Trucking and labor organizations across the nation are engaged in a debate over what determines independent contractor status, as lawmakers and courts consider whether owner operators should be classified as employees. Since November 2013, twenty-two bills have been introduced across the country to address owner operators and the misclassification issue. In recent years, unions have more increasingly backed lawsuits and legislation to force owner operators to be classified as employees. As state budgets tighten, lawmakers have become more receptive to proposals as they attempt to replenish lost tax revenue. Additionally, environmental and labor groups have promoted banning owner operators at the ports. They argue employee status is necessary for truckers to afford upgrades that meet stricter emissions standards that now exist in many ports. With that said, the following is a look at some key independent contractor (IC) status legislation or litigation happening around the country.
New York / New Jersey: The Democratic Governor Cuomo of New York passed the New York State Commercial Goods Transportation Industry Fair Play Act which affects every driver who possesses a state-issued driver’s license and who transports goods in a vehicle over 10,001 pounds. The new law states that every contractor is presumed to be an employee unless they can pass the “ABC Test” and the “Separate Business Entity” test. The law also includes penalties for willful violation. The New Jersey Republican Governor Christie vetoed this bill. Christie said that he was “especially troubled” by the legislation’s criminal penalties for misclassification. A company called “Proud 2 Haul” recently lost a case and had to pay over $127,000. In another case, Diamond Freight Distribution lost tens of thousands when a driver without occupational accident coverage was determined to be an employee and was then found eligible for a disability claim.
Georgia: The port truckers and Teamsters recently held a press conference with lawmakers sponsoring misclassification bills targeting trucking and other industries. The first, SB 401, would implement stricter definitions of employee status, while SB 402 would hike penalties for misclassification. Both bills were referred to committee in late February.
Ohio: Back in February, the Ohio Trucking Association (OTA) provided support for model IC legislation at a House committee hearing. The OTA said Substitute HB 338 incorporated input from FedEx Ground and OOIDA and other stakeholders. The bill would grant an exemption to classify owner operators as ICs, and also considers some related state Supreme Court decisions, which includes a ruling where the court determined that a truck owner receiving compensation per tonnage or mile and for fuel and other expenses qualifies as an IC.
Washington: Local Senators referred the Employee Fair Classification Act to committee in February after House members passed it by a 51-45 vote. The bill, HB 2334, would define ICs and impose civil penalties and damages. Blue Star Transportation, Sea Port Logistics, RoadLink Services, Island Transport Logistics, Liberty Freight, Red Sea Express and Western Ports Transportation all lost cases.
California: In March, the National Labor Relations Board (NLRB) classified all the port drivers at a Carson terminal as employees who can now vote to have a union. Some 400 port drivers have filed labor law complaints with the California Division of Labor Standards Enforcement (DLSE), the most in any state. DLSE has issued at least 19 decisions finding drivers are employees. Fox Transportation, Container Connection, Harbor Rail, Shippers Transport, Gold Point Transportation, Pacer Cartage, Comtrak Logistics, Southern Counties Express and Total Transportation services have all had cases filed against them.
Idaho: The Idaho Supreme Court has concluded that operating under the authority of a carrier’s DOT number is NOT considered sufficient to eliminate an owner operator from IC status. The state’s highest court overruled a previous decision that allowed the state’s labor department to use operating under a company’s authority as a stand-alone determination of a driver’s employment status.
As I write this article, Massachusetts, Utah and New Mexico have bills that could bring more changes to the industry. So, what does all this mean to the Independent Contractors of the United States? Well, at some point in the future, you’re going to have to decide whether or not you’re going to be a follower or a leader. By that I mean, to decide to stay driving a truck with the possibility you may be classified an employee – whether you want to be or not. You will be required to have various taxes (nearly 20%) being withheld, and if the unions step in, you will have to pay union dues, which are approaching $80.00 per month – whether you want to or not. As an employee, you will get no tax deductions, which could become a real eye-opener (or career ender).
The average local IC makes about $28,700 before taxes, while the average local employee driver makes about $35,000 before taxes. An over-the-road employee truck driver can make anywhere from $40,000 to $60,000 per year. A veteran owner operator, who is incorporated, can earn from $100,000 to $150,000 per year before taxes – taxes he or she controls because of the structure of their business and available write-offs and deductions. With the two main Democratic states of California and New York leading the charge, it will get harder and harder to be classified as an IC. Basically, in those states, you are “presumed” to be an employee unless your carrier can prove otherwise.
To be considered an IC, your business must stand alone without dependence on the main carrier. If your carrier contract is canceled, your business should still be able to continue to exist. You will have to have a substantial investment of capitol in your IC business, but take notice that many courts do not require outright ownership. The IC’s business either owns or leases the capital investment and must bear the losses, as well as the profits. The IC’s business may even have to make its services available to the general public, and some courts even want to see proof of some advertising.
Remember, the top two reasons why most companies fail are; 1) inadequate revenue, and 2) inadequate record-keeping. If you are an Independent Contractor, you need to join an association where you can get the information and assistance you will need to survive in this ever-changing world of transportation. The right association can provide you with everything you need to start and run a successful business. Don’t wait until it’s too late – join NTA today. For more information, call (562) 279-0557 or visit them online at www.ntassoc.com.