For heavy-duty trucking companies that use owner-operator drivers, it can be tough to stay ahead of the latest nuances in determining whether they are considered employees or independent contractors. 

It changes depending on the current presidential administration, what state(s) you operate in, the latest legal interpretations, and more.

Getting it wrong can result in a lot of money paid out in back taxes, wages, and benefits if a government agency or a court decides your company’s owner-operator truck drivers are not independent contractors, but actually employees.

Motor carriers face an added challenge in meeting the standards for independent contractor relationships, because federal safety regulations require a certain level of control over the drivers and the equipment operated under the company’s authority. And control of a worker is one of the key factors looked at in determining employee misclassification cases.

“Those regulations are at odds with many of these tests, which makes it extremely difficult for motor carriers to walk that line,” said Mike Traxler, chair of trucking and commercial transportation law for Saxton & Stump. 

Traxler was speaking in a recent webinar put on by trucking and labor attorneys at Saxton & Stump. The webinar looked at some of the trends, best practices, and potential pitfalls when motor carriers use independent contractor drivers.

The See-Saw of Labor Department Rules on Independent Contractor Definitions

Traditionally, the U.S. Department of Labor has used a six-prong test, or six factors that are examined to determine the worker relationship, explained Steve Fleury Jr., a Saxton & Stump labor attorney.

In the first Trump administration, the Labor Department issued guidance that it would weigh two of those six factors more heavily, resulting in a test that tended to favor the independent contractor relationship:

• Nature and degree of control over work.

• Opportunity for profit or loss based on initiative and/or investment.

The control factor, Fleury explained, looks at questions such as:

• Does the worker set his or her own schedule? 

• Who supervises the performance? 

• Is the employer using technological means to supervise the performance of work? 

• Are there demands or restrictions that don’t allow the contractor to work for others? 

The more control a company exerts over the worker, the more likely they are to be determined an employee rather than an independent contractor.

On the profit or loss factor, Fleury said, questions include:

• Can the worker negotiate the rate? 

• Accept or decline jobs? 

• Make decisions on purchases or rentals of equipment or space? 

“Where that worker has more skin in the game, that worker is more likely to be found to be an independent contractor,” he explained.

During the first Trump administration, he said, the decision to work more hours or take on additional jobs was viewed as sufficient to indicate that the worker was negotiating the pay for the work provided.

The Biden Independent Contractor Test Favored Employee Status Findings

Under the Biden administration, the Department of Labor essentially went back to the traditional six-prong test where the factors are weighted equally:

• The amount of control over the worker.

• The worker’s opportunity for profit or loss.

• Investments by the worker and the potential employer.

• Degree of permanence. (The more permanent the relationship, the more likely it is for the worker to be declared an employee.)

• Skill and initiative. The more skills and initiative a worker has, the more likely they are to be an independent contractor.

• The extent to which the work is an integral part of the employer’s business. 

How Integral is the Work?

The question of how integral the work is to the business is not only a part of this six-prong federal regulation. It has made it nearly impossible for motor carriers to use independent contractors in California.

The state has a stringent “ABC test,” where all three prongs of the test must be met in order for the worker to be classified as an independent contractor. There were fears that the Biden administration might adopt that type of test.

Fleury pointed out that the individual worker does not have to be considered an integral part of the business. It’s the work that the prospective employee is performing. In trucking, it’s easy to argue that delivering the freight is an integral part of the business.

“What we saw was more folks were classified as employees, not ICs,” under the Biden administration, Fleury said. “The thumb was on the scale in the interpretation of those six factors to weigh toward a finding of employer-employee relationship.”

The Pendulum Swings Back to Contractors Under Trump

In May, the U.S. Department of Labor said it would not enforce the Biden administration’s independent contractor rules.

Until there’s a new rulemaking completed to replace it, the Biden test remains the test for private litigants in court.

However, Fleury said, “When a court is evaluating those factors, you have to take with a grain of salt how much prior guidance is still persuasive with the court.”

During the Biden era, the Department of Labor interpreted those factors to make an employee relationship more likely. 

“Those prior DOL field bulletins, the official interpretive guidance, is probably going to carry less weight today in the second Trump term than in the Biden administration.”

Best Practices For Fleets Contracting Owner-Operator Truck Drivers

So how can a trucking company use owner-operators in a way that is least likely to get those independent contractor truck drivers reclassified as employees?

“You need to be on top of your documentation,” said Fleury. 

Good independent contractor agreements are a must. If you haven’t updated your agreement in the past two or three years, he said, look at revising it. There have been some developments in the law where some tweaks in the language can help offer motor carriers protection in case of an employee misclassification suit.

Use an attorney experienced in the trucking industry to help craft an independent contractor agreement. 

Traxler says ensuring this is a business-to-business relationship is “nonnegotiable.” The owner-operator/independent contractor needs to have an LLC or corporation formed. “That will curtail the audit analysis from the get-go.”

Consider the Independent Contractor Factors in Your Owner Operator Agreement

Beyond the business-to-business relationship, Traxler said, what your company’s independent contractor agreement will look like should vary depending on where you’re located, as well as by the industry you’re in and the skills required by the driver.

Some states, such as California and New Jersey, have more stringent independent contractor rules than the federal government. 

“The independent contractor agreement for a company that hauls overweight/oversized loads is going to look different from the agreement for a drayage provider,” he explained. “The agreement for a temperature-controlled company is going to look different than the agreement for a dry van company. 

“You really want to lean into the different services that the motor carrier is providing from what the driver is providing.”

For instance, in a heavy-haul operation, the driver requires a special set of skills, ranging from properly securing loads to operating with escort vehicles. The more specialized the skills that independent contractor has, the more likely they are to be considered an independent contractor, Traxler said. 

“So you want to lean into those particular differences and recite those in the actual agreement.”

When creating or revising an independent contractor agreement, analyze the investment your company is making in the business versus the owner-operator drivers.

“The company is always going to put generally speaking more of a dollar value investment into that company,” Fleury said. “But what the courts have said is that we’re not going to look not at the dollar value, but at the type of investment. Who’s providing the truck, the GPS, and other electronic tracking? These are important considerations to look at when you’re defining that relationship between the driver and the company.”

6 Potential Pitfalls to Avoid in Your Owner-Operator Agreements

1. Not paying enough attention to crafting an independent contractor agreement that will help protect your company from misclassification accusations. 

“Getting it from Joe who you worked with at another company is a really bad idea,” Traxler said. 

“We’ve seen that happen — you try to make improvements in an agreement you got from a non-attorney source, or even an attorney source not experienced in the industry,” and it doesn’t hold up under scrutiny of an auditor or court.

Fleury said he has seen independent contractor agreements that refer to the worker as an employee, which is “a huge red flag, of course, if you're being audited. Something as simple as that. There's a lot of bad independent contractor agreements that are floating around out there.”

2. Using employee drivers and independent contractors interchangeably. This can run afoul of the part of the independent contractor classification test about whether the worker is providing a service that is an integral part of the company’s business.

However, if a hybrid model that includes both is unavoidable:

• Make sure the compensation structure is different.

• Look at the parts of your business where an employee driver or an independent contractor might be a better fit. Employee drivers are probably better for dedicated routes. If a portion of your operation has a relationship with a broker, that might be one where an IC is more appropriate. Segments where specialized skills from the driver are needed, such as heavy haul, are also probably a better fit for independent contractors.

3. Providing equipment to contractors. The equipment should be owned by the independent contractor or leased by the independent contractor from a third party.

“Fortunately, I see companies getting away from these lease-purchase agreements that have been a cause of a lot of litigation and a lot of audits,” Traxler said.

4. Exercising too much control over workers, which is a red flag to government agencies or courts that they’re being treated like an employee.

For instance, you can’t prohibit independent contractors from hauling for other companies. You have to allow them to turn down loads. Don’t provide employee handbooks.

5. Providing insurance to contractors. Traxler said that while motor carriers avoid many expenses by using independent contractors, public liability insurance is not something a fleet can delegate to the owner-operator.

And while it’s pretty obvious that motor carriers should not provide employee benefits such as health insurance to independent contractors, some other practices where trucking companies are trying to help out their owner-operators can backfire.

“We see situations where a motor carrier is making available to independent contractors occupational accident policies that are somehow sponsored by the motor carrier,” Traxler said.

If the same insurance broker who’s brokering policies for the motor carrier is placing policies for the independent contractor, he explained, an auditor may find it indicates the independent contractor is relying on offerings from the company in order to be able to operate.

6. Waiting to get an attorney involved. Not talking to a legal expert until you’re served with court papers or get notice of a government audit is not the best way to defend your company.

An attorney experienced in both trucking and labor law can help you craft an independent contractor agreement and identify possible red flags in your policies and procedures. If you do end up in an audit or a legal challenge, if you already have a legal team you’ve been working with, they will have a good understanding of your operations and be better be able to defend you.