The Common Independent Trucking Contractor Test, Key Cases and Legislation

Transcription

1 The Common Independent Trucking Contractor Test, Key Cases and Legislation Attorney Gregory M. Feary Managing Partner Scopelitis, Garvin, Light, Hanson & Feary

2 About this 45 Minute Webinar

3 GREGORY M. FEARY Managing Partner- Scopelitis, Garvin, Light, Hanson & Feary Focuses on independent contractor issues and legislation and transportation insurance designs to reduce exposure. Provides legislative support for many organizations and clients on independent contractor issues. Counsels clients on alternative risk programs. Designs independent contractor programs and defends independent contractor disputes. Vice Chair of the ATA/NAFC Risk Management & Insurance Advisory Committee. Member of the ATA Insurance Task Force & the Advisory Board of Purdue University's Center for Transportation Distribution Logistics Recognized as a Top Rated Lawyer in Transportation by Martindale-Hubbell, and Adjunct Professor of Law-Indiana University, Robert H. McKinney School of Law.

4 The Legal Framework 4

5 Common Worker Classification Misunderstandings IC Agreement + Payment via Form 1099 Automatic ICs Also not a guarantee of IC status: Signed IC Agreement Formation of Corporation/LLC Hiring employees 5

6 Primary Areas of Law Impacted by IC Challenges Workers compensation Unemployment tax State and federal labor laws State and federal wage and hour laws State and federal tax laws 6

7 Important Tests to Know Right to Control ABC Relative Nature of the Work Economic Realities IRS 20 Factor /Restatement Agency Test 7

8 Right to Control Test Examines a series of factors to determine which party has the right to control the means and manner of performance, and not merely the end result to be performed Highly fact specific key is demonstrate contractor s s control of his environment! [Paraphrased from Vermont Department of Labor website] 8

9 ABC Test In order to be an IC: A. Worker is free from putative employer s control; B. Services are not in the normal course, occupation, trade, business or profession of putative employer s business; and C. Workers are customarily engaged in independently established trade or profession (see, e.g., Comm r of Unemployment Div. v. Town Taxi of Cape Cod, Inc.) 9

10 Relative Nature of the Work Test Substantial economic dependence of the worker on the putative employer Length of engagement Continuous or intermittent Functional integration of the parties respective businesses Are the worker s services a regular part of the cost of your service? Relationship of work performed to the employer s business 10

11 Economic Realities Test A factor test used to determine the economic reality of the relationship (typically for purposes of FLSA and SSA). As articulated by the Supreme Court, it examines: Degree of control; Relative investments of the parties; Degree to which opportunity for profit or loss is determined by the employer ; Skill and initiative required; and Permanency of the relationship. [United States v. Silk, 331 U.S. 704 (1947), as quoted on the Texas Workers Compensation website] 11

12 Agency Factor Tests IRS 20 Factor Test Published by the IRS as a guideline to apply the Right to Control Test Based on common law agency test Analytical tool, not legal test Technically replaced by refined 11 factor test, but remains in common use Lists 20 factors falling in 3 basic categories Behavioral Control e.g. instructions; training; sequence of services; reporting requirements Financial Control e.g. pay by the hour, week or month; tools; profit & loss Type of Relationship e.g. right to hire or fire 12

13 Agency Factor Tests Restatement (Second) of Agency 10 Factor test similar to IRS 20 Factor test Used as an alternative common law test to right to control Weighs all elements with no one factor being decisive Used in National Labor Relations Board decisions FedEx Home Delivery v. NLRB Supports shift in emphasis away from unwieldy control inquiry in favor of significant entrepreneurial opportunity for gain or loss Failure to exercise entrepreneurial opportunity does not mean there is no entrepreneurial potential Constraints imposed by customer demands and government regulations do not determine the employment relationship 13

14 Workers Compensation by State WA VT ME CA OR NV ID UT MT WY CO ND SD NE KS MN IA MO WI IL MI MI IN TN KY OH WV NH NY CT PA NJ MD DE VA NC RI MA AZ NM OK AR MS AL GA SC TX Favorable Statutory Law Favorable Case Law Difficult Statutory Law Unfavorable Case Law Conflicting Case Law LA FL 14

15 Unemployment Compensation by State WA VT ME CA OR NV ID UT MT WY CO ND SD NE KS MN IA MO WI IL MI MI IN TN OH KY WV NY PA MD VA NC NH CT NJ DE RI MA AZ NM OK AR MS AL GA SC TX Favorable Statutory Law Favorable Case Law Difficult Statutory Law Unfavorable Case Law No Case Law LA FL 15

16 Recent State IC Cases OO Found to be IC Council v. FedEx Custom Critical, Inc. (La.) (Applying IC Exemption) (WC) Parsons v. Steelman (Mo.) (Applying IC Exemption to Leaseback) (WC) Davidson v. Mo. State Treas. (Mo.) (Applying IC Exemption) (WC) Choto v. Consol. Lumber Transp. (NY) (WC) Erhardt v. Chatlain Enters., Inc. (Ohio) (Leaseback) (WC) Petrovic v. DBG Express Tckg, LLC (Wis. ALJ) (WC) 16

17 Recent State IC Cases OO Found to be Employee SZL v. Indus. Claim Appeals Office (Colo.) (Leaseback) (WC) Rader v. Werner Enterprises, Inc. (Mo.) (Applying old IC Exemption to Leaseback) (WC) Wirkijowski v. US Pack Courier Serv. Corp. (NJ) (Applied Relative Nature of Work Test) (WC) Leader Servs. Inc. (NY WCB) Metro. Transp. Co. (NY WCB) Sherman & Sons Transp. (NY WCB) KMB Trucking v. SC Dep t of Emp t & Workforce (SC ALJ) (UET) 17

18 Reclassification Lawsuits Brought by private plaintiffs alleging violation of federal and/or state employment laws Threshold question: does plaintiff have standing to allege violation of employment laws (i.e., is the plaintiff an employee or an IC)? E.g., Craig v. FedEx Ground Package Syst., Inc. (MDL)(found to be IC); Dillon v. NICA (found to be employee) Often brought on a class wide basis (under federal or state class action action rules) or on a collective basis (under FLSA) Attorneys fees may be recovered (depending on laws at issue) and may drive litigation E.g., a violation of the Mass. IC Law may give rise to a Wage and Hour violation, therefore authorizing attorneys fees 18

19 Reclassification Lawsuits to Watch FedEx Ground MDL (7th Cir.) Qs certified to KS Sup. Ct. on 7/12/12 Ruiz v. Affinity Logistics (S.D. Cal.) Finding of IC status under CA law on 8/27/12; appeal filed. Narayan v. EGL (N.D. Cal.) On remand/class cert. denied 9/7/12 Mass. Delivery Ass n n v. Coakley (1st Cir.) Suit seeking fed. preemption of IC law held valid 1/20/12 Anfinson v. FedEx Ground (WA Sup. Ct.) Reversed and remanded for new trial on 7/19/12 Browning v. CEVA (E.D.N.Y.) Ct. grants SJ in favor of carrier on IC status on 8/11/12 19

20 FAAAA/Massachusetts IC Law Split Conflicting opinions in 2 recent cases Does Federal Aviation Administration Authorization Act of 1994 ( FAAAA( FAAAA ) ) preempt Mass. IC Law? Each case assumes drivers will be employees under 148B reach different conclusions as to effect 20

21 Sanchez v. Lasership, Inc. (E.D. Vir. 2013) April 4 summary judgment issued holding Mass. Gen. Laws B is preempted by FAAAA 148B relates to or has a connection with carriers prices, routes, and services because: Dictates employee v. IC relationship Significantly increases costs and therefore prices, routes, & services Materially alters common law IC test & creates legal patchwork On Demand courier work significant to favorable decision 21

22 Martins v. 3PD, Inc. (D. Mass. 2013) March 28 summary judgment holding FAAAA does not preempt 148B Assumption that drivers are employees makes 148B, in essence, a wage statute and outside scope of preemption argument Very little analysis of FAAAA 22

23 Legislative Outlook 23

24 Continued Focus on Section 530 Federal Safe Harbor provision Prohibits reclassifying independent contractors as employees for purposes of federal income tax withholding where certain conditions met Vulnerable to tax loophole arguments in spending negotiations 3 prongs must be met 1. Reporting consistency (1099s) 2. Substantive consistency (no similar employees) 3. Reasonable basis 24

25 USDOL Misclassification Initiative Intended to prevent, detect, and remedy misclassification Budget appropriations in support of initiative are likely MOUs with IRS and 14 states to share information and resources Planned survey of worker knowledge of classification issues 25

26 USDOL Misclassification Initiative DOL Budget Request Evolution 2010: Requested $25 million for initiative 2011: Stated emphasis on investigating misclassification in transportation, construction, and healthcare industries 2013: Requested $12 million, 90 new investigators Expand enforcement Target industries where misclassification most likely to lead to violations of the law 26

27 Efforts to Attack Alleged Misclassification Increasing efforts to curb alleged independent contractor abuses Misclassification Acts are one tool used Common elements: Expansion of ABC Test Civil & criminal penalties Collective and private causes of action Stop work orders Administrative compliance 27

28 Current State Misclassification Laws Arkansas Kentucky <New Jersey> California Massachusetts <New York> <Colorado> <Maryland> Rhode Island Delaware* Michigan <Tennessee*> <Illinois> <Nebraska> <Texas*> <Kansas> Nevada Vermont <Washington> <Wisconsin*> *Construction and/or public works contracts only < > OO exemption Gray = Introduced and Failed in 2013 Red = Pending Bold = Transportation 28

29 New Jersey Truck Operator Independent Contractor Act Misclassification Act applied to drayage and parcel delivery drivers Prevailing wage, unemployment compensation, temporary disability benefits, income tax, and wage and hour Uses ABC Test to effectively make drivers employees Excludes drayage and parcel delivery from UET exemption Passed May 30 Awaiting Governor Christie signature or veto 29

30 New York NY State Commercial Goods Transportation Industry Fair Play Act Misclassification Act targeted at commercial goods transportation services including transportation of goods for compensation by a commercial vehicle driver who possesses a state issued driver s s license and transports goods in the State of NY 2 phase test 11 factor test that is reasonable to meet If fail factor test revert to ABC Test NY DOL drafting rules to interpret Act Enrolled June 21 waiting on Gov. Cuomo s s signature 30

31 Owner Operator Operator Exemptions Favorable exemptions introduced in: Arkansas (WC) Enacted April 12, 2013 Connecticut (UET) Enacted June 24, 2013 Illinois (WC, UET) Massachusetts (IC Law) North Carolina (WC) Adversely amended Ohio (uniform definition) Anticipated 31

32 10 Reasons Why the Settlement Carrier Model Passes the ABC Test (SC = Settlement Carrier; PB = Property Broker/ Incumbent Motor Carrier) 1.Possession of a license and operating authority by SC 2.Satisfies different trade, occupation, or profession prong a) SC: For hire motor carrier b) PB: Property broker 3.Satisfies exclusive work relationship prong a) SC is for hire carrier that may haul without legal limitation 4.Compliance with federal motor carrier law no longer creates control continued 32

33 10 Reasons Why the Settlement Carrier Model Passes the ABC Test (SC = Settlement Carrier; PB = Property Broker/ Incumbent Motor Carrier) 5.PB requirements more easily identified as customer requirements 6.Less legal and historical precedent for finding motor carriers the employees of brokers/ freight forwarders 7.Expense of becoming a motor carrier creates favorable fact of investment in tools of trade 8.SC must make independent business decisions regarding motor carrier compliance 9.Placards identifying SC as the motor carrier equate to holding out as independent business 10.Easily misapplied Federal Leasing Regulations no longer relevant 33

34 Financial Assistance to Owner Operators: Operators: How Much is Too Much? 34

35 Purchase/Leaseback Arrangements = Impermissible Financial Assistance? 35

36 Do s s and Don ts of Purchase/ Leaseback Arrangements DO 1. Proceed with caution 2. Review state owner operator exemptions to ensure not prohibited 3. Monitor new exemptions for prohibition 4. Require substantial investment 5. Think bona fide lease 6. Make arm s length transaction 7. Ensure commercially reasonable terms 8. Use fair market value 9. Promote portability DO continued 36

37 Do s s and Don ts of Purchase/ Leaseback Arrangements DO 10. Permit equity 11. Use fixed payment period 12. Hold owner operator liable for payment/default 13. Document transaction 14. Where permissible, use affiliate rather than motor carrier for transaction 15. Comply with leasing regulations where motor carrier or affiliate is lessor 16. If feasible, avoid motor carrier guaranty in 3 rd party transaction 37

38 Do s s and Don ts of Purchase/ Leaseback Arrangements DON T 1. Exert control over equipment in lieu of control over owner operator 2. Treat equipment like your own 3. Use in states that don t recognize leases as ownership of vehicle 4. Lease for a term of less than 1 year 5. Resolve prohibited transaction using a related entity lease DON T continued 38

39 DON T Do s s and Don ts of Purchase/ Leaseback Arrangements 6. Pay for maintenance or operating costs of equipment 7. Require purchase/lease from motor carrier or affiliate 8. Subsidize owner operator via use of unreasonably favorable terms 9. Protect owner operator from risk of damage or destruction to equipment 10. Undercut relationship with unreasonable terms, provisions or supporting documents 39

40 Other Forms of Financial Assistance Touchstone Potential to Realize Profit or Loss 40

41 Probably OK Administrative services agreement at commercially reasonably cost Paying for tolls, permits, fees, etc. that are passed through to customer 41

42 Not OK Personal loans/advances Administrative support services at no charge Free uniforms Paying fines caused by contractor Paying licensing fees, maintenance costs, or other contractor operating costs Sweetheart deals to contractor not available outside of relationship with motor carrier 42

43 PROCEED WITH CAUTION Use motor carrier s s creditworthiness to lower contractors costs Commercially reasonable purchase/leaseback arrangements Business loans on commercially reasonable terms 43

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45 Q & A - Contact Information & Poll Contact Cline Wood for a copy of the slides or for additional information: university@clinewood.com (913) or (866) And thank you to our guest speaker Attorney Gregory M. Feary - Scopelitis, Garvin, Light, Hanson & Feary