In November of last year, when the Hurricane Express v. Arkansas Workers’ Comp. Commission case was decided against the motor carrier, a great deal of alarm was voiced among the community of truckload carriers. And rightly so, attorney James C. Sullivan told attendees of the Truckload Carriers Association’s Independent Contractor Division Annual Meeting in Dallas, Aug. 26. “This case should be cause for concern for everyone,” he said. “I bet a lot of you run a business model similar to Hurricane Express.”
At issue was the classification of leased owner-operators as independent contractors, the common industry treatment. Sullivan suggested that as carriers have competed to attract and retain the best owner-operators and drivers in the business, a long erosion of the traditional owner-operator model (in which an operator came to the carrier with a truck he/she already owned) has been seen. “What we have now,” he said, included questionable (for independent contractor classification purposes) practices such as nontraditional lease-purchases amortizing the amount of purchase over the entire term of the lease with no significant down payment or balloon.
Also, a great deal “more products and services are offered by motor carriers to owner-operators,” he said. “The trend has been to erode away the traditional owner-operator status. That trend needs to start turning back in the other direction.”
In the Hurricane case, the court, using a 10-factor right of control test to determine whether independent contractors were legitimate, found that the owner-operators were in fact misclassified and were employees, despite the fact that, like many others in the industry, Hurricane did many of the right things. Their contracts clearly identified owner-operators as independent contractors; they did not control where to make fuel purchases or repairs or what route to take; and drivers were not obligated to haul loads.
The penalties in cases such as this can be numerous and quite costly. “The stakes are pretty high,” said Sullivan, whose work with the Polsinelli Shughart law firm in Missouri has been focused for 20 years on carrier/owner-operator relationships. Fines and penalties for misclassification can include “liability for state, federal and local back taxes, Social Security contributions of both the employee and the employer, federal unemployment and state unemployment taxes, penalties and interest.”
Carriers, he said, could be advised to limit both their financial and behavioral control of leased owner-operators as much as possible. Court findings determined to support the employee classification in the Hurricane case, particularly, were that drivers were integral to the carrier’s business, hauled exclusively for the carrier displaying the carrier’s logo, and ran trucks under a lease (rental) relationship with a Hurricane-affiliated entity that required the driver to haul for the carrier and required service to be done by a mechanic approved by the lessor, among others.
