Driver Recruiting Summit: The Risks & Opportunities of Filling Your Fleet

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Driver Recruiting Summit 2014

TAKE THE WHEEL.

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TAKE THE WHEEL.

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Agenda •

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The Quick and Dirty Guide to Employment Law

Presented by: Sara L. Pettinger and Steven F. Stanaszak

Driver Recruiting Summit: The Risks & Opportunities of Filling Your Fleet

THE BASICS Why Are We Here?

Because It’s Complicated

The Basic Laws at Play

The Hiring Reminders

Pre-Employment Agility Testing

Fair Credit Reporting Act

Criminal Background Checks

The Termination Meeting

When a Complaint is Filed

Civil Rights Act of 1964 (Title VII) Overview

Title VII of the Civil Rights Act of 1964 prohibits discrimination in employment on the basis of

Race

Color

Religion

Sex

National origin

Pregnancy


In certain instances, differential treatment is allowed for religion, gender or national origin if a bona fide occupational qualification exists.

Sexual harassment is also prohibited under this law as are all forms of harassment based on membership in a protected class.

Same-sex sexual harassment also included


In a Title VII case, a plaintiff may seek damages including: backpay, reinstatement or front pay, compensatory damages for emotional distress; and attorneys' fees if plaintiff is a prevailing party.

Title VII also makes it unlawful for an employer to retaliate against an individual who: files a charge of discrimination, makes a complaint about discrimination, or participates in an investigation made pursuant to the statute.

Americans with Disabilities Act (ADA) of 1990 Overview

The Americans with Disabilities Act, prohibits unfavorable treatment of an employee or applicant because he or she: has a disability, is regarded as disabled, or has a record of a disability.

The law requires an employer to provide a reasonable accommodation to an employee or job applicant with a disability, unless doing so would cause significant difficulty or expense for the employer ("undue hardship").


2008 changes to the law did several things:

Made it easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the statute.

Protects individuals from discrimination based on their relationship with a person with a disability (even if they do not themselves have a disability).

For example, it is illegal to discriminate against an employee because her husband has a disability.


In an ADA case, a plaintiff may seek damages of:

back pay,

reinstatement or front pay,

compensatory damages for emotional distress; and

attorneys' fees if he or she is a prevailing party.

Discrimination in Employment Act of 1967 (ADEA) Overview

The Age Discrimination in Employment Act prohibits unfavorable treatment of an applicant or employee because of his or her age. The ADEA forbids age discrimination against people who are age 40 or older.


The law prohibits discrimination when it comes to any aspect of employment, including:

hiring

firing

pay and fringe benefits

job assignments and training

promotions

layoff

any other term or condition of employment.


In an ADEA case, a plaintiff may seek damages of

back pay,

reinstatement or front pay

attorneys' fees if plaintiff is a prevailing party, and

an employee may recover liquidated damages in an amount up to twice the amount of back pay if an employer's discrimination is found to be willful.

Family Medical Leave Act of 1993 (FMLA) Overview

The Family Medical Leave Act, provides qualified employees with up to 12 weeks of unpaid leave in any 12-month period for qualified events including:

the birth or adoption of a child or placement of a foster child in the employee's home,

care of the employee's spouse, child or parent with a serious health condition, or

the serious health condition of the employee.

Family Medical Leave Act of 1993 (FMLA) Overview

In an FMLA case, a plaintiff may seek damages of

back pay,

reinstatement or front pay,

attorneys' fees if plaintiff is a prevailing party, and

an award of liquidated damages in an amount up to twice the amount of back pay, unless the defendant can prove that it acted in good faith and had objectively reasonable grounds to believe that its actions did not violate the FMLA.

The Fair Labor Standards Act – A General Background

The Fair Labor Standards Act proscribes standards for the basic minimum wage and overtime pay and affects most private and public employment.

It requires employers to pay covered, non-exempt employees at least the federal minimum wage and overtime pay of one-and-one-half times the regular rate of pay.


The FLSA applies to employees engaged in interstate commerce or employed by an enterprise engaged in commerce or in the production of goods for commerce, unless the employer can claim an exemption from coverage.

The Motor Carrier Exemption

Section 13(b)(1) of the FLSA provides overtime exemption applies to employees who are:

Employed by a motor carrier or motor private carrier, as defined in 49 U.S.C. Section 13102;

Drivers, driver’s helpers, loaders, or mechanics whose duties affect the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce.


A plaintiff in a FLSA case may seek reinstatement, back pay, front pay or liquidated damages in an amount up to twice the amount of backpay.


A two year statute of limitations applies to the recovery of back pay, except in the case of a willful violation, in which case a three year statute applies.

A FLSA collective action permits an individual to bring suit on behalf of multiple allegedly aggrieved individuals.

If you’re not Tom Brady . . .

Numerous federal laws in play

There are motor carrier variables

Each state supplements the federal law

Claims brought by employees can be litigated in federal courts, state courts/agencies – sometimes more than once

Law is constantly changing – double check

The best protection is good process and an exceptional HR team

THE HIRING REMINDERS “Bad Hires Make Bad Fires”

The Effective Interview

Start slow so candidate is comfortable

Prepare questions in advance

Prepare to be flexible when responses are short

Make sure the process isn’t too short or long

Consider more than one interviewer

Take notes

PERSONAL OR FAMILY LIFE

• You MAY ask:

• Are you willing and able to work days, evenings and/or weekend?

• Who should be notified in case of an emergency?

CITIZENSHIP AND NATIONAL ORIGIN

You MAY NOT ask: • Where were you born?

• Are you a U.S. citizen?

• How long have you been a resident?

• When did you arrive in the U.S.?

• When did you become a citizen of the U.S.?


You MAY NOT ask:

• What nationality are you?

• How did you learn to speak, read or write a

particular language?

• What is your native language?


You MAY ask: • Are you legally authorized to work in the U.S.?

• What language can you speak, read or write fluently?

CAUTION: If you do ask these questions you must ask all applicants.

VETERANS

You MAY NOT ask: • What type of discharge did you receive from

the military? • Did you receive an honorable discharge from

the military? • What is your current military status? • Are you on active duty status in the military?

AGE

You MAY NOT ask: • How old are you?

• When were you born?

• When did you graduate from high school?

You MAY ask: • If you were hired, can you submit proof that you

are of the legal age for employment?

• Did you graduate from high school or obtain a GED?

RELIGION

You MAY NOT ask: • What is your religion?

• Would your religious obligations interfere with your ability to work on weekends?

You MAY ask: • Are you willing and able to work days, evenings

and/or weekends?

DISABILITY AND WORKERS’ COMPENSATION

You MAY NOT ask: • Have you ever received

workers’ compensation?

• Have you ever been off work due to work-related injury?

• How many days were you sick last year?


You MAY NOT ask: Does stress ever affect your ability to be productive? • Do you ever get ill from stress?

• Have you ever been unable to cope with work-

related stress?


You MAY ask: • Do you need a reasonable accommodation

to assist you in taking the written test that we require of all applicants?

• Can you perform the job functions, with or without reasonable accommodations?


You MAY ask: • Please describe how you would perform the

job functions. • How well do you handle stress? • How many days were you absent from work

last year? • After stating the employer’s attendance

requirements: Will you be able to meet our attendance requirements?

CONCLUSION OF INTERVIEW

DO NOT MAKE any promises that you cannot keep.

DO NOT INDICATE that you have authority to hire the person, if you do not have such authority.

If you do offer the individual employment, DO NOT

MAKE statements suggesting permanent employment.

PRE-EMPLOYMENT AGILITY TESTING

Pre-Employment Testing: Prohibited Examination/Inquiries Under the ADA

Pre-employment testing procedures are on the EEOC’s radar.

The Americans With Disabilities Act (“ADA”) allows an employer to give a physical agility test to determine the physical qualifications necessary for certain jobs prior to making a job offer, but only if the test is not a medical examination.

Pre-Employment Testing: Prohibited Examination/Inquiries Under the ADA

A physical agility test must be given to all

similarly situated applicants or employees

regardless of disabilities.

Test cannot screen out individuals with

disabilities.

Agility Test v. Medical Examination

The EEOC defines a medical examination

as a procedure or test that seeks

information about an individual’s physical

or mental impairment.

Tests that require medical equipment or

interpretation by a healthcare professional

are not permissible.


Impermissible Medical Examination:

Blood pressure screening and cholesterol

testing

Range of motion tests that measure muscle

strength and motor skills


Permissible Agility Tests:

An employee’s ability to perform actual or

simulated job tasks

Physical fitness tests which measure an

employee’s performance of physical tasks,

such as running or lifting.

HIRING AND THE FAIR CREDIT REPORTING ACT

FCRA

It is not illegal for an employer to ask questions about an applicant’s background.

If an employer uses a company in the business of compiling such information, the employer must comply with the Fair Credit Reporting Act.

FCRA Compliance

Disclosure and Authorization form The Requirements:

Clear and conspicuous disclosure

In writing

In a stand-alone document – not the application

Prior to the report being procured

Applicant authorization in writing

What We’re Not Getting Right: Lack of a stand-alone document.

Including extraneous information.

FCRA CONCERNS

Adverse Action Protocol

The Requirements:

Decisions based in whole or in part on the report

Prior to taking adverse action o Pre-adverse action letter with (1) copy of the report, and

(2) Summary of Rights Under the FCRA

o Wait a “reasonable” period of time – allow explanation

o Send final adverse action letter explaining decision

What We’re Not Getting Right:

Following this protocol

CRIMINAL BACKGROUND CHECKS

Criminal Background

In Wisconsin, an applicant’s arrest or conviction record can lead to a refusal to hire only when there is a “substantial relationship” between the criminal conduct and the circumstances of the job.

This is a tough standard sometimes because not everything is clear cut.

The importance stems from the ability of third-parties to sue for negligent hiring.

EEOC Concerns Regarding Criminal Background Checks

Background:

Guidance Memorandum issued April 25, 2012

Not a law or regulation

Underlying theory: employers using criminal background as a substitute for race and national origin discrimination

Renewed focus on “blanket bans”

Policy Reminders

Review Your Polices and Procedures:

Audit your criminal background screening process

Do not ask about arrests

Do not use a blanket ban

Avoid permanent exclusions from positions

Allow for individual assessment

Look for guidance on close calls

THE TERMINATION MEETING

LEGITIMATE BUSINESS REASONS FOR TERMINATION

Performance

Behavior

Business

Illness, Disability and Death

MOST COMMON PITFALLS WHEN TERMINATING EMPLOYEES

Discharging without first conducting a proper investigation.

Failure to follow company procedures.

Terminating without a witness present.

Failure to properly document events.

Failure to obtain proper medical information and consider reasonable accommodations.

Unnecessary publication of the reason for discharge.

THE TERMINATION MEETING

Within the first 20 seconds of the meeting, tell the employee that he or she is being terminated.

Explain the decision briefly and clearly.

Avoid counseling at this point; it should have already been done.

Do not compliment the employee in an effort not to hurt his or her feelings.

Do not fail to give an explanation for the termination consistent with the truth.

THE TERMINATION MEETING continued

The decision to terminate an employee should not be based on a discriminatory reason. There should be business-related reasons for the termination.

During the course of a termination conference, the conversation should never include references to a prior claim.

Be organized and prepared for the meeting and give the impression that you are confident that the right decision has been made.

After the meeting write detailed notes of what the employee has been told, and what the employee said.

THE TERMINATION MEETING continued

If the termination is voluntary, try to get a signed resignation which sets forth the voluntary reason(s) for leaving.

Be sure the employee physically leaves with as much dignity and self-esteem as possible.

Make sure the procedure used in conducting the discharge and exit of the employee is consistent with that used generally.

RULES FOR DISCIPLINARY DOCUMENTATION

Do It

Whenever an event occurs that effects terms and conditions of employment

Know Your Audience

Objective documentation

Follow the Rules

Follow company policies and procedures

Tell the Story – All Sides

What if your efforts fail?

When a complaint is filed by a former employee you need to take it seriously --regardless of the facts.

Internally,

Follow policies and procedures

Preserve ALL evidence

Consider additional investigation

Consider the attorney-client privilege and work product privilege

Consider Severance Agreements

What if your efforts fail?

Externally,

EEOC may request: o Position Statement

o Documents (Request for Information)

o Site Visit or Interviews

Consider the attorney-client privilege and work product privilege

Consider conciliation, mediation and other “business decisions”

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The Independent Contractor Dilemma:

Issues & Answers

Presented by: Gregory M. Feary • Managing Partner

A. Jack Finklea • Partner

HNI Driver Recruiting Summit

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Owner-Operator Independent Contractor Model – PROS:

1. Highly motivated business entrepreneurs

2. One man/one truck – 1990s ATA study indicates safest driver

3. Customer-service oriented problem solver

4. Economic business partner – O/O makes money only when you make money

5. Operating expense efficiency – i.e., lower cost alternative

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Owner-Operator Independent Contractor Model – CONS:

1. Fierce independence of O/O can make overall operational planning difficult

2. Daily instruction needs to be less detailed leaving room for service errors

3. Contractual relationship is far more complex with greater chance for errors

4. Legal uncertainty of IC status can cause contingent liability and hidden costs

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• Legislative and Case Law Forecast

• IC Status – Challenges & Strategies

• Settlement Carrier Model

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Legislative and Case Law Forecast Workers’ Compensation Legislation/Amendments

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General IC Misclassification Laws that Apply for WC Purposes

New York Commercial Goods Transp. Ind. Fair Play Act Targets misclassification of commercial vehicle drivers who:

Possess a “state-issued” driver’s license; and Contractor of 10,001 lbs. or heavier vehicle

Applies for purposes of state labor, WC, and UET laws If Business Entity, then

11-factor test that is reasonable to meet Otherwise, revert to difficult to meet ABC Test

Enrolled June 21, 2013 Amendments enacted by Gov. Cuomo on March 17, 2014 NY DOL drafting rules to interpret Act Effective Date: April 10, 2014

State Owner-Operator Exemption “Gotchas” Workers’ Compensation

Arkansas Exempts owner-operators and drivers fleet-operators employ

drivers from definition of employee vis-à-vis the motor carrier Intended to rectify increasingly problematic “certificate of non-

coverage” Provides mechanism for owner-operator to obtain workers’

compensation coverage under motor carrier’s policy without otherwise affecting status as IC Requires written election in lease Allows chargeback of premium

Not clear whether failure to at least offer owner-operators opportunity to secure workers’ compensation coverage under motor carrier’s policy negates presumption of IC status.

Anticipate need for clarification on technical application

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Federal IC Legislation

S 1706 seeks to limit Section 530 Safe Harbor provision

S 1687 creates Payroll Fraud Prevention Act Amends FLSA to require records of ICs

Requires know your rights notice

Provides for civil penalties and damages for misclassification

Requires targeted audits by Wage & Hour Division

In Senate Health, Education, Labor and Pensions Committee

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Minnesota

Replaces current generally-favorable trucking and courier definition with 2-phase ABC/ Separate Business Entity test used in NY Fair Play Act

Does not include later favorably-negotiated changes to NY language

Scope of legislation (whether limited to WC or applied more broadly) is a point in negotiation

Active efforts to defeat/limit the legislation are underway

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Ohio

Creates owner-operator exemption for purposes of overtime, WC, and UET

Based on favorable NCOIL and ATA Model Language

Currently in Committee

Language has been negotiated and agreed enactment is anticipated

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Massachusetts IC Law (M.G.L.A. 149 § 148B)

FAAAA preempts state laws that is directly or indirectly “related the price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c).

E.D. Virginia found FAAAA preempted 148B because it “dictates an end to independent contractor carriers in Massachusetts.”Sanchez v. Lasership, Inc., 937 F. Supp. 2d 730 (E.D. Va. 2013).


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Imposes difficult ABC Test to demonstrate status as IC

May be misinterpreted as applying for purposes of workers’ compensation

One FAAAA preemption decision but several that did not decide favorably


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Lasership settled before ruling from 4th Cir.

D. Mass and D.N.H. have found that FAAAA does not preempt 148B because the Statute “has nothing to do with the regulation of the ‘carriage of property.’” Schwann v. FedEx Ground Pkg. Sys., Inc., 2013 WL 3353776.


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Recent Supreme Court decision offers hope.

ADA (nearly parallel preemption provision) preempted common law breach of duty of good faith and fair dealing claim because it sought “to enlarge the contractual obligations that the parties voluntarily adopt[ed]. Northwest, Inc. v. Ginsberg, 2014 WL 1301865


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Reclassification claims under 148B similarly seek to “enlarge the contractual obligations” of the parties by altering financial obligations of the parties with respect to payment for labor and equipment.

IC Status – Challenge to

Business Model

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IC Status – Challenge to Business Model

Sources of Potential IC Litigation Workers’ compensation claims – Ark. Trucking

Association’s legislative victory this year

Employment class actions – w/reclassification

Unemployment compensation audits/taxes

State misclassification penalties

IRS and Section 530 “safe harbor”

Union-organizing (NLRB)

U.S. Dep’t of Labor initiatives

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STRATEGIES FOR AVOIDING LITIGATION

Lease-purchase programs State statutes may prohibit

Capital lease – IC equity

Allow use of Equipment for other carriers

Trip leasing Shows IC serves more than one master

Carrier approval

Insurance; Leasing Regs.; safety regs. continued

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Opportunity for multiple trucks and drivers Demonstrates entrepreneurship

Substitute drivers help too

Bolsters argument for separate business entity

Choice in charge-backs Avoid forced purchases and “free” services

Present choices among competing vendors

Discourage loans to cover charge-backs continued

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STRATEGIES FOR AVOIDING LITIGATION Method of compensation

Avoid time-based; consider %-of-AGR Build in ways for IC to increase its profitability

Operations – maintenance, fuel, routing, forced dispatch Promote selection/self-determination by IC Excessive limitations = improper control

Customer and government requirements Highlight role in limitations or req’ts on IC Cite to regs.; use customer letterhead

continued

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Business coaching OK to convey customer requirements

Facilitate third-party business-consulting svcs.

“Employee” terminology Guard against this in paperwork, website, blogs,

customer communications

Other business models – Settlement carrier May carry their own risks

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Settlement Carrier Model

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Overview of Conversion

Traditional Model: authorized Motor Carrier utilizes independent contractor owner-operators operating under Motor Carrier’s authorities and DOT number

Settlement Carrier Model: Motor Carrier converts operations into third party logistics (3PL) operations using owner-operators that are authorized motor carriers

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Driving Objectives Behind the Model

Response/defense against reclassification of owner-operators as employees rather than independent contractors of existing Motor Carrier

Minimization/elimination of standard motor carrier accident liability – though shippers may require

Minimization/elimination of motor carrier safety regulation by the Federal Motor Carrier Safety Administration (“FMCSA”) – though shippers may require

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10 Reasons Why the Settlement Carrier Model Passes the ABC Test

(SC = Settlement Carrier; PB = Property Broker/ Incumbent Motor Carrier)

1. Possession of a license and operating authority by SC

2. Satisfies different trade, occupation, or profession prong

a) SC: For hire motor carrier

b) PB: Property broker

3. Satisfies exclusive work relationship prong a) SC is for hire carrier that may haul without legal

limitation

4. Compliance with federal motor carrier law no longer creates control

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continued

10 Reasons Why the Settlement Carrier Model Passes the ABC Test

(SC = Settlement Carrier; PB = Property Broker/ Incumbent Motor Carrier)

5. PB requirements more easily identified as customer requirements

6. Less legal and historical precedent for finding motor carriers the employees of brokers/ freight forwarders

7. Expense of becoming a motor carrier creates favorable fact of investment in tools of trade

8. SC must make independent business decisions regarding motor carrier compliance

9. Placards identifying SC as the motor carrier equate to holding out as independent business

10. Easily misapplied Federal Leasing Regulations no longer relevant

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THE OWNER OPERATOR LANDSCAPE

• Recent Legislation and Administrative Activity Involving Owner Operators – Added Commentary

• Additional Recent Case Law Relating to Owner Operators

• More Practical Considerations for the Use and Treatment of Owner Operators

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The Owner Operator Landscape

Why do you want to use owner operators? An avenue for overflow work?

Flexibility?

To maintain a lean operation? Administratively?

Equipment –wise?

To save on employment taxes?

To avoid hassles that come with employees?

To avoid regulatory compliance?

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Whatever the reason for using owner operators: Regulatory compliance issues will remain

U.S. DOT regulations apply to owner operators as well as employee drivers

Whistleblower statutes (Surface Transportation Assistance Act) applies to owner operators as well as employee drivers

Background check requirements under the Fair Credit Reporting Act almost certainly will apply to owner operators as well as employee drivers

42 U.S.C. 1981 – Race discrimination in contracts – applies regardless of whether employment relationship exists

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Owner Operator Landscape

Whatever the reason for using owner operators: Written agreements and labels will be disregarded if

owner operators are treated like employees Significant liability arises under misclassification

Wage and hour liability o Including overtime, minimum wage, wage payment, wage deductions o Class actions

Employment discrimination Union organizing Employment tax liability

Legislatures, administrative agencies and courts have taken notice and have acted to police independent contractor relationships

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April Huffington Post Article on delivery drivers

“It's like they want us to be employees, but they don’t want to pay for it.”

Shifting costs associated with employment to the employee

No overtime, no job security, no health insurance

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Recent Legislation and Admin Activity

New York’s transportation industry “Fair Play” Act follows New York’s activity over the past few years to scrutinize independent contractor designations NY, in 2010, enacted a “Fair Play” Act for the

construction industry NY and Massachusetts engaged in a publicity

campaign to condemn misclassification NY committed resources to identifying

misclassification and obtaining millions in unpaid employment taxes

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Recent Legislative and Admin Activity

California Willful Misclassification Statute

“Willful misclassification means avoiding employee status for an individual by knowingly and voluntarily misclassifying that individual as an independent contractor.” Labor Code §226.8

Violation could subject company to $25,000 fine per misclassified employee, along with other penalties

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Several States Contain Some Form of Presumption That a Worker Is an Employee The Company therefore bears the burden of proving that a

worker has been properly characterized as an independent contractor

Dozens of Bills Are Drafted Each Legislative Session Addressing Misclassification Most die at various stages of the process New Jersey’s persistent attempt to address misclassification in

the trucking industry Made it to the Governor’s desk before being vetoed last session. Teamsters re-launched the bill this session The Governor’s weaker political position may mean a greater

chance for the bill becoming law

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IRS Employment Tax National Research Project Conduct audits (6,000) for the express purpose of testing

misclassification

U.S. Department of Labor Misclassification Initiative Describes misclassification as a “pervasive” problem

Denies workers access to critical benefits and protections

Drives substantial loss of revenue to the government

In place to combat the issue and reduce misclassification

Joining Forces MOU with IRS to work together and share information

Similar MOU with 15 states

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State Task Forces on Worker Misclassification

At least 25 states have task forces designed to identify and reduce misclassification

New York Joint Enforcement Task Force on Employee Misclassification is particularly active

Wisconsin:

[email protected]

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Recent Legislation and Admin Activity FMCSA Examination of Pay Practices

A Hallmark of the independent contractor analysis is payment by the job as opposed to an hourly rate. Motor carriers typically pay by miles and stops or by a percentage of the load. Such “productivity” pay has recently drawn increased attention.

The FMCSA is currently evaluating whether productivity pay plays a measurable role in causing accidents Part of an overall examination into safety, and coming down hard on productivity pay may serve a

purpose Congress mandated a reduction in highway accidents, regardless of fault Ferro: paying someone by the mile pushes them to do more, and lengthy unpaid detention times

exacerbate the issue.

Calls to lessen the burden of the new regulations on split sleep and the 34 hour restart may make productivity pay a casualty.

The FMCSA’s study will likely not be completed until the end of 2015. Effects of FMCSA Findings

Even if the FMCSA is unable to correlate accidents with productivity pay, it may very well attempt to discourage productivity pay

To the extent hourly pay becomes the recommended course, one more factor in the analysis will automatically tip toward classification as an employee

Current highway bill contains provision relating to minimum wage for all on duty time

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Recent Case Law

FedEx Ground v. NLRB (D.C. Cir. 2009) Focus: does a real opportunity for profit or loss

exist?

The opportunity was present in this case Rates could be and were negotiated

Contractors could and did sell their routes

Contractors could take days/weeks/months off

The “ability to hire others to do the Company’s work is no small thing”

Some form of this analysis is generally worked into most tests for reclassification

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Recent Case Law

Blair v. TransAm Trucking (D. Kan. 2013)

The written agreement spelled out an independent contractor arrangement

The plaintiff provided evidence that the company’s actual practices were otherwise

The decision must therefore go to a jury

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Recent Case Law

Carney v. JNJ Express, Inc. (W.D. Tenn. 2014) Drivers sued for violations of Truth in Leasing Regulations

and sought damages for wrongful deductions

The company moved to compel arbitration pursuant to the Federal Arbitration Act and the written agreement

Drivers argued the FAA did not apply because they were actually employees despite the independent contractor language of the agreement

The Court held the drivers were independent contractors, the FAA therefore applied, and the parties had to go to arbitration rather than Court

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Recent Case Law

Pac Anchor Transportation case Company uses independent contractor drivers for work in

Ports in Southern California California Attorney General: The company has received

an unfair advantage by classifying drivers as independent contractors and attempting to avoid employment costs

Trial court dismissed the case as preempted by federal law, but the Appeals Court reversed

Oral argument in the Cal. Supreme Court is set for May 28, 2014

California Trucking Industry has described the case as potentially ending the ability to use independent contractors

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Practical Considerations

Review:

A well-drafted Independent Contractor Agreement is a Must

Following the Agreement is crucial

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Use Owner Operators Who Have Formed a Corporation, LLC, or Similar Business Entity

Creating an entity is fairly simple

Do not pay the owner operator’s registration fee for creating the entity

Require an FEIN that is not the individual’s social security number

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Promote Opportunity for Profit or Loss Set up real opportunities for negotiating rates Allow the owner operator to establish the delivery

order Allow the owner operator flexibility in pick-up and

delivery times Allow owner operators to decline loads Avoid being overly restrictive on the type of truck Allow the owner operator to choose where and how

to maintain and repair equipment Do not provide free service or equipment usage in the

event of a breakdown

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Promote Opportunity for Profit or Loss (cont’d) Allow the owner operator to use multiple trucks Allow the owner operator to hire helpers or substitute

drivers Limit company involvement to DOT qualification and customer

requirements Indicate owner operator’s employees are “qualified” or “not

qualified” as opposed to “approved” or “hired”

Pay attention to owner operator opportunities to use their trucks outside of your business Trip leasing Personal use Document those opportunities as they occur

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Encourage Independence in the Manner and Means of Performance

Allow the owner operator to choose the route

Allow the owner operator to use discretion with respect to weather and traffic issues

Avoid over-involvement in the process of the movement

Focus on the end result

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Make Sure Your Documents Further The Independent Contractor Relationship

No employment application

No immigration (I-9) forms

No IRS w-2 or w-4 forms

No disciplinary notices or written warnings

No documents identifying a “supervisor” or “manager”

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Talk In Owner Operator Terminology, Avoiding Employment Terms Driver qualification file v. personnel file Driver application v. employment application Settlement check v. paycheck Contract/regulatory/customer requirements v.

company policies/duties Orientation v. training IC coordinator v. supervisor/manager Out of service v. vacation/holiday Contract termination v. Fire/discharge

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Respond to Inquiries in Owner Operator Terminology

Employment history requests

Tax levies

Court garnishment orders

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Practical Considerations Create Separation Between Owner Operators and

Company Drivers Separate functions or lanes

E.g., over the road v. local drivers E.g., use company drivers first, then owner operators

Separate dispatchers Separate driver manuals

Owner operator manual should focus on drug and alcohol testing protocols and similar issues

Owner operator manual should not include fringe benefit references or disciplinary policies

Do not provide owner operators with fringe benefits or light duty assignments while recovering from an injury

No credit cards for owner operators

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Pay the Owner Operator Like an Independent Contractor

Issue settlements

No tax withholdings

Issue 1099

Issue the settlements to the business entity’s name and FEIN

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Train Managers

Ensure managers know the functional difference between employees and owner operators

Ensure dispatchers understand owner operators are free to reject loads

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Take Precautions Make sure owner operators are offered interstate

loads on a regular basis. A misclassification inquiry often begins when a driver

believes he or she has missed out on significant overtime compensation

Drivers who carry interstate loads would be exempt from overtime even if they were employees

Keep a record of on duty hours In the event of reclassification, such a record will prevent a

driver from making unfounded claims as to the number of hours worked

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Final Word

Continually audit practices and remain diligent

It is often more convenient to treat owner operators like company drivers

Doing so, particularly in the current climate, can have devastating effects

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Owner Operator Landscape

Questions?

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Agenda •

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Motor Upcoming events

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Driver Recruiting Summit: The Risks & Opportunities of Filling Your Fleet

Business

Transcript of Driver Recruiting Summit: The Risks & Opportunities of Filling Your Fleet