Misclassification of owner-operators proves costly for some carriers
By Todd Dills
Last November, when the Hurricane Express v. Arkansas Workers’ Comp Commission case was decided against the motor carrier, alarm was voiced among 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 classification of leased owner-operators as independent contractors. 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 taken place. “What we have now,” he said, includes questionable (for independent contractor classification purposes) practices such as non-traditional lease-purchases amortizing the amount of purchase over the lease term with no significant down payment or balloon payment.
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 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; drivers were not obligated to haul loads.
The penalties in such cases can be numerous and costly. “The stakes are pretty high,” said Sullivan, whose work with the Polsinelli Shughart law firm in Missouri has 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 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.
While this case only held implications relating to Arkansas worker’s compensation insurance, and Sullivan believes that the employee/independent contractor battles will most likely continue to play out in state legislatures and courts, federal attention has been growing the last four or five years.
Federal agencies have announced several initiatives within the last 12 months, he said. The Internal Revenue Service is increasing the number of audits it will conduct of employers who classify workers as independent contractors, though this may largely target the construction industry. “The Department of Labor has announced this year that they have implemented an employee misclassification initiative,” Sullivan said, allocating $12 million for field investigator training and pledging an additional 4,700 investigations.
And while Section 530’s “safe harbor” provisions for employers who have a “reasonable basis” due to legal precedent, past IRS determination or longstanding industry practice pertain to most owner-operator truckload carriers, Sullivan said safe harbor’s days “may be numbered because of what has been termed the Employee Misclassification Prevention Act.”
Introduced in April in both houses of Congress, it would “amend the Fair Labor Standards Act to make it a violation of the act to misclassify employees as independent contractions,” he added. “The requirements are quite onerous. It requires businesses to keep records of all ICs — exactly the same type of records required as all employees…. You have to give specific notice that you’re being classified as a nonemployee rather than an employee. It creates a presumption of employment if an employer fails to keep records or provide required notice.”
Also, it doubles penalties to $1,100 per employee, $5,000 per employee for repeat and willful violators.
“This is right now pending before both relevant committees in each house of Congress — it has been argued and debated,” Sullivan said. “I believe it will not make it out of either before the November elections. But I don’t think the issue of federal law is dead. This has been raised for the last four or five years in one form or another. The 2007 version of the bill was actually introduced by President Obama when he was a senator.”
Sullivan likewise advised carrier representatives of several Owner-Operator Independent Drivers Association-filed cases against specific motor carriers that had implications for legal changes in Truth in Leasing regulations Part 49 C.F.R. 376.12(d) and (h), relating to compensation and charge-back items. He made several specific recommendations:
• “If you pay your carriers on a percentage basis,” he said, any computations for deductions made relating to chargeback items or any fees must be clearly stated in the lease.
• Carriers must clearly tell owner-operators in the lease “that you’re marking up an item if you’re marking it up.” The question of whether carriers needed to note the actual amount of markup or simply provide the standard chargeback rate in the lease and the amount of actual chargeback, with any fee, on the back end in a settlement was not yet settled, he added.
FYI NEWS BRIEFS
Texting Rule Goes to White House
The U.S. Department of Transportation has submitted a final rulemaking to the White House that would ban text messaging while operating a commercial vehicle. In March, DOT drafted a proposed regulation to limit the use of cell phones and ban text messaging by commercial drivers. More than 30 states already have laws that ban use of cell phones or texting while driving.
Used Truck Registrations Increase
More than 354,000 used commercial vehicles (GVW Class 3-8) were registered in the U.S. during the first two quarters of 2010, according to Polk, a provider of data-driven systems for the commercial vehicle industry. Polk said this number sets a record for a six-month timeframe and represents nearly 68 percent of the commercial vehicle market. Additionally, this figure is an increase of 28.8 percent over the same timeframe in 2009.
Freight Tonnage Gains in July
The American Trucking Associations’ advance seasonally adjusted For-Hire Truck Tonnage Index increased 1.5 percent in July from June. That followed a change in June’s reduction from the previous month to 1.4 percent from 1.6 percent. Compared with July 2009, SA tonnage climbed 7.4 percent, which matched June’s increase from a year earlier and was the eighth consecutive year-over-year gain. Year-to-date, tonnage is up 6.7 percent compared with the same period in 2009.
Surface Trade Up in June
Surface transportation trade between the United States and Canada and Mexico increased 37.6 percent in June over June 2009, reaching $69.9 billion, according to the Bureau of Transportation Statistics. BTS reported the value of U.S. surface transportation trade with Canada and Mexico in June remained 5.8 percent below the June 2008 level despite the 2009-2010 increase.
Moving Van Lines Fined
The Federal Motor Carrier Safety Administration Aug. 30 levied $281,000 in fines against Moving Van Lines Inc. of Tampa, Fla., for violating multiple federal regulations including holding consumers’ property hostage and requiring moving fees beyond the original binding contractual agreement. FMCSA found the company in violation of 28 counts of failing to relinquish possession of a household goods shipment (hostage load), and one count of collecting fees more than the original binding estimate.
ATA Exec: Trucking Looking Up
By Randy Grider
American Trucking Associations Chairman Tommy Hodges Aug. 26 offered a guarded assessment of the trucking industry during the Commercial Vehicle Outlook Conference in Dallas.
Approximately 5,500 carrier failures have led to almost 200,000 fewer trucks in the marketplace. This tightening of capacity along with stronger consumer confidence has Hodges more optimistic for the short-term.
As for the economic downturn, “we’ve hit the bottom,” Hodges says. “We are in a replenishment mode. We have hit the bottom in consumer confidence, and consumers are feeling better.”
As for the long term, Hodges pointed to various think-tank groups that are forecasting a 30 percent increase in freight tonnage over the next decade.
The trucking industry faces regulatory challenges in the next few months. While Hodges said he would like to see highway reauthorization at the top of the list of most important issues, cap and trade, truck size and weight, electronic onboard recorders, CSA 2010 and revamped hours of service will dominate the trucking industry in the coming months.
Hodges briefly outlined each issue:
• Proposed cap-and-trade legislation that could put a 47-cent-a-gallon increase on refineries will have a residual effect on trucking.
• Legislation concerning size and weight of trucks is the most decisive issue for the industry and it’s difficult to get a consensus.
• On EOBRs, “get ready for them. They are coming.” This could result in a $1,750 price increase for each truck.
• CSA 2010 is “free agency for drivers,” as it gives drivers with good safety records the upper hand to make wage and benefits demands on trucking companies.
• Rewrite of the hours-of-service rule could create a productivity hit on the industry. He says driving time may be reduced by one to two hours a day and the industry could see the loss of the 34-hour restart provision. “This could mean an 18 percent to 19 percent loss of productivity if we lose two hours of driving time.”
More Fuel Savings Seen In Trucks’ Future
By Max Heine
Equipment 10 years from now will be much more fuel efficient, thanks to technologies coming into acceptance and others yet to be introduced, executives said Thursday, Aug. 26.
The forecasts were made at the “SuperSession: Tomorrow’s trucks and trailers,” sponsored by Shell Lubricants at the Great American Trucking Show in Dallas.
Cummins will focus on fuel efficiency and CO2 reduction, said Jeff Jones, vice president of sales and marketing. New regulations in this area are expected “in the very near future” from the U.S. Department of Transportation and the U.S. Environmental Protection Agency, he said, which have agreed to work jointly on the project.
Cummins also expects improvements in waste heat recovery, which Jones said is the “most promising” area for over-the-road applications. A little more than 40 percent of diesel’s energy is used in moving the truck, while the rest is lost through exhaust and cooling.
“We all need to work together for fair standards that promote the right technologies,” he said.
Freightliner is working on several areas to improve trucks, said Benjamin Smith, manager of product strategy for Freightliner Trucks. For example, predictive technology is showing good results by using GPS to read topography a mile ahead and then adjusting cruise control and cooling systems.
“The truck is smart enough to know not to gun it going uphill,” he said. The goals are to take unnecessary loads off the engine and save fuel.
Hybrid trucks are “pretty expensive because of all the componentry” and don’t quickly return the extra investment yet, even with up to 10 percent fuel economy savings, Smith said. Still, “we’re investing in it, and we’re getting there.”
Freightliner believes there can be fuel savings of 2 percent to 4 percent by minimizing parasitic losses, Smith said. This means finding electrical sources, such as from a reefer’s power unit, to further remove the engine from powering auxiliary systems.
Trailer makers are responding to fuel efficiency challenges by improving aerodynamic features, said Craig Bennett, senior vice president of sales and marketing for Utility Trailer. Most of the industry’s improvements to meet the standards of EPA’s SmartWay program have been voluntary, but other changes are being mandated in California by the California Air Resources Board.
Common efficiency products for trailers are low-rolling resistance tires, tire inflation systems, side skirts, wide-single tires, roll stability systems and any lightweight options, Bennett said.
He said Utility’s top three fuel-saving options on trailers built this year are low-rolling resistance tires, ordered on 80 percent of trailers; tire inflation systems (60 percent); and side skirts (30 percent).
Is Your Record Clean?
Carriers using PSP report to screen potential driver hires
By Todd Dills
When the Federal Motor Carrier Safety Administration’s new Pre-Employment Screening Program began offering reports of recent crash and inspection histories for new potential driver hires and owner-operator lessees in May, Elaine Briles was an early adopter.
But the director of safety, compliance and fleet services with Dart Transit suffered through what many carriers have since the program, as well as the Comprehensive Safety Analysis 2010 data preview, became available.
“When this became available to us, there was some paralysis” led by “too much information,” Briles told a “Best Practices” session of the Truckload Carriers Association’s Independent Contractor Division Meeting in Dallas, Aug. 27. “On-boarding drivers by using PSP is a way we can put a little control on it.”
Chief among Briles’ initial questions about how to use the PSP were where to draw the line with new drivers and lessees on violations. “How much is too much before you tell a driver, ‘I can’t bring you on.’”
Briles noted that Dart doesn’t “run one on every driver applicant.” Rather, the company uses the PSP report as a final clearing report after a driver successfully emerges from employment history matching, criminal background checks and other early processes. One reason for the wait is the cost. “It is expensive,” she said. “We don’t immediately run PSP — it’s $10 for each report.”
Another has to do with information control. “One reason we’ve gotten into this is we felt like it was important. Minnesota is a CSA 2010 test state — and we were one of the first companies to be audited. We joined in May  and were audited by July.” The company, said Briles, knew the new system was important and dealt with what to do with the data. “We tried to reason it out and not become hysterical.”
It has been useful in a few different ways, said Briles. One was to locate past driver employers or lessors the driver or lessee didn’t report himself. “A lot of the mom and pops don’t use DAC,” she said, “and normally, we have found drivers won’t tell you about a job because there’s something there they don’t want you to know.”
On a PSP report, a crash history going back five years is included, as well as an inspection history going back three years. Briles added, “About three times a month we find someone” among its nearly 2,000 monthly applicants “who’s not been truthful about their work history.”
The PSP report can help a carrier better identify an otherwise great driver’s problems and to focus initial training in particular areas, Briles said. For instance, for the first time, carriers can see via the PSP whether a driver has had hours of service issues in the past. Briles said Dart’s approach to such drivers will be to offer a conditional hire or lease. “We tell them the only opportunity [they’ll have to] come on board with us is to go with the paperless logs,” she said.
A new era of driver marketing, combined with a driver shortage, could arise from the PSP. Its connection to CSA 2010, with its focus on including all violations — no matter how small — in safety scoring, Briles said, could lead to a time when drivers will approach carriers waving a copy of their PSP and saying, “I have a perfect PSP. How much are you going to pay me?”
To Request a Copy of your PSP Record
• Visit www.psp.fmcsa.dot.gov, click “Operator Applicant.”
• You will need:
Driver’s license number If you’ve held licenses in different states during the past five years, says NIC Technologies’ Elizabeth Pemmerl, you’ll need to perform multiple searches on each CDL number, so have every one handy.
Valid email address as well as a credit card for payment The fee is $10 for your report, which can include information from multiple licenses and even multiple names if you’ve had a legal name change in the past five years.
PDF viewer “At the end of the transaction,” Pemmerl says, “drivers have the option of viewing on-screen or as a PDF,” the latter of which can be saved to your computer’s hard drive. Both options can be printed. “If they can’t print or they lose it,” she adds, “they will receive a link to a page where they can access the record for five days after the purchase.”
Have you purchased your FMCSA Pre-Employment Screening Program crash/inspection violation report yet?
26% — No, my record’s clean
18% — No, $10 is asking too much
9% — No, it’s not important yet
37% — I’ve never heard of the PSP
10% — Yes
“We’re not getting those calls of people saying, ‘How do you do this?’ That’s a huge mistake.”
— OOIDA Regulatory Affairs Specialist Joe Rajkovacz on the dearth of drivers checking out and challenging and correcting, if necessary, information contained on PSP reports
To file a challenge to PSP information
• Visit FMCSA’s DataQs system page: dataqs.fmcsa.dot.gov.
• Register for access — you will need a valid email address and will choose a username and password.
Then, FMCSA’s Arlene Thompson notes:
1. Click the Add a Challenge button on the DataQs main screen. Enter one challenge for each incorrect piece of data.
2. Select the appropriate reason for why the crash or inspection should be corrected and click Continue. If you’re challenging inspection information assigned wrongly to you, for instance, you should select Inspection — Commercial Driver Data. (For more information on which challenge type to select, note the help file at dataqs.fmcsa.dot.gov/Data/help.stm, click Enter Data Challenges & Determine My Challenge Type.)
3. Fill in the appropriate information. Draft your reasons for challenging the data carefully, including as many details as possible that support your case for why the data should not be included.
4. Submit the challenge. Note that the challenge should now appear on your list of challenges on your main DataQs page. You can view the information you entered by clicking on the challenge ID.
Paccar’s Sobic Looks to Suppliers
By Derek Smith
Dan Sobic, executive vice president of Paccar Inc., said a recovering truck market will demand the highest levels of quality and cooperation from vehicle and supplier manufacturers, in an opening presentation at the inaugural Commercial Vehicle Outlook Conference in Dallas Aug. 25.
Paccar’s focus on quality and operational improvement through programs such as Six Sigma, Sobic said, are fundamental to the company’s success. These same commitments are necessary from the supplier base, especially as the market strengthens and production increases.
He outlined what Paccar expects from its supplier partners:
• Global capabilities and global support;
• Investment in technology and quality systems;
• Less than 50 ppm (parts per million) defects or errors;
• A commitment to Six Sigma;
• Investment in capacity to support Paccar’s global growth;
• Reducing product complexity without compromising performance and quality;
• Increasing design collaboration;
• Jointly providing low-cost solutions for customers; and
• On-time delivery.
Regarding delivery, Sobic said, “If there’s one message I can leave you with from the parts aftermarket business, it is not ‘location, location, location.’ It is ‘availability, availability, availability.’” He said as truck production ramps up, Paccar is looking to its supplier base to provide a 97 percent fill rate. “We are taking steps to increase our parts inventory goals to ensure that our customers will have the part when it is required.”
While North American truck sales continue to struggle, Sobic noted Paccar’s aftermarket performance was strong. He said Paccar Parts grew by 7 percent year-over-year with $1.9 billion in revenue. The parts division operates 13 global distribution centers and has implemented new technologies such as a voice recognition system that provides a 30 percent improvement in pick productivity and error reduction of 1 in 40,000 lines picked.
“Suppliers have asked us if we are willing to share these technologies,” Sobic said. “The answer is a resounding ‘yes.’”
Sobic also discussed the company’s development and introduction of its new lineup of MX engines that use selective catalytic reduction to achieve the 2010 U.S. Environmental Protection Agency emissions standards.
“When we bought DAF in 1996, many in the European press asked why?” Sobic recalled, noting the company was in bankruptcy and not noted for high-quality products. The appeal, he said, was the company’s experience in global engine manufacturing with more than 900,000 engines produced in 50 years.
The acquisition, bolstered by a nearly $1 billion investment, laid the foundation for the company’s new lineup of Paccar MX engines. Sobic said the engines have undergone more than 300,000 test hours and more than 50 million North American test miles. The feedback from customers, he said, is improved fuel economy, quiet operation and ample pulling power. The engines are EPA/CARB 2010 certified in all 50 states.
When asked if the company has any plans to introduce engines with exhaust gas recirculation technology, Sobic responded, “I think we are very comfortable with our SCR strategy.”
Charlotte Diesel Super Show Debuts this Month
Trucking and construction industry personnel and enthusiasts will find plenty to see and do Oct. 8-9 during the inaugural Charlotte Diesel Super Show at the Charlotte Motor Speedway z-Max Dragway in Concord, N.C.
Produced by Randall-Reilly Business Media and Information, which also produces the Great American Trucking Show and Great West Truck Show, the Charlotte Diesel Super Show will be a one-of-a-kind outdoor extravaganza. Activities include industry-related displays, truck drag races and a Custom Rigs Pride & Polish truck beauty contest where contestants will compete for cash and prizes.
Attendees can also register to win a free 150-mph ride around the Charlotte Motor Speedway track in a NASCAR racecar. On Saturday night, country music star John Rich, formerly of Big & Rich, will perform a free concert.
“Attendees at the Charlotte Diesel Super Show will be able to see the latest truck and construction equipment, watch live demonstrations, be able to participate in ride and drives and enjoy all sorts of activities,” says Alan K. Sims, vice president/executive director, Randall-Reilly Events. “There will truly be something for everyone.”
The Charlotte Diesel Super Show offers free truck and vehicle parking and there’s RV parking and campsites available on-site. Tickets can be purchased at the event, or group sales are available at a discount for 10 or more tickets by calling (888) 349-4287. Adult admission is $20 for a two-day pass or $15 for a one-day pass. Tickets for children ages 7 to 16 are $10 for two days or $7 for one day. Children 6 and under can attend for free.
For more information, go to www.dieselsupershow.com.
ATA to Appeal Port Truck Ruling
By Jill Dunn
The American Trucking Associations will appeal a federal court’s determination that Los Angeles’ port can fully enforce its Clean Truck Program, which ports nationwide hope to use as a model.
On Aug. 26, the court issued a 57-page ruling upholding the port’s requirements, including its concessionaire agreement carriers must sign to work the port. The ATA has condoned the stricter truck standards to meet emissions goals, but had fought other program tenants, especially requiring all drivers be employees.
“The provisions of the concession agreement at issue do not constitute an unreasonable burden on interstate commerce,” wrote Judge Christina Snyder, of the U.S. District Court for the Central District of California, Western Division.
The U.S. Constitution’s Commerce Clause restricts states’ regulation power and the “dormant” Commerce Clause prohibits legislation excessively burdening interstate commerce. It allows a market exemption if the port’s actions are that of a business proprietor, not as a regulator, said Curtis Whalen, executive director of the ATA’s Intermodal Motor Carriers Conference.
The association will also ask Snyder to keep a temporary injunction in place, which has allowed owner-operators to continue to regularly work the port and has barred enforcement of certain other program tenants.
“Inasmuch as all parties agreed at trial that the benefits of the clean truck and clean air elements of the Clean Trucks Plan have been fully realized with the injunction in place, neither the port nor the people of California have been harmed by the preliminary injunction,” the ATA stated.
If the plan is fully enforced, out-of-state and licensed motor carriers not having a concession agreement would only be permitted up to 24 day passes annually. The charge is $30 and they must have an RFID tag.
The association had argued that, among other laws, the Federal Aviation Administration Authorization Act of 1994 bars the port from imposing certain local rules. Congress’ intent was to achieve trucking deregulation, and for a state regulation to be preempted under this, it must be “related to the price, route, or service of a motor carrier that transports property.”
The port commissioned a study on the CTP three years ago, known as the Husing report. Snyder noted it estimated the “cost to motor carriers of complying with the off-street parking requirement would average $21,237 per truck” and then quotes the report in that the cost of using employee drivers would “be 167 percent higher than the cost of using today’s [independent owner-operators].”
“In aggregate, the report concluded that drayage services prices would need to increase by 80 percent to cover cost increases, including the cost of higher driver costs, truck purchases, and off-street parking,” Snyder wrote.
Many ports have said they want to use the Los Angeles model. To that end, there was a congressional hearing on the matter in May and a House bill introduced in July to provide an FAAA exemption that would allow ports to use this plan.
Diesel Price Watch
Prices are the average, self serve, cash at truckstops August 1-31, 2010*
NEW HAMPSHIRE 2.92
NEW JERSEY 2.81
NEW MEXICO 2.97
NEW YORK 3.10
NORTH CAROLINA 2.88
NORTH DAKOTA 3.01
RHODE ISLAND 2.95
SOUTH CAROLINA 2.81
SOUTH DAKOTA 2.86
WEST VIRGINIA 3.02
Source: T-Chek Systems Inc., Eden Prairie, MN.
For more information, (877) SOS-CHEK or www.tchek.com
*Some prices may not include certain state taxes