Today, one day before the end of President Trump’s Administration, the U.S. Department of Labor issued an opinion letter that certain owner-operator drivers that provide services to a transportation and logistics company are independent contractors and not employees under the federal Fair Labor Standards Act. Owner-operator drivers have brought countless class and collective actions against transportation and logistics companies over the past decade, as reported in this blog. One large transportation company paid $100 million to settle a collective and class action lawsuit brought by 20,000 owner-operators alleging independent contractor misclassification. This opinion letter may be useful to logistics and other transportation companies defending these types of class actions, but it does not create a safe harbor under the FLSA, particularly if the facts pertaining to their relationships with owner-operators varies from the facts in the opinion letter. The most effective way by which transportation and logistics companies can elevate their level of compliance with federal and state IC laws is through the use of a process such as IC Diagnostics (TM), as discussed in the Takeaway below.
The Opinion Letter
The opinion letter answers two questions. The first is whether requiring compliance with specific legal obligations or health and safety standards is a factor in determining the employee or independent contractor status of an owner-operator driver under the FLSA. The Labor Department concluded that ensuring compliance by owner-operators with the health and safety requirements in the Federal Motor Carrier Safety Regulations (FMCSRs) and federal Truth in Leasing Regulations covering owner-operators is “not a factor in determining whether a driver is an employee or independent contractor” under the federal wage and hour law.
The second question is whether the owner-operator drivers are independent contractors. The opinion letter contains six detailed sets of facts, the most important of which is that the transportation/logistics company utilizes both employee drivers and owner-operator drivers. It concludes that the owner-operator drivers are independent contractors. In reaching that conclusion, the Labor Department relies chiefly upon the recently promulgated regulations issued by the Labor Department on January 7, 2021. Those Regulations, which were the subject of a blog post on this site, are not effective, however, until March 8, 2021.
The Regulations focus on five factors, the first two of which are regarded as “core factors” that are given more weight. The first factor is the nature and degree of control over the work. The opinion letter concludes the control factor favors independent contractor status where the owner-operator drivers, among other things:
- transport goods “as they see fit, simply using a virtual platform to identify shipments they wish to haul”;
- select routes they chart without oversight;
- can choose not to provide services at their discretion;
- determine their quantity of work;
- may provide services to competitors of the transportation/logistics company; and
- are free to work any days and hours they choose (subject to DOT safety regulations).
The next “core” factor to be considered is the worker’s opportunity for profit or loss based on initiative or investment. The opinion letter concluded this factor favors independent contractor status because the owner-operator drivers strategically determine what freights to select, whether and whom to hire, how to insure their trucks or businesses, and what capital investments to make.
The opinion letter also relied on the fact that “owner-operators’ income varies greatly depending on their management skill, preferences, and judgment in choosing among these and other options.”
Other factors cited in favor of IC status are that the owner-operator driver must purchase, lease, or finance a vehicle that may cost over $100,000 if purchased new, and some have multiple vehicles; and they are not reimbursed for fuel, fuel taxes, maintenance, repairs, and various other required expenses. These factors “suggest that managing expenses and efficient use of resources is key to their earnings.”
The opinion letter then examined the three “non-core factors” listed in the final Regulations on IC status. The Labor Department found that the factor of “skill” favors IC status, finding the owner-operator must have a commercial driver’s license in addition to business skills for managing the business, and that they are not provided any training “beyond orienting them to the basics of working for your particular business.”
The opinion letter next concluded that the factor of “permanence” weighed in favor of IC status to the extent some owner-operators have maintained a relationship with the company on an indefinite basis, and weighs in favor or employee status to the extent the owner-operator contracts can be terminated by either party on 15 days’ notice without cause.
Finally, the Labor Department viewed the factor of “integration” as not favoring IC or employee status, because, although the function of a logistics company is to arrange for the transportation of goods, as opposed to transporting goods, in this situation the company also employed drivers who transported goods.
The opinion letter concluded that the core factors of control and opportunity for profit or loss are not overcome by any of the non-core factors, leading the Labor Department to conclude that the owner-operators are independent contractors.
Analysis and Takeaway
As with all Department of Labor opinion letters, the agency offers its official views based on a set of facts described by the party requesting the opinion. Therefore, to the extent the facts governing the relationship between owner-operator drivers and the logistics and transportation companies to which they provide services differ in any material manner from the facts set forth in the opinion letter, the views of the Labor Department may be of limited value.
The opinion letter is issued under the Fair Labor Standards Act and has no application to other federal laws, such as the National Labor Relations Act or the ERISA. Nor does it have any application to state laws governing independent contractor versus employee status. The arguments set forth in the opinion letter may be pertinent to a determination of IC status under those other laws, though.
The opinion letter is based on the application of the recently finalized regulations on independent contractor status, and those regulations will not be effective until March 8, 2021. By that date, the Biden Administration or the courts may have taken action to diminish or eliminate the significance and legal import of those new regulations.
Nonetheless, the opinion letter is generally beneficial to the transportation and logistics industry and those companies that rely on owner-operator drivers to transport goods, and certainly should be cited to the extent the facts are somewhat similar in whole or in part. The opinion letter, however, is hardly a panacea, nor is it a cure, for any companies that have failed to structure, document, or implement their IC relationships in a manner that maximizes compliance with federal and state laws governing independent contractors.
Transportation and logistics companies utilizing owner-operators can elevate themselves to a heightened level of compliance by using a process such as IC Diagnostics (TM) to restructure, re-document, and re-implement their IC relationships in a manner that minimizes or eliminates their exposure to IC misclassification liability in the jurisdictions in which they operate. For such companies that do so, they will be far less likely to be sued in a class action IC misclassification lawsuit and far more likely to be able to successfully defend themselves should they be the subject of a summons and complaint.
Written by Richard Reibstein