Employee V Independent Contractor: On A Collision Course?

May 16, 2023Litigation

In 2016, a devastating traffic accident on a Nevada highway rendered motorist Allen Miller quadriplegic for the rest of his life, and freight broker heavyweight CH Robinson facing a potentially crushing money judgment and a “secret” multi-million-dollar settlement.

Liable for what?

A judge found the company would have to face a jury trial for devasting injuries caused by a driver Robinson didn’t hire… in a truck they didn’t own… for a company they didn’t directly control. 

It was a lawsuit the company was so confident wouldn’t happen, they fought a protracted court battle to quash it.  They fought all the way to the United States Supreme Court, where the US Government asserted that the lawsuit was appropriate and not even worthy of the Supreme Court’s review.  Despite its broad national implications for the transportation segment, a key and vital part of our economy, the U.S. Supreme Court obliged and refused to review the case.

Surely this is an isolated incident, isn’t it? 

We’re afraid not. It’s part of an attack on an industry relatively few are openly talking about for fear of the consequences. 

However, it should be on the radar of anyone in manufacturing, transportation, shipping, or anything interstate commerce related.

A Legislative Assault on Transportation

Where did this drastic legal turn come from?

It started years ago, when the California state legislature pushed through a set of regulations aimed at eliminating ride-hailing services like Uber and Lyft specifically, as well as those legally tagged as gig workers generally. 

This was part of a larger political agenda to favor categorizing laborers as bona fide employees under the umbrella of the companies they served, rather than freelance independent contractors floating between employers.

Uber and Lyft managed to come out unscathed thanks to some crafty well-funded lobbying, but the California laws took hold just the same, with a ripple effect that’ll soon be felt throughout the nation’s transportation industry.

These laws have already caught on in other states, and are now in discussion to be implemented at the federal level, putting the ball in the U.S. Dept. of Labor’s court. 

Our take? Anyone moving goods or freight, especially between states, (without the lobbying juice of Uber and Lyft,) should be very concerned.

Is Your Transportation Business In The Crosshairs?

The weight of this new legal initiative is set to fall squarely on the trucking industry, posing numerous problems for shipping companies and drivers alike.

Trucking and “last mile” courier services such Amazon delivery services, has had a long-established model of drivers working as owner/operators, or independent contractors. It’s typical for the companies to hold Motor Carrier Licenses and function as dispatchers of trucks they’re leasing on behalf of individual drivers who serve them in the role of hired gig workers.

This arrangement has been in place for decades, creating well-entrenched mutually-beneficial practices, and a great deal of reliance that these practices were all legitimate and in compliance with transport law.

If the proposed regulations go through at the federal level, the bulk of these truck leases are likely to be rendered insufficient, falling short of meeting a new criteria for independent contractor status, forcing the truckers to be reclassified as regular salaried employees.

As discussed, this is already underway in California, with both shippers and independent contractors alike upset.

But it only gets worse. 

If you’ve been operating under this model, a whole host of additional problems may be coming your way.

For instance, if you’re holding, for example, 50 of these lease agreements with 50 trucks, you’re probably on a collision course with these potential new federal mandates. 

Are you prepared for such a regulatory overhaul?

The Trifecta of Trucking Tribulations

Shippers as well as truck drivers operating as independent contractors will have three MAJOR challenges with the impending regulatory initiatives:

1) Re-classification of independent contractors as employees

The shipping business’ varying needs and conditions – according to seasonal, supply, and market fluctuations – make it much more conducive to the employment of independent contractors than traditional employees.

If the owner/operator truckers are compelled to suddenly conduct themselves as salaried staff members, it invites a multitude of new rules, practices, standards, and imposes expenses into the process that will have to be implemented in a rushed damage control manner just to keep the lights on in some cases.

2) Tax issues that arise in such a scenario. 

The IRS has never been shy about chasing down new sources of tax revenue, and the proposed new arrangement potentially ambushes transport carriers with newly imposed taxes and duties that could materially alter every aspect of their business.

Assuming truck drivers are reclassified as employees, shippers will be required to withhold taxes and their portion of Social Security. (Again another hidden tax on doing business.)

They may even be on the hook for back taxes and penalties for whatever length of time they’re deemed to have been operating “illegally.”

3) Liability for accidents

As in the above case of CH Robinson, the separation of the transportation company from the truck driver that’s always insulated the former from liability for things like traffic accidents is being eliminated by the change in legal status.

All of a sudden, culpability for a highway mishap could go all the way up the chain of command to the freight broker or the shipper – who may have never even laid eyes on the truck or the driver.

Is There A Legal Workaround?

In light of this impending legal collision course, some in the industry are proactively hedging themselves against it.

For example, because current truck leases between the shipper and truck driver independent contractor may not prove legally sufficient, companies are assisting their drivers in obtaining their own Motor Carrier authority, as well as registering their truck insurance under the drivers’ own names.

Strategies and tactics like this can be used to widen the legal gap between the shipper and truck driver, giving both parties the independence they desire.

However, in light of the anticipated changes, a legal re-thinking of your business entity is mostly likely necessitated.

What Should YOU, As A Business Owner, Be Doing About This Challenge?

In the blink of an eye, your trucking business could suddenly go from perfect compliance to an illegal operation, through no fault of your own!

Now that you’re aware of the situation, don’t wait until you’re under Uncle Sam’s microscope to seek professional consultation! 

Different firms, in different states, under different circumstances call for unique and tailored legal, management and operational strategies.

Those mentioned above and numerous other works are in progress, aiming at offering simple turnkey solutions to transport companies affected by this situation.

These may necessitate modifying your entity structure, ownership structure, necessary agreements, operating authority insurance, safety vetting, etc.

If you’re uncertain if this applies to you, reach out to find out! Get in touch now with Jonathan Scott and Commerce Law Partners and let’s get started!

BOTTOM LINE

The trucking industry business model as we know it is under attack.

As experts in the industry, we can help from a business, legal and safety perspective.

To maintain a smooth operation, and prevent your transport enterprise from being upended in this litigious, regulatory, anything-can-happen landscape, let us take the guesswork out of your next move!

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