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Owner-operators: employees or independent contractors?

Our industry is under attack nationally from the way motor carriers are classifying drivers.  First, “statutory employee” rules made trucking companies liable for negligent drivers regardless of whether the drivers are actually independent contractors.  Federal Motor Carrier Safety Regulations, 49 C.F.R. § 390.5, eliminates the distinction between “independent contractors” and “employees” for liability purposes.  This means that motor carriers can no longer escape liability even when properly employing independent contractor services.

Now, the plaintiffs’ bar, federal government and individual states are taking aim at independent contractor misclassification for another reason.  Plaintiff attorneys have included the transportation industry as one of their targets in alleging carriers are misclassifying employees and depriving them of various rights, including unemployment compensation, workers’ compensation benefits, and health/retirement and other benefits afforded employees.  States soon joined the battle in an attempt to increase tax revenues from carriers who are allegedly misclassifying drivers as independent owner-operators.

So how does the trucking industry prevent independent contractor misclassification for purposes of benefits and taxes?  Unfortunately, the classification of owner-operators as either independent contractors or employees for workers’ compensation and unemployment taxes varies from state to state.  On top of that, there is a conflict between the interstate nature of the trucking business and state-specific application of workers’ comp and unemployment tax regulations.

Because of this, many states have enacted specific statutes that expressly deem owner-operators to be independent contractors for workers’ compensation and unemployment tax.  In Virginia, for purposes of workers’ compensation for instance, owner-operators that lease with or to carriers are not employees if certain statutory requirements are met, including the owner-operator maintaining the vehicle, bearing majority of operating expenses, and being the driver.  Va Code Ann. § 65.2-101.  Also, for purposes of unemployment compensation, Virginia provides a special exclusion for the trucking industry for owner-operators not being classified as employees if certain conditions are met.  Va. Code Ann. § 60.2-212.1.  There are also tests that have been developed by courts in determining classification that mostly look at the degree of control the carrier has over the owner-operator.

The bottom line is that the transportation industry needs to pay very close attention to the contracts they are using with owner-operators and their treatment of contractors to avoid misclassification.

If you have any questions about whether an employment practice exposes your company to potential liability, then please contact our employment law team at (804) 377-1260.

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