Starting Out Right
For those not familiar , an independent contractor trucking agreement is the formal contract a motor carrier signs with its independent contractors. In the truck driver leasing industry, the business structure that is in between the trucking company and the independent contractor is generally a third party staffing or recruitment firm. Regardless of the type of agreement, both the agreement and the relationship are referred to as an independent contractor trucking agreement.
In Federal Motor Carrier Safety Administration (FMCSA) compliance, the agreement spells out many critical provisions that actually go to the heart of whether or not the independent contractor is just that . . .neither dependent nor an employee. The parties must clearly negotiate and memorialize the independent contractor’s level of independence in writing.
The independent contractor trucking agreement must be carefully tailored and structured to ensure it meets the criteria of an independent contractor and is the result of arm’s length negotiation , especially if the independent contractor is an owner operator. Generally, the trucking company will need to consider the financial condition of the independent contractor in negotiating an agreement. Additionally, the company will need to consider its own business model. For example, lease purchase plans are very popular and are often necessary for individual owner operators with limited funds seeking to lease an asset. Finally, the terms of the agreement are very important. The parties should be advised not to consider the independent contractor’s needs, unless the vehicle and/or freight agreement are being purchased.
Integral Components
To ensure that the agreement is mutually beneficial and above-board, both parties should consider including the following components:
Payment Terms- How will the contractor be compensated by the company? Will it be a consistent per-mile or per hour or by some other method? The payment terms should be clear to avoid any ambiguity later on.
Equipment Responsibility- If the trucking company is providing the equipment (trucks, trailers, etc.), are there expectations on how the contractor must care for the equipment? On the flip side, if the contractor owns their own equipment, what assurances need to be put in place to ensure the trucking company is not forced to upkeep the equipment?
Work Responsibility- Will the contractor be responsible for finding their own freight and loads? What is the procedure for reporting back to the company on their availability in order to ensure that they are receiving work?
Missed Work/Abandonment Fees- This is one of the more sticky parts of a trucking contract. The company should have a provision in place with clear penalties or penalties to discourage contractors from seeking work elsewhere while under the contract.
Duration- A length of time should be established that both parties should agree to work together. If the duration is indefinite, an opt-out schedule or procedure should be included in the contract.
Legal Considerations
Signing on the dotted line for a "Master Independent Contractor Trucking Agreement" comes with both opportunities and risks for you and your Company. You may have a transparent, well-structured relationship with your independent contractors, or you may be heading down the road to misclassification claims and litigation.
How could this happen, you ask? Because independent contractor trucking agreements don’t actually tell you whether your drivers are legally employees or independent contractors. At best, trucking agreements facilitate compliance issues, and they should address them. But at worst, trucking agreements mask compliance issues.
If your Company receives a misclassification claim, how strong is your Trucking Agreement in showing the drivers were independent contractors, and not employees? If your Company is faced with a misclassification claim because its drivers were actually employees, how strong is the Trucking Agreement in showing you believed your drivers were independent contractors? Does the Trucking Agreement’s mere existence signal that your Company had actual knowledge of the misclassification, and/or that your Company consistently treated these drivers as employees, validating the misclassification?
To make these determinations, the legal analysis is far more complex than making sure the words "Independent Contractor Agreement" appear on the document the Company asks its drivers to sign.
Your attorneys should explore the controlling legal framework. For example, under state common law, pay can be made contingent on freight deliveries, the Company can set the drivers’ pay, and the drivers may work full-time, and still be independent contractors. Under AB5, which lists exemptions in California, the Company and its drivers may have a written contract establishing the contract-based relationship. Independent contractor payment models are allowed by CA government agencies; there can exist a written agreement. The facts may hold up as preventing misclassification liability—if they fit the language of the exemption in question. Your attorneys should also assess any relevant case law precedent—do the facts look more or less like those in your case? And they’ll want to take account of other compliance pitfalls, including wage and hour laws.
There is more that Company management should know about truck drivers. When evaluating if a driver/contractor qualifies for an exemption, the Company needs to take account of the category of transportation service the driver is doing, as the exemption rules do not apply to all types of drivers. Your lawyers should know what’s exempt and what is not. In addition, Company management should understand that because independent contractor drivers/contractors are performing transportation services, there are many more legal regulations to consider.
Independent contractors create a plethora of other potential liability. Certain states have contributed to the "permatemping" backlash, and your attorneys should take stock of the risk of misclassification liability. Companies may also be subject to California’s joint employer laws (AB5 applies to contracting and subcontracting corporations) and related legislation (such as SB 1343, concerning harassment training for independent contractors), which seem to emerge daily. Your Company may risk liability for antitrust violations, such as group boycotts. And driver/contractor relationships can generate personal injury, property damage, and cargo damage and theft tort liability.
Tentative conclusion? Complying with the law is complicated, but failure to do so can be perilous.
Pitfalls and How to Avoid Them
Many mistakes can be made during the creation and execution of such an agreement. The most common mistakes we see include:
Is an Independent Contractor Controlled by the Company in the Same Manner as an Employee? When entering an independent contractor trucking agreement, one of the biggest mistakes is actually failing to distinguish between independent contractors and employees by providing too much control. As an independent contractor, you are essentially running your own business, and supposed to have more say over your day-to-day operation than you would as an employee. You should be able to dictate your own hours, take on other jobs, and set your pay rates. If the company dictates your work schedule, pays you a salary, or requires you not to simultaneously work for other companies, then the IRS will likely classify you as an employee. For that reason, both companies and employees should ensure that the correct amount of discretion is given in independent contractor trucking agreements. Additionally, when you are hired as a contractor, you should never be required to pay for the costs of hiring (meaning the costs associated with recruiting, hiring, training, paying , or providing benefits to workers).
Are Wages and Benefits Comparable to Employees? The second most common mistake is treating independent contractors differently compared to other employees who hold the same position. First off, agreed-upon wages must be paid on time. Secondly, tell the contractor what the expected work hours are and what happens if those hours are not met. Additionally, inform the contractor if there are any required minimums and sit-down meetings that need to take place each month. It should be noted that you cannot provide any type of benefits to the contractor, even if the contractor does not accept said benefits. To avoid any and all issues, simply exclude benefits from any independent contractor trucking agreement you may enter into.
Is a Proper Written Independent Contractor Agreement Completed & Signed? This is perhaps the most obvious mistake a company and/or contractor can make; however, it still exists. Even if you have a handshake agreement and you’ve had it for years, that handshake agreement won’t hold up if challenged by a government agency. A proper independent contractor trucking agreement protects your rights and interests, and is a good idea for both parties involved.
Helpful Tips for Smooth Sailing
Once the semi-truck driver has signed on as an independent contractor, the real work of fostering a healthy working relationship begins. It’s essential to maintain clear communication between a trucking company and its independent contractors to not only keep morale high but for the benefit of operations as a whole. The semi-truck driver should be kept up to date on company policies, deadlines, and any upcoming changes or events that directly affect them. Consider setting weekly meetings, either in person or by conference call, to touch base with new independent contractors and make sure they understand the expectations the trucking company has from them as well as what they can expect from you as their employer. In these meetings, you can evaluate their progress on the road as an independent contractor and highlight areas for improvement in a constructive way. Offering opportunities for additional training, if applicable, can help create a culture of professional development and turn your drivers into experts in their field. Take this time to ask lots of questions about them, their work, and their opinions on the company. Open lines of communication not only encourage transparency but strengthen your business as a whole. As the trucking industry continues to expand, those who are investing in their drivers will undoubtedly see greater returns than those who do not.
Staying Current with Trends
The trucking industry is evolving at a dramatic pace. Fleets now use advanced technologies such as telematics and predictive analytics to track vehicles and equipment, respond to maintenance needs before they affect operations and improve overall fleet performance. Electronic logging devices (ELDs) are now standard in commercial trucking, and the next wave of technology may include a shift to autonomous or semi-autonomous trucks. And yet more technologies are on the way including platooning and drone delivery systems. These advancements present a challenge to carriers as they operate in a highly competitive environment with constantly changing operating expenses. Adapting your independent contractor trucking agreement to incorporate language which anticipates rapid change and does not fall victim of the challenge associated with an ever evolving technology landscape is of utmost importance to preserve an independent contractor relationship.
The rise of on-demand freight and freight brokers demand stronger, more versatile relationships with both shippers and carriers in order to succeed in an on-demand market. Identifying, onboarding, and doing business with the gig economy and non-traditional carrier is necessary for the survival of many carriers. Defining those relationships will require a booming demand for independent contractor relationships characterized as traditional carrier relationships rather than broker relationships .
As a result of autonomous technology, the driver workforce will inevitably be reduced. Expert industry reports put the industry short of drivers by approximately 200,000 by the end of 2018. The driver crisis will drive wages up and leasing out driver force through the independent contractor model is one method to meet industry needs, turn an independent driver into a loyal company driver, and provide drivers with a level of pay and benefits that makes the industry an attractive career choice.
The new Federal Motor Carrier Safety Administration policy relating to common law employee status will make its way into regulatory authority such as the California Workman’s Compensation Board and state labor boards and will get articulated through employer guidance issuing from those agencies. This is necessary for carrier’s to be able to utilize the independent contractor model without running afoul of the strict liability impose on all employees. The one challenge to this regulatory framework will be the new tax laws enacted in December 2017. Many business owners have made or are about to make the decision to focus their growth on employee of the company to maximize the increased deduction available. For carriers who wish to continue using independent contractor relationships, it will be important to continue to rely on the regulations promulgated by the Federal Motor Carrier Safety Administration, rather than seek protection under the revenue and withholding section of the federal tax code.