Independent thinking

Todd Dills | November 01, 2011

Bills to change classification rules to the detriment of carriers utilizing independents were introduced in each Congress after the Democrats took both houses in 2006. Mired in a battle over the federal debt and how to revive the economy, the current split-party Congress appears unlikely to take action on IC status. Plewacki characterizes the lull as a time to think about ways to enhance owner-operator freedom in current leases and examine new models.

States continue to wrestle with IC issues, says Greg Feary, an expert on IC classification law with the Indianapolis-based Scopelitis law firm. “In the last year and a half there have been many [decisions] that support independent contractor status for owner-operators,” he says.

The big question, he says, is when efforts to erode Section 530 relief at the federal level will return. “It just depends on the makeup of the Congress, generally. If the federal legislators are more Republican than Democratic, you might not see as many efforts in that area.”


State workers comp rules related to independent contractors

Workers compensation disputes are a primary source for independent contractor classification challenges. The foundation for this map, outlined by the TrueNorth Companies, is the comprehensive case law research of Greg Feary, with the Scopelitis law firm. Given the interstate nature of most truckload carriers, just because a carrier is based in a particular state doesn’t mean that carrier doesn’t have to worry about other states’ rules. If an injured owner-operator wants to file a suit against his carrier for workers comp benefits, says TrueNorth’s Trent Tillman, “he can file in the state where he lives, in the state where the motor carrier is based or the state where he got injured.”

* Statute or rigorous case law requires companies utilizing independent contractors to provide workers compensation insurance for them or at least require that contractors purchase it themselves.

* Statute exempts carriers utilizing independent contractors from workers compensation responsibilities.

* No specific statute exists relative to workers compensation and independent contractors, but case law may be pertinent in particular instances.


Challenges to IC status usually due to IRS, injury or union activity

Challenges to independent contractor status can come from the Internal Revenue Service during company tax audits. The U.S. Department of Labor can be involved, and it uses a more stringent and thorough so-called “economic realities test” to determine whether a group of independent contractors is valid or not. “At the state level is where the complexity starts to come in,” says Trent Tillman of TrueNorth. “It’s a diverse world out there.”

An independent contractor getting hurt has often “been one of the main reasons other cans of worms get opened up,” says Tillman. “Say the motor carrier didn’t have an occupational accident insurance program available, and the owner-operator didn’t have insurance of his own, and therefore he files a [workers compensation] lawsuit against the company, saying he needs to be reclassified as an employee.” In Colorado and Nevada, he says, “that’s worked, and as soon as it does, there’s case law” supporting other such cases.

Lose an individual workers compensation case in states where workers compensation laws are aggressive, such as Arkansas and North Carolina, Tillman adds, and a carrier may face more problems. “Now the work comp people are talking to the unemployment compensation division, saying, ‘You might want to look at them for collection of unemployment tax.’ I know some motor carriers who’ve gotten bills from the state saying ‘you haven’t been paying unemployment tax to the state’” for their entire IC group after a single reclassification case.

Union pressure, particularly among drayage haulers, also can spawn IC-classification investigations when a contracting owner-operator or group of contractors files a complaint against their carrier for issues related to compensation or benefits. “In California, Teamsters are getting groups of owner-operators together and going to the court and saying they’re being abused,” often taking advantage of immigrants’ lack of understanding of U.S. labor law, Tillman says.