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Owner-Operator Or Misclassified Employee?

The debate between who is an owner-operator and who is a misclassified employee has been raging all year. It’s an issue that has been aggressively pushed by the Obama administration and labor unions.

Now, new guidance from the Department of Labor (DOL) could end the use of truck drivers as independent contractors. Is this just a shot across the bow from the DOL or could we really one day see the end of the owner-operator model?

The Details

The rule, Administrator’s Interpretation No. 2015-1, puts a spotlight on the idea of “misclassification” of truck drivers as independent contractors, rather than paid employees.

The document itself is a huge read, ringing in at almost 7,000 words. Without diving into a mountain of words, the basis for the document essentially lies in this part of its opening statement:

Although independent contracting relationships can be advantageous for workers and businesses, some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.

The document essentially downplays the significance of an employer’s role over tasks performed by its workers. While on the surface this doesn’t seem too problematic, it could create problems if a motor carrier can’t say having truck drivers move its freight is an integral part of its business.

In even simpler terms, a literal interpretation of the guidance would mean trucking companies would need to shift to a model where moving freight is not actually their business. Instead, they would become load brokers to the independent contractors.

The American Trucking Associations calls this “an aggressive departure from prevailing classification standards,” which is not an untrue statement, for better or for worse.

The Reality

Indeed, many motor carriers do follow the law and treat their independent contractors appropriately. Could new laws designed to protect the few wind up hurting the many?

It’s important to remember that the DOL is not the only government agency tasked with determining who is an employee and who is an independent contractor. The IRS and state-level agencies governing tax and worker’s comp issues also have a say.

According to the document, however, the DOL’s Wage and Hour Division has already issued into a memoranda of understanding with the IRS and various state agencies regarding this new language. As it pursues full implementation, it also is applying this guidance to the Fair Labor Standards Act (FLSA).

The Meaning

Now that we know this is happening, what does it mean? The interpretation is significant in a few key areas.

First, it states – as the DOL’s unequivocal opinion – that “most workers are employees” under the FLSA. It also puts forth – again, as the DOL’s preferred approach – the economic realities test when determining whether a worker is a contractor or an employee.

The economic realities follow principles such as:

  • The extent to which the work performed is an integral part of the employer’s business.
  • The extent of the relative investments of the employer and worker.
  • The degree of control exercised or retained by the employer.

Trucking companies have been working under this guidance for some time, and fleets have learned how to pass the control test.

The Future

In the modern age, smart trucking fleets have already learned how to manage relationships with both owner-operators and employees. That being said, the signal from the DOL is saying that they are going to err on the side of an employee/employer relationship.

This means it will be even more important for companies and independent contractors to maintain a strictly independent nature of their relationship. It will be increasingly more important for companies to check with their legal counsel to determine whether or not they are operating in an independent contractor or employee relationship.

At this point, it’s too soon to tell what kind of impact this guidance will have on the trucking industry. Whether this new view will upset prior legal precedents or will wind up being a problem for the courts is yet to be seen.

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