Independent thinking

Todd Dills | November 01, 2011

Carriers test the waters with new owner-operator models to dodge worker classification problems.

Challenges to independent contractor status for leased owner-operators continue to crop up at state and federal levels. The most recent major threats came during the previous U.S. Congress in 2009 and 2010, when bills were proposed to gut tax relief nationwide for companies utilizing ICs.

The legislative threat is not urgent at the moment, but some parties are exploring other business models for how fleets use owner-operators. Two in particular could enhance protection from classification problems for the carrier and bolster business freedom for the owner-operator.

From leased to independent

For most carriers leasing owner-operators, avoiding problems with independent contractor classification usually involves three points, says TrueNorth Companies Senior Transportation Specialist Trent Tillman:

• Complying with federal leasing regulations,

• Using the right kind of language in lease contracts, and

• Determining an appropriate level of control over owner-operators.

Some carriers have gone much further, trying innovative approaches. One alternative is to convert leased independent contractors to owner-operators functioning under their own authority as dedicated or semi-dedicated carriers under contract with a freight forwarder entity.

Rudolph Freight Systems, based in Murray, Ky., is an example. Prior to obtaining freight forwarder authority, says President Robbie Rudolph, the carrier leased approximately 100 trucks. Being aware of independent contractor classification issues as well as the Compliance, Safety, Accountability program’s focus on safety tracking, Rudolph wanted to safeguard all parties.

“I was working on something that would protect the shipper customer, our power provider [owner-operators] and us,” he says.

He worked with TrueNorth, lawyers and safety consultants to get motor carrier authority for Rudolph’s leased owner-operators and small fleets, as well as relevant insurance coverage and safety consulting to help them avoid CSA problems. Today the newly independent owner-operators largely operating as dedicated carriage for the Rudolph freight-forwarding operation have access to improved insurance programs, says Rudolph. “And we provide better, more convenient service to the power provider,” with commercial auto liability and other policies tailored for each individual owner-operator in a manner similar to what many traditional carriers do for leased owner-operators’ non-trucking liability, physical damage and occupational-accident policies.

In this model, Rudolph becomes not only a freight logistics provider but a vehicle for owner-operator support, utilizing connections to preferred service providers to help the small businesses be more efficient and safe.

Rudolph’s not the only example. “We are in talks with a few carriers on the freight-forwarder model and actually going through a conversion with one carrier,” says Todd Amen, principal with owner-operator business services provider ATBS. “I believe the freight-forwarder model is not a fad, but I also believe there is significant additional cost to it that the general freight industry can’t currently afford.” 

As anybody who’s gone out on his own with his DOT authority knows, those additional costs can add up quickly. Added costs for owner-operators include those typically associated with getting your own authority: insurance, maintaining compliance and potential administrative expenses of obtaining authority and incorporating the business, Amen says.

Borne by the former leased owner-operators in the freight forwarder model, Amen suggests, these costs will ultimately exceed what a carrier is likely to spend cumulatively on the same number of leased power units. In general, Amen believes rates are not sufficiently high to make this model attractive enough to most owner-operator fleets. “It will likely only apply in specific niche businesses that have higher perceived risk [of independent contractor challenges] and can afford to implement the model to offset for the foreseeable future,” says Amen. “I believe the trend is economically and politically driven, and some of those pressures seem to have subsided over the last six to 12 months.”