Owner-operator model still threatened and more

Updated May 3, 2010

Owner-operator model still threatened

Henry Seaton - info@transportationlaw.netHenry Seaton - info@transportationlaw.net

By Henry Seaton

Q Is the new healthcare bill going to make us convert our independent contractors to employees?

A There is nothing in the healthcare bill that addresses reclassification directly, but the Coalition for Independent Contractor Freedom published a news release suggesting that the Obama administration is more likely to move quickly to address the alleged misclassification issue now that healthcare has passed.

The Messenger Courier Association of America, which has held two successful lobbying days on Capitol Hill in support of independent contractors, reports that from a federal perspective there are three legislative initiatives and one administrative initiative that affect the trucking industry’s use of owner-operators as independent contractors. The legislative initiatives are:

• The inclusion by the Obama administration of a provision in the new budget bill that would direct the Internal Revenue Service and the Treasury Department to rewrite rules for the classification of independent contractors, repealing the 20-part test and existing favorable law;

• Senate Bill 2882, introduced by Sen. John Kerry (D-Mass.); and

• House Bill 3408, introduced by Rep. Jim McDermott (D-Wash.).

These three bills clearly portray the majority’s asserted effort to repeal favorable case law, including the so-called safe harbor provisions that allow a company charged with misclassification to rely upon past industry practice. A repeal of the safe harbor provisions would result in loss of the North American Van Lines precedent that permits lease-to-own arrangements between carriers and owner-operators.

Legislative initiatives would repeal favorable case law.

In addition to the legislative initiatives, the administration issued directives to the IRS, which is processing 2,000 targeted payroll tax initiatives on companies suspected of misclassification with the threat of criminal charges. An IRS and state information sharing task force has been established to aid in these targeted audits.

Thus, notwithstanding a few successful court cases (see “A great decision for owner-operators,” November 2009), the push to eliminate independent contractors remains unabated. Constant battles are being waged at the state level to defeat pro-labor initiatives that would force independents to be treated as employees for worker’s compensation and overtime purposes. The proponents of reclassification already view the independent contractor model as a mere subterfuge for depriving working Americans of welfare benefits and federal and state coffers of needed tax revenue.

The healthcare bill mandates that companies with more than 50 employees purchase healthcare or pay a penalty. As any small businessman knows, affordable health insurance traditionally has been available only to large preformed groups. I predict the mandate in the healthcare reform program that everyone buy health insurance will put additional pressure on the independent contractor model, unless some way is fashioned for independent contractors – typically small one- to five-employee companies – to obtain their own insurance at reasonable premiums.

The paradigm of the healthcare reformers and the reclassification advocates sees the economy only in 19th century economic terms: The captains of industry versus workers, the latter of which incorporate the middle class. Clearly, owner-operators are not seen by the current Congress and administration as small independent businessmen who need special treatment and consideration as required by the National Transportation Policy. I continue to fear that independent contractors and the small motor carriers that depend upon them are not making their case for the preservation of the owner-operator model as essential to the survival of small businesses.

The upcoming midterm elections and the aftermath of the healthcare bill suggest that an important tipping point is approaching rapidly. n

Henry Seaton is a transportation lawyer who represents carriers.

In brief

*Old Dominion Freight Line will have to defend against a sex discrimination lawsuit filed by a former female pickup-and-delivery driver after the U.S. Court of Appeals for the Fourth Circuit reversed summary judgment in ODFL’s favor. The appeals court said the former driver had presented an “issue of triable fact.”

* The U.S. Court of Appeals for the Eighth Circuit reversed the dismissal of a lawsuit alleging that USA Truck owes an agent more than $1 million in sales commissions. The parties had settled in 2006 for $85,000, but the agent later sued to void the settlement and to obtain punitive damages, claiming that USA Truck had deceived him about the amount of commissions owed.

* Michael R. Bennett and his company, Workplace Compliance Inc., both pled guilty in U.S. District Court in Winston-Salem, N.C., to charges stemming from Bennett using WCI, a drug and alcohol testing consortium, to fraudulently perform unauthorized final reviews between 2005 and 2009 on numerous drug test results from laboratories utilized by motor carriers and air carriers.

* Harold G. Stewart, a third-party commercial drivers’ license examiner, pled guilty in U.S. District Court in Baton Rouge, La., for his role in the falsification of 250 out of 320 CDL skills tests he conducted. Stewart worked for Zwolle-based Stewart Auto Sales & Salvage, a business authorized to perform CDL skills tests.

* The California Air Resources Board settled with West Sacramento-based NorCal Produce for $32,550. NorCal failed to submit its transport refrigeration unit facility report by the 2006 deadline.

Delivery service owners indicted

George Grunden Sr. and Renza Grunden, owners of Colorado Choice One Delivery Services, were indicted March 24 in U.S. District Court in Denver on charges of major fraud against the United States, making false statements and obstruction of a federal audit.

According to the U.S. Department of Transportation Office of Inspector General, an investigation revealed that the Grundens, doing business as Colorado Choice One Delivery Services, entered into contracts with the U.S. Postal Service valued at more than $1 million to transport mail within Colorado. Companies receiving such contracts are required to certify compliance with all relevant contract regulations. The indictment alleges that Choice One failed to pay its drivers prevailing wages, ordered falsification of DOT-regulated hours-of-service logs, falsified contract documents and lied to federal auditors and investigators during a compliance review.