Employee or Contractor?

By Brian J Riker Employee or contractor? Often a hotly debated subject in the port drayage segment of the trucking industry, it also arises in the towing industry. Recently under attack by several states, the owner-operator and independent contractor model deserves a closer look. Read through a few truck drivers job postings and you will see terms like W2 or 1099 position, indicating bona fide employee vs. independent contractor. We must ask ourselves as business owners before deciding to use the independent contractor model to source drivers, do we want to give up enough control over the work to legally qualify our drivers as contractors? I see this used in large cities often, borrowing from the taxi cab model where a driver “leases” their vehicle for the day, covers fuel and keeps a percentage of the daily revenue generated. In theory this makes them an independent contractor; but does it really? Most states, with California and New York as the most notable exceptions, use the Internal Revenue Service contractor test to make this determination. (Basically the contractor must have a significant enough investment into the business to potentially suffer a loss, be free to set their own hours, work independently from company oversight and perform the task as they see fit.) The IRS does not require the contractor to own their own vehicle, although it is difficult to comply without owning or leasing their own truck and tools. Where towing has issue with complying with the IRS test is the fully independent portion. To be effective and efficient, tow drivers must be controlled by a dispatch center and usually do not know what their day or week will look like in advance, meaning they can’t effectively plan their own work free of supervision. California’s Supreme Court recently adopted the position that all workers are employees unless very strict conditions, known as the ABC Test, are met. The controlling factor for towers is that contractors must be free to work for other businesses and provide services that are outside the ordinary course of business for the company they are contracting with. I am following the California decision closely as it has implications far beyond the single driver independent contractor model. Even large companies such as FedEx Ground have failed to comply and have been cited for violations of wage and hour laws, misclassifying employees and more using the ABC Test. I see this as an attack on independent trucking providers, and perhaps even contractors to motor clubs that also run their own fleet. Given the rulings against companies such as XPO and FedEx Ground, even when they are contracting with bona fide transportation businesses, the employees of those other businesses must be treated as employees of theirs, creating a very expensive and complicated relationship. On the other coast, New York has attacked the independent driver contractor model for years. New York expands upon the IRS “Common Law Test,” requiring the same basic qualifications as well as meeting 11 other specific conditions. Additionally, New York specifically requires transportation-related businesses contracting with independent drivers to be liable for workers compensation. Even in cases where a single truck contractor cannot collect on a workers compensation claim they still must carry the insurance. New York also has restrictions on who can provide and pay for job-specific training, tools and other unique restrictions. Like California, their position presumes that all workers are employees unless all of the controlling conditions can be met. Bottom line: With the increase in “gig economy” jobs, more and more folks are looking for independence and often desire to work for multiple companies simultaneously. This may be a good source of labor, if done correctly and with the best interests of the contractor in mind. In an effort to protect workers from abuse, some states are enacting laws that make this almost impossible. If you choose to use workers in a manner other than as traditional employees please seek the advice of a wage and labor law expert to ensure your plan does not violate and state or federal laws. The penalties for non-compliance can be severe.