Employee or Contractor?
The legal relationship between trucking firms and independentcontractors.
WILLIAM KENWORTHY
CONTRIBUTING EDITOR
The courts are regularly asked to determine the legal relationship between trucking firms and so-called independent contractors.
When a third person has been injured by a driver's negligence, the courts usually have little difficulty finding that a master-servant relationship exists for purposes of imposing liability. In those cases, the issue is public safety. But the answer may be entirely different when the issue isn't public safety.
CASE 1: WORKERS' COMP
An owner-operator fell from a truck while tarping a load. He filed a disability claim and was awarded benefits by the state workers' compensation board. The lower courts agreed, citing federal and state regulations requiring motor carriers to be responsible for the control and direction of trucks carrying their placards. Thus, the driver was the carrier's employee not an independent contractor.
The state Supreme Court reversed that decision, noting that federal safety regulations 49 C.F.R. ¤376.12(c)(4) specifically state that the control provision isn't intended to affect the employee/contractor question.
In this case the injured driver was the owner of the truck from which he had fallen. He had a contractor operating agreement with the carrier which was similar to those generally used in the trucking industry.
The court noted that the law considers several factors in determining whether one is an employee or an independent contractor. By far the most important is the right to exercise control and direction over the manner in which the work is done.
In this case the operating agreement contained a number of standard clauses that required compliance with motor carrier regulations, but the court said those clauses indicated control by the government rather than control by the carrier.
The contract characterized the owner-operator as an independent contractor and there was no evidence of control by the carrier to override that contract.
CASE 2: INCOME TAX
Despite recurrent challenges by the Internal Revenue Service, the trucking industry has generally been able to overcome claims that owner-operators are employees for income tax purposes — but not if the relationship isn't typical to the industry.
In a recent case brought before the U.S. Tax Court, the owner of six trucks claimed his drivers were independent contractors. They were paid 25 cents per mile with no withholding. The fleet owner generally secured the loads although, with his approval, drivers could find their own backhauls. They were free to choose their own routes, but were required to call in daily with their location. At year-end, their income was reported on Form 1099s rather than W-2s.
Again, there are no hard and fast rules but the court said control and direction of the driver's activities is usually the most important consideration. Looking at all of the circumstances, it ruled that these drivers were employees. The fleet owner was liable for taxes that should have been withheld and was assessed penalties.
CASE 3: CONTRACTOR STATUS
When does contractor status begin and end? A company driver decided to become an owner-operator. After discussing his plans with the trucking company's safety director, he went to an auction and bought a tractor.
The finance company required proof of insurance before the tractor could be driven off the lot. He called the trucking company and was faxed a copy of the company's own insurance certificate.
He had an accident while driving bobtail en route to a company terminal where he was to report the following morning. He and a passenger in a car were fatally injured.
A federal district court ruled that the contractor status had never been established. There was no lease or operator agreement, no presentation of a certificate of title and tax receipt, no inspection of the tractor by the company safety director, no completion of paperwork for taxes and logs, no issuance of temporary tags, no placard on the cab. In short, the carrier was not liable, and there was no valid insurance policy covering this accident.
