One of the greatest contributors to the transportation capacity crunch is the shortage of qualified truck drivers, which will only get worse as government and the Teamsters continue their attacks on independent owner-operators.
The independent contractor model has been essential in the trucking industry since its birth, and is deeply ingrained in its culture. Many drivers join the industry expressly to embrace this entrepreneurial role. Last fall one industry executive estimated that up to 20% of his owner-operators would leave the business if they were required to become company employees.
The Teamsters have been waging unremitting war on the independent contractor status of an estimated 100,000 drayage drivers at West Coast ports since the 1990s, lately forcing conversion of contractors to employees at some carriers who preferred making the switch to continuing costly litigation. One of these was Hub Group Trucking, which last year switched 350 of its California drayage drivers from contractors to employees and settled a $9.5 million suit.
Helping the Teamsters cause in California are sympathetic state regulators and legislators. Other states like Illinois, Massachusetts, New Jersey, New York and Wisconsin also enacted laws more narrowly defining independent contractor status to increase payroll tax and unemployment insurance revenues, as well as to help the legislators' union supporters.
Last year in New York a joint task force conducted over 12,000 audits, uncovering over 133,000 misclassified workers and $316 million in unreported wages, leading to assessments of $40.4 million in unemployment insurance contributions.
At the national level, the federal government has supplied states with millions of dollars to battle alleged employee misclassification. In addition, a proposal to substantially increase federal trucking liability insurance limits also can be expected to drive owner-operators and other small truckers out of the industry.
The courts also are playing a major role in changing the definition of owner-operators and the terms under which they can work.
When Hub made the change to company drivers in California, an executive cited a federal appeals court decision last year that reclassified FedEx Ground drivers as employees. In that case the judge cited company rules governing the drivers' uniforms, grooming standards and which directed many aspects of how they did their jobs, which were found to incompatible with a true independent contractor role. (However, the aftermath of the FedEx case has turned out to be disappointing for the Teamsters. As of mid-March it had won elections at only four FedEx terminals, lost votes at six more and withdrew requests for votes at another six).
In March the Macy's West Stores and its logistics provider Joseph Eletto Transfer agreed to pay $4 million to settle a class action misclassification lawsuit brought in California by more than 600 truck drivers and helpers. As with FedEx Ground, the case hinged on how much control was exercised over the contractors. The drivers were said to be required to display Macy's logo on their trucks, wear Macy's uniforms, could not set their own delivery schedules, had to leave the trucks at Macy's site at the end of the day, and were evaluated based on Macy's customer service standards. Another delivery company for Sears lost a driver misclassification suit last year based on maintaining a similar level of control over its drivers.
Similar court decisions are appearing in states other than California. This January the New Jersey Supreme Court severely limited independent contractor classification by imposing a highly restrictive test derived from the state's unemployment compensation law.
If you use owner-operators it is time to take a look at how much control you maintain over their operations and see if you can make changes to take this target off your back—and if the employee-driver model makes more economic sense for your particular operation, if not for the industry.
David Sparkman is founding editor of ACWI Advance (www.acwi.org), the newsletter of the American Chain of Warehouses Inc., as well as a member of the MH&L Editorial Advisory Board.