Transcript Owner-Operator Model Under Attack

Owner Operator Legal Status
October 8, 2009
Max Heine
Overdrive and Truckers News
Editor
Henry Seaton
Specialist in Transportation Law
Seaton & Husk, LP
Brought to you in partnership with:
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Tips for
using
the
control
panel
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Owner Operator Legal Status
October 8, 2009
Max Heine
Overdrive and Truckers News
Editor
Henry Seaton
Specialist in Transportation Law
Seaton & Husk, LP
Brought to you in partnership with:
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The Owner-Operator Model
Is Under Attack
2009 Partners in Business Retention Forum Webinar Series
October 8, 2009 – Henry E. Seaton, Esq.
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Elements of Success
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Success is traditionally based on:
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Truth-in-leasing
Federal tax treatment as 1099 independent
contractors
State worker’s compensation exemption
No unemployment compensation taxes
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Truth-in-Leasing
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Applies to “wet lease”
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equipment with driver
over 10,001 gross vehicle weight
Refer to 49 CFR 376 and Protecting Motor
Carrier Interests in Contracts, Chapter 4
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Carrier required to:
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Placard
Insurance
Safety
Pay and escrow
Exclusive dominion and control
Source of OOIDA suits/self-help (49 USC 14704)
independent contractors
Control requirements do not count against you in
classification dispute - 376.12(c)(4)
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Classification for
Federal Tax Purposes
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Benefits of classification:
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Paid on 1099
Owner-operator is sole proprietor, Sub-S or
LLC, free from Americans with Disabilities Act,
Family Medical Leave Act, Age Discrimination
in Employment Act, National Labor Relations
Act
No Social Security withholding – owneroperator gets lower self-employment tax
No withholding – owner-operator gets
deductions and estimates
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The Classification Standard
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20 point control test – Rev. Ruling 87-41 (see
PMCIC Chapter 5)
Most do not apply – for construction industry
Separate trade or business, training, method
of payment, set hours
Significant investment
Realization of profit or loss making services
available to general public et al.
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At risk analysis:
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Investment
Avoid guarantees or revenue caps
Safe Harbor Provision – Section 530 of
IRS Code
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Consistent with industry practices
Pay records consistent with independent
contractor treatment
Clear distinction in owner-operator and
company employees
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Requirements for § 530 Safe Harbor Treatment
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Must give 1099
Cannot switch from employee to owner-operator
Cannot treat employee and owner-operator the same
Must meet industry standards
Follow case precedent
Good faith
Lease-to-Own
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Applied in North American Van Lines v. NLRB, 869 F.2d
596 (DC Cir. 1989)
(See also http://www.irs.gov/pub/irs-utl/van-ops.pdf)
Portability
Build equity/something to train and something to lose
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State Laws and Worker’s Compensation
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Based on combination of statutes and
case law
A “patchwork quilt”
At stake:
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Worker’s compensation premiums
As much as $20,000 per year
 Higher than comparable occ/acc (the malingerer
issue) – NCCI standards
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State withholding and unemployment taxes
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The Patchwork Quilt
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Statutes
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Case law
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Varied and confusing
Opt-in/Opt-out, occ/acc alternative available
Control test modified by states
Ambiguous and conflicting (state analysis available
upon request
The role of “one-size-fits-all plus occ/acc has
traditionally been used (PMCIC)
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Savings
TN/NC examples
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Winds of Political Change
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What is causing the Turbulence?
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Union Activity
Real abuses
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Low ball contractors in construction industry /
hiring of illegals for whom NO taxes are paid
State and Federal revenues shall fall
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GAO estimates $3.4 billion in uncollected at
Federal level
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Violent attack across industries
GAO estimates 30 million independent
contractors
The opposing forces:
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Includes welfare and safety advocates, labor
unions
“a perfect storm of political change,”
increased union pressure and aggressive
government enforcement
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Winds of Change at the State Level
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Tougher standards for evaluating independent contractor
classification issues and/or developed coordinated
intergovernmental task forces (e.g. NY, IL, TX, OK, NJ, CT,
MA, CA, MI, GA et al.)
72 bills in state legislatures last year dealing with worker’s
comp and the owner-operator
Already in 2009, several states have introduced new
legislation including Minnesota, Indiana, Kentucky,
Maryland, and Washington.
Unemployment taxes and arrearages – whistle blowers and
inter-agency task forces
Collective response at state level urgently needed.
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Worker’s Comp Audit
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Carriers with owner-operators are subject to expensive
post-audit by worker’s comp insurer. The following
worker’s comp insurers have post-audited carriers:
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As a result carriers should exercise great caution in
placing worker’s comp
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AIG
Canal
The Hartford
Liberty Mutual
Status of owner-operators should be stipulated in writing at time
policy is written
Full disclosure should be made
Agent owes motor carrier duty of due diligence/E&O is an issue
See “Get Assurances on Insurance” – etrucker.com
March 2008
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Random state actions betray pro-labor,
unsympathetic attitude toward owneroperator
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NY worker’s comp endorsement
WA State overtime statute
Unfavorable decisions from state boards are
increasing
IL – ABC Test
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If fail, have to pay overtime in arrearage, back
wages, back unemployment taxes, state income
tax
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Trucking industry singled out for target
audits aimed to prove misclassification/tax
evasion intent
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Whistle-blowing encouraged
Back taxes and penalties
Bad facts make bad law
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California – Poster Child
of Anti-IC Activity
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California Clear Air Action Plan
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Exclude owner-operators from ports of L.A. and Long Beach in name of
“clean air”
Backed by Mayor of L.A. and unions
ATA v. City of Los Angeles, 559 F. 3d 1046 (9th Cir. 2009)
People of CA v. Pac Anchor
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State AG task force produces suits alleging violations of:
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State worker’s compensation
Disability and minimum wage
Seeks restitution, penalties and injunctive relief
Judge White dismissed Complaint
Preemptive
14501(c) FAAAA
Great victory for owner-operator model
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Federal Preemption and
the Patchwork Quilt
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Pac Anchor gives hope
Congress and Supreme Court could trump conflicting
state treatment in name of uniformity (e.g. FAAAA)
Supreme Court followed precedent in WA State appeal
D.C. Court of Appeals is allowing “self-appointed” driver
welfare advocates in HOS appeal
Congress is not the carrier’s friend
Organized trucking is slugging it out state-by-state
SS8 – if independent contractor cannot pay taxes and
fills out this form claiming employee status, IRS uses it
to investigate the alleged employer
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Winds of Change at the Federal Level
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President Obama labor initiatives:
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On Friday, January 29, 2009, President Obama acted "boldly and
swiftly" to "reverse policy affecting organized labor" and
appointed Vice President Biden as Chair of the Administration's
new "White House Task Force on Middle Class Working Families".
Promising to "level the playing field for unionization" Biden then
"welcomed organized labor back to the White House."
Labor’s objective is clear –
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passage of the check card bill
reclassification of owner-operators as employees
see http://www.americanrightsatwork.org/fedex/ and
http://www.changetowin.org/
Near filibuster-proof majorities and economic crisis create
legislative volatility, need for close monitoring and coordinated
grass roots action (e.g. MCAA and NMFIB initiatives)
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Classification at the Federal Level
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Congressional Action
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Demands by Congress that IRS investigate and
punish employers who misclassified independent
contractor
Demand for inter-agency task force with Department
of Labor
Obama-Durbin-Kennedy Bill/Independent Proper
Classification Act of 2007 (S. 2044)
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Intended to protect government revenue and American
workers from unscrupulous employers
Would roll back safe harbors
Give owner-operators whistle blower protections and
attorney fees (i.e. disgruntled owner-operator could trigger
audits)
Re-introduced by McDermott
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Requirements of
Obama, Durbin, Kennedy
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Require employee treatment of misclassified workers
based on New Secretary of Treasury Rules
Repeal ban on more liberal Treasury Rules
Eliminate § 530 Safe Harbors
Direct Secretary of Labor and IRS to coordinate
enforcement tracking complaints and investigations
(whistle blowers and union tools)
Require workplace notice of employee rights
Require notification to IC of tax reporting requirements
Require 3 year list of independent contractors including
names & tax IDs
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Pending Federal Legislation
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Employee Free Choice Act (EFCA)
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Supported by Democratic majority in 2008 by both
Houses
Would eliminate requirement of election, requiring
union certification based on card signing alone
Depriving management of opportunity to respond
Would require 30 day mediation and could impose
contract if no agreement
Endorsed by Obama
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FedEx Cases
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Precedent setting, distinguishable but threatening. The
Court found owner-operators should be reclassified as
employees because:
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Company had sole right to interpret Operating Agreement
Routes could be refigured without driver say
Driver’s work was core to the company’s business
Company controls who drives vehicle
Company can effectively terminate contract “at will”
FedEx battle is not over
FedEx recent victory is encouraging
The teamsters are FedEx behind the scene adversary (see
“Fed Up With FedEx”) at americanrightsatwork.org/fedex
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Commentary
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Correctly seen, it is a small business and free
enterprise issue, not a tax or social welfare issue
What is at stake?
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Owner-operator way of life
How to own and manage an asset
and make own business decisions
free from government intervention or proscription
To become an owner-operator is a choice not a
condition of gainful employment and truth-in-leasing
is the necessary protection against abuse.
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What can or should be a carrier and
owner-operator’s response to
“winds of change”?
(1)
(2)
(3)
(4)
(5)
Coordinated political action
Refined owner-operator agreements
Selective recruitment
Encourage owner-operator
incorporation
Alternative excess capacity model
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Coordinated Political Action
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Carriers are disorganized
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Issue is bigger than trucking
MCAA IC Summit – March 5, 2009
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ATA has both company-owned, union and owner-operator based
members
Owner-operator model cuts across carrier type dray or
“intermodal,” ex-air, courier, long haul, refrigerated, van line
OOIDA seems unconcerned
Lobbyist
Funding
National Federation of Independent Business
350,000 small business group/Nashville based
(www.NFIB.org)
Coalition for Independent Contractor Freedom
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Refining Owner-Operator Agreements
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Control test issues
No forced dispatch
Forum selection, warranty, indemnification
Occ/acc and contingent worker’s
compensation
Class action suits remain a threat
OOIDA v. Landstar (11th Cir., 9/3/08)
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Selective Recruitment
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One size does not fit all
Focus recruitment in favorable statute states
Modify contract to include state of domicile requirements
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Alternative Model
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Carrier uses its broker affiliate to retain
small carriers
Owner-operator contracts reduced as
contractors are urged to obtain own
authority for use by broker affiliate
Trailers leased to small carriers on
interchange
Small carriers may qualify for worker’s
compensation exemption
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The Future of Owner-Operators
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Were first to wash out / Carriers had own iron to fill
Now there is a return to the model
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Carriers cannot buy new $120,000 tractors
Good deals for owner-operators
Lease-to-own
Portability
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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.
33
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.
34
TransCore Freight Solutions
• Load board products – TruckersEdge.net and 3sixty
Freight Match powered by DAT®
• Satellite Tracking – Tracking and Communications
powered by GlobalWave®
• Transportation Management Solutions – Logistics
Software
• Distribution, Intermodal and Fleet compliance services
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Contact:
Bert Goo, TransCore Channel Sales Manager
503.350.5501
[email protected]
©
2009 TransCore. All rights reserved. All trademarks are the property of their respective owners.
35
QUESTIONS??
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Owner Operator Legal Status
Max Heine
Henry Seaton
Overdrive
Seaton & Husk, LP
800-633-5953 ext 1038
703-573-0700
[email protected]
[email protected]
www.transportationlaw.net
View this presentation at
Partners in Business webinar archive
www.piblive.com/retentionforum
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Next Webinars
Retention During a Rebound
Presenter: Steve Prelipp
October 22nd 2:00 pm CST
Owner-Operator Compensation Trends
Presenter:Gordon Klemp
November 5th 2:00 pm CST
Register Today:
www.piblive.com/retentionforum
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