A good start on owner-operators
On June 8, the Trump administration rescinded a 2015 memorandum issued by President Obama’s Department of Labor (DOL) that was intended to provide guidance or department interpretation of what constituted an independent contractor across industries. The five-part test outlined in the memo issued by David Weil, administrator of DOL’s Wage and Hour Division, was not trucking-specific. Had it been applied to lessors the memo would have made use of owner-operators as independent contractors for federal purposes all but impossible.
Importantly, the 2015 memo was never the law and did not trump the established 20-part control test or the existing safe harbor protections of the federal statute. Yet the issuance of this memo had a chilling effect on the prospects of this model, and its withdrawal is an important step.
Before industry celebrates this action, however, it is important to note that:
The Department of Justice in a brief filed in the BeavEx case refuses to affirm federal preemption of state employment laws. State overtime provisions and misclassification lawsuits – not changes in federal law – are the source of vexatious and pernicious litigation that must be addressed; and
The withdrawal of the Weil memo does not address the unique characteristics of the owner-operator model and the small business niche it creates. Owner-operators are truly independent businesses because they choose to be. They have a substantial investment in equipment and are truly blue-collar entrepreneurs. As a result, they deserve special treatment under federal and state law.
Left to be addressed is the need for uniform treatment of owner-operators as independent contractors and driver employee wages regardless of where the unit is domiciled or where the carrier operates.
This need for uniformity is recognized under the U.S. Constitution and the Commerce Clause in the doctrine of federal preemption. This basic principle of federal transportation law has been ignored too long as states have enforced conflicting laws and precedent to reach inconsistent conclusions on issues such as:
The independent contractor model, which is subject to the federal leasing regulations;
Duty time and application of overtime pay, which is subject to the Fair Labor Standards Act; and
Negligent selection/vicarious liability, which should not be an issue because it is the Federal Motor Carrier Safety Administration’s job – not the customer’s – to verify that a carrier is fit to operate and, hence, is fit to use.
The industry has its work cut out for it to secure recognition of the preemption doctrine (which can be implied or expressed). It is time to make clear that existing federal law is intended to establish uniformity, trump inconsistent state law, and encourage fair competition and entrepreneurship.
The National Transportation Policy, which is codified at 49 USC 13101, declares, among other things, that in overseeing the various modes of transportation, it is the policy of the United States to:
Promote safe, adequate, economical, and efficient transportation;
Encourage sound economic conditions in transportation, including sound economic conditions among carriers:
Meet the needs of shippers, receivers, passengers, and consumers;
Allow the most productive use of equipment and energy resources;
Improve and maintain a sound, safe, and competitive privately owned motor carrier system;
Somehow the regulators in Washington have lost sight of these goals, all of which call for national and uniform treatment of motor carrier safety, independent contractor treatment of lease operators, and uniform employment laws.
Repeal of the DOL guidance is good; at least it kept the situation from getting worse. Now, though, there’s a window of opportunity to end pernicious lawsuits based on inconsistent state law and to reaffirm a uniform system that protects shippers and brokers as well as carriers against inconsistent treatment based on state of domicile or where the claim arose.
Henry Seaton is senior partner of the law firm Seaton & Husk, which specializes in transportation law, and author of Rules of the Road: A Practical Guide to Legal Issues in Truck Transportation.
For more about the topics discussed in this commentary, see Chapters 9-11 of Rules of the Road: A Practical Guide to Legal Issues in Truck Transportation.