Employee vs. Independent Contractor

Clean Trucks Threaten Drivers’ Status

The ports of Los Angeles and Long Beach recently mandated converting freight-hauling trucks used to haul freight around the ports to newer model clean-burning trucks. It soon became apparent that most contract drivers would be unable to afford to purchase the newer late-model trucks, which can cost in excess of $100,000. Therefore, the motor carrier companies that hire them opted to buy the trucks and lease them back to the independent contract drivers.

This lease-back arrangement threatened the independent legal status of the drivers. Leasing the trucks to the drivers would suggest a permanent relationship between the companies and the drivers and tend to favor the view that the drivers were essentially employees, not independent contractors.

Long-standing practices had involved motor companies hiring the drivers as independent contractors, thus avoiding thousands of dollars in payroll taxes & worker compensation insurance. The carriers have a huge stake in maintaining the status quo. They soon can expect a major assault on the status of drivers.

According to the IRS’ website, the IRS uses three characteristics to determine the relationship between businesses and workers:

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
The drivers’ current independent status has been tested in court in the past, with the companies prevailing, mainly by carefully maintaining a clear legal distinction between the driver as contractor and the driver as employee. The use of lease-backs with the new rigs threatens this distinction by altering the financial control factor used by the IRS.
There is a belief that the independent contractor drivers may be avoiding taxes by under-reporting their income. The motor carrier companies also avoid payroll taxes and workmen’s compensation insurance coverage by maintaining the current status. The federal and state governments have begun focusing on the possible misclassification of the port drivers as contractors. Also, the Teamsters Union hopes to have the drivers declared employees so that the union can organize them into a union.
Therefore, much is at stake as the ports begin the conversion to clean trucks, and the motor companies defend their long-held classification that the drivers are independent contractors, not employees. The use of lease-back trucks threatens this status. The importance of the change will probably be determined in court, with the drivers’ status of employee vs. independent contractor in the balance.

 

Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

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