear – Labor’s objective is clear – passage of the check card billpassage of the check card bill reclassification of owner-operators as employees reclassification of owner-operators as employees see see http://www.americanrightsatwork.org/fedex/http://www.americanrightsatwork.org/fedex/ and and

http://www.changetowin.org/http://www.changetowin.org/ Near filibuster-proof majorities and economic crisis Near filibuster-proof majorities and economic crisis

create legislative volatility, need for close monitoring create legislative volatility, need for close monitoring and coordinated grass roots action (e.g. MCAA and and coordinated grass roots action (e.g. MCAA and NMFIB initiatives)NMFIB initiatives)

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Classification at the Federal LevelClassification at the Federal Level Congressional ActionCongressional Action

Demands by Congress that IRS investigate and Demands by Congress that IRS investigate and punish employers who misclassified punish employers who misclassified independent contractorindependent contractor

Demand for inter-agency task force with Demand for inter-agency task force with Department of LaborDepartment of Labor

Obama-Durbin-Kennedy Bill/Independent Obama-Durbin-Kennedy Bill/Independent Proper Classification Act of 2007 (S. 2044)Proper Classification Act of 2007 (S. 2044)

Intended to protect government revenue and Intended to protect government revenue and American workers from unscrupulous employersAmerican workers from unscrupulous employers

Would roll back safe harborsWould roll back safe harbors Give owner-operators whistle blower protections and Give owner-operators whistle blower protections and

attorney fees (i.e. disgruntled owner-operator could attorney fees (i.e. disgruntled owner-operator could trigger audits)trigger audits)

Re-introduced by McDermottRe-introduced by McDermott

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Requirements of Requirements of Obama, Durbin, KennedyObama, Durbin, Kennedy

Require employee treatment of misclassified Require employee treatment of misclassified workers based on New Secretary of Treasury workers based on New Secretary of Treasury RulesRules

Repeal ban on more liberal Treasury RulesRepeal ban on more liberal Treasury Rules Eliminate § 530 Safe HarborsEliminate § 530 Safe Harbors Direct Secretary of Labor and IRS to coordinate Direct Secretary of Labor and IRS to coordinate

enforcement tracking complaints and enforcement tracking complaints and investigations (whistle blowers and union tools)investigations (whistle blowers and union tools)

Require workplace notice of employee rightsRequire workplace notice of employee rights Require notification to IC of tax reporting Require notification to IC of tax reporting

requirementsrequirements Require 3 year list of independent contractors Require 3 year list of independent contractors

including names & tax IDsincluding names & tax IDs

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Pending Federal LegislationPending Federal Legislation

Employee Free Choice Act (EFCA)Employee Free Choice Act (EFCA) Supported by Democratic majority in 2008 by Supported by Democratic majority in 2008 by

both Housesboth Houses Would eliminate requirement of election, Would eliminate requirement of election,

requiring union certification based on card requiring union certification based on card signing alonesigning alone

Depriving management of opportunity to Depriving management of opportunity to respondrespond

Would require 30 day mediation and could Would require 30 day mediation and could impose contract if no agreementimpose contract if no agreement

Endorsed by ObamaEndorsed by Obama

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FedEx CasesFedEx Cases Precedent setting, distinguishable but threatening. Precedent setting, distinguishable but threatening.

The Court found owner-operators should be The Court found owner-operators should be reclassified as employees because:reclassified as employees because: Company had sole right to interpret Operating AgreementCompany had sole right to interpret Operating Agreement Routes could be refigured without driver sayRoutes could be refigured without driver say Driver’s work was core to the company’s businessDriver’s work was core to the company’s business Company controls who drives vehicleCompany controls who drives vehicle Company can effectively terminate contract “at will”Company can effectively terminate contract “at will”

FedEx battle is not overFedEx battle is not over FedEx recent victory is encouragingFedEx recent victory is encouraging The teamsters are FedEx behind the scene The teamsters are FedEx behind the scene

adversary (see “Fed Up With FedEx”) at adversary (see “Fed Up With FedEx”) at americanrightsatwork.org/fedexamericanrightsatwork.org/fedex

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CommentaryCommentary Correctly seen, it is a small business and free Correctly seen, it is a small business and free

enterprise issue, not a tax or social welfare issueenterprise issue, not a tax or social welfare issue What is at stake?What is at stake?

Owner-operator way of lifeOwner-operator way of life How to own and manage an asset How to own and manage an asset

and make own business decisions and make own business decisions

free from government intervention or proscriptionfree from government intervention or proscription To become an owner-operator is a choice To become an owner-operator is a choice notnot a a

condition of gainful employment and truth-in-leasing is condition of gainful employment and truth-in-leasing is the necessary protection against abuse.the necessary protection against abuse.

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What can or should be a carrier What can or should be a carrier and owner-operator’s response and owner-operator’s response to “winds of change”?to “winds of change”?(1)(1) Coordinated political actionCoordinated political action

(2)(2) Refined owner-operator agreementsRefined owner-operator agreements

(3)(3) Selective recruitmentSelective recruitment

(4)(4) Encourage owner-operator Encourage owner-operator incorporationincorporation

(5)(5) Alternative excess capacity modelAlternative excess capacity model

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Coordinated Political ActionCoordinated Political Action Carriers are disorganizedCarriers are disorganized

ATA has both company-owned, union and owner-ATA has both company-owned, union and owner-operator based membersoperator based members

Owner-operator model cuts across carrier type dray or Owner-operator model cuts across carrier type dray or “intermodal,” ex-air, courier, long haul, refrigerated, van “intermodal,” ex-air, courier, long haul, refrigerated, van lineline

OOIDA seems unconcernedOOIDA seems unconcerned Issue is bigger than truckingIssue is bigger than trucking MCAA IC Summit – March 5, 2009MCAA IC Summit – March 5, 2009

LobbyistLobbyist FundingFunding

National Federation of Independent BusinessNational Federation of Independent Business 350,000 small business group/Nashville based 350,000 small business group/Nashville based

(www.NFIB.org)(www.NFIB.org) Coalition for Independent Contractor FreedomCoalition for Independent Contractor Freedom

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Refining Owner-Operator Refining Owner-Operator AgreementsAgreements

Control test issuesControl test issues No forced dispatchNo forced dispatch Forum selection, warranty, Forum selection, warranty,

indemnificationindemnification Occ/acc and contingent worker’s Occ/acc and contingent worker’s

compensationcompensation Class action suits remain a threatClass action suits remain a threat OOIDA v. LandstarOOIDA v. Landstar (11 (11thth Cir., 9/3/08) Cir., 9/3/08)

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Selective RecruitmentSelective Recruitment One size does not fit allOne size does not fit all Focus recruitment in favorable statute statesFocus recruitment in favorable statute states Modify contract to include state of domicile Modify contract to include state of domicile

requirementsrequirements

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Alternative ModelAlternative Model Carrier uses its broker affiliate to Carrier uses its broker affiliate to

retain small carriersretain small carriers Owner-operator contracts reduced as Owner-operator contracts reduced as

contractors are urged to obtain own contractors are urged to obtain own authority for use by broker affiliateauthority for use by broker affiliate

Trailers leased to small carriers on Trailers leased to small carriers on interchangeinterchange

Small carriers may qualify for Small carriers may qualify for worker’s compensation exemptionworker’s compensation exemption

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The Future of Owner-OperatorsThe Future of Owner-Operators

Were first to wash out / Carriers had own iron Were first to wash out / Carriers had own iron to fillto fill

Now there is a return to the modelNow there is a return to the model Carriers cannot buy new $120,000 tractorsCarriers cannot buy new $120,000 tractors Good deals for owner-operatorsGood deals for owner-operators Lease-to-ownLease-to-own Portability Portability

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About TransCoreTransCore’s state-of-the art technology and industry

expertise is unparalleled in the transportation industry:• Strategic business unit of Roper Industries (NYSE:ROP),

a Fortune 1000 company• 70 years in the transportation industry• 8 key US and Canada locations and nearly 2,000

employees, 47 installations worldwide• 6 business units serving the trucking industry

© 2009 TransCore. All rights reserved. All trademarks are the property of their respective owners.

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About TransCore

TransCore’s state-of-the art technology and industry expertise is unparalleled in the transportation industry:

• Strategic business unit of Roper Industries (NYSE:ROP), a Fortune 1000 company

• 70 years in the transportation industry• 8 key US and Canada locations and nearly 2,000

employees, 47 installations worldwide• 6 business units serving the trucking industry

© 2009 TransCore. All rights reserved. All trademarks are the property of their respective owners.

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• Load board products – TruckersEdge.net and 3sixtyTM Freight Match powered by DAT®

• Satellite Tracking – Tracking and Communications powered by GlobalWave®

• Transportation Management Solutions – Logistics Software

• Distribution, Intermodal and Fleet compliance services

Contact:Bert Goo, TransCore Channel Sales Manager503.350.5501 Bert.Goo@transcore.com

TransCore Freight Solutions

© 2009 TransCore. All rights reserved. All trademarks are the property of their respective owners.

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QUESTIONS??QUESTIONS??

3737

Max HeineMax Heine

Overdrive Overdrive

800-633-5953 ext 1038 800-633-5953 ext 1038

mheine@rrpub.com

Henry Seaton Henry Seaton

Seaton & Husk, LPSeaton & Husk, LP

703-573-0700703-573-0700

HESeaton@aol.com

www.transportationlaw.net

View this presentation at Partners in Business webinar archive www.piblive.com/retentionforum

Owner Operator Legal Owner Operator Legal StatusStatus

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Next WebinarsNext Webinars Retention During a Rebound

Presenter: Steve Prelipp October 22nd 2:00 pm CST

Owner-Operator Compensation TrendsPresenter:Gordon Klemp

November 5th 2:00 pm CST

Register Today: www.piblive.com/retentionforum