Truckers applaud Labor Department proposal to clarify role of owner-operators

There is one labor issue keeping trucking executives awake at night, and it concerns the legality of using owner-operators as independent contractors in California and elsewhere.

The issue is whether these owner-operators can be legally classified as independent contractors or whether they are actually employees. If it’s the latter, trucking companies would be responsible for paying much higher costs in terms of Social Security contributions, workers compensation and other labor costs.

California, in particular, has been extremely aggressive in trying to define these workers, and those in numerous other professions, as employees. Its proposed law, commonly known as “AB5,” would create so much havoc in the trucking industry that already one large carrier, Schneider, has ceased using California-domiciled owner-operators to avoid conflict.

AB5 established a three-part test, known as the “ABC” test, to determine if workers are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code and the wage orders of the Industrial Welfare Commission.

Under the ABC test, a person providing labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is “free from the control and direction of the hiring entity” in connection with the performance of the work. The test also determines whether the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation or business.

Trucking executives fear that this ABC test is so broad that it places most workers in the employee classification.

“It’s incredibly bad policy,” Schneider President and CEO Mark Rourke told LM. “It’s a solution in search of a problem.”

Rourke said he is “quite concerned” that California’s AB5 proposed law could be copied by other states. So far, the trucking industry has received a reprieve as California Trucking Association (CTA) has led the legal fight against it, and is waiting for its final legal ruling.

The CTA has successfully argued that trucking deserves an exemption because the 1994 Federal Aviation Act Amendment has largely carved out an exemption because truckers are engaged in interstate commerce, and should be subject to only federal law in these areas.

“We worked hard to get that 1994 legislation that exempts states from making a patchwork of rules,” Rourke said. “It’s very poor public policy and can very materially affect the trucking industry, the country and the overall economy.”

It’s not as if the California proposal has enough exemptions. Already lobbyists have carved out exemptions for recording artists, songwriters, lyricists, composers, proofers, managers of recording artists, record producers and directors, musical engineers, musicians engaged in creating sound recordings, vocalists, photographers working on album covers and other press and publicity photos relating to recordings and independent radio promoters.

Also, musicians or musical groups for the purpose of a single-engagement live performance event, individual performance artists, subcontractors in the construction industry, landscape architects, registered professional foresters, fine artists, freelance writers and translators, real estate appraisers and home inspectors, competition judges with specialized skill sets such an amateur umpire or referee and digital content aggregators who serve as licensing intermediaries for digital content are among many specialized fields exempt from the rule.

An analysis by labor experts shows the new proposal marks a more significant venture by the Labor Department to define the parameters for determining independent contractor status.

Basically, a court would examine two “core” factors: (1) the nature and degree of control the worker has over the work; and (2) the opportunity for profit or loss based on initiative and/or investment.

Experts say if both core factors indicate either independent contractor status or employee status, no further inquiry would be needed. In trucking, experts advise that both core factors should most often point in the direction of independent contractor status.

Three additional “guideposts” are also advised for consideration. The first is the amount of skill required; secondly, the degree of permanence of the working relationship; and thirdly, whether the work is part of an integrated unit of production.

Clearly, the situation begs for a national solution. The American Trucking Associations praised a proposed rule from the U.S. Department of Labor that would clarify the definition of employee under the Fair Labor Standards Act as it relates to independent contractors.

“Secretary (Eugene) Scalia understands that many Americans choose the independent contractor model — including hundreds of thousands of owner-operators in the trucking industry — because it expands their opportunities to earn and empowers them to choose the hours and routes that suit their individual needs and lifestyle,” ATA President and CEO Chris Spear said in a statement.

“This proposal is about giving working Americans the freedom to pick the occupation and flexibility they desire, and we thank Secretary Scalia for putting it forward,” Spear added.

In its announcement in late September, the Labor Department said the proposed rule:

• Adopts an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee);
• Identifies and explains two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself;
• Identifies three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer and whether the work is part of an integrated unit of production; and
• Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor

This Notice of Proposed Rulemaking is currently available for review on the Labor Department's website, and public comments can be filed until late October.