Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Month: July, 2017

IRS Issues a Press Release: “Employee or Independent Contractor – Know The Rules”

by gspencermynko

The IRS issued a press release on May 1, 2017 entitled “Employee or Independent Contractor? Know the rules”. The press release starts off by saying “The IRS encourages all businesses and business owners to know the rules when it comes to classifying a worker as an employee or an independent contractor. An employer must withhold income taxes and pay Social Security, Medicare taxes and unemployment tax on wages paid to an employee. Employers normally do not have to withhold or pay any taxes on payments to independent contractors.”
 
The key factors that employers must concern themselves with are 1) The extent of control, and 2) The nature of the relationship. As most of my readers know, there’s a difference between how the IRS and the EDD determine whether a truck driver is an employee or an independent contractor.

Control

The “right to control” is still probably the most important factor determining whether a worker is an independent contractor or an employee. Most of my readers will know that the EDD interprets the right of control test extremely strictly. The employer only has to have the right to control the manner and the means of how the job is accomplished in order for EDD to consider a worker an employee. In other words, as far as EDD is concerned, “the right to control” is actually more important than actual control when it comes to assessing taxes. EDD isn’t concerned with whether the Employer actually exercised that right – it simply is interested if the right exists.

The IRS is more lenient in this regard. The IRS focuses on “financial control”, and is concerned if the employer actually directs or controls financial aspects of the workers job. Here’s what the IRS has to say about control:
Control. The relationship between a worker and a business is important. If the business controls what work is accomplished and directs how it is done, it exerts behavioral control. If the business directs or controls financial and certain relevant aspects of a worker’s job, it exercises financial control. This includes:
  • The extent of the worker’s investment in the facilities or tools used in performing services
  • The extent to which the worker makes his or her services available to the relevant market
  • How the business pays the worker, and
  • The extent to which the worker can realize a profit or incur a loss

As we know,  EDD looks at driver classification a bit differently than the IRS. EDD is usually interested in whether a worker has invested in the tools of the trade and whether the worker can enjoy profits or suffer losses.  This is why I stress to clients that trucking companies should work with drivers that own their own trucks, if they are going to classify drivers as independent contractors.  Furthermore, I think it’s incredibly important if the driver actually owned the truck prior to driving for the trucking company. This reflects a genuine investment in the “tools of the trade” and establishes that the driver took a major financial risk by purchasing a truck. I like to think that most owner operators purchased a truck because they saw an opportunity to make money in trucking. As long as the Owner Operator is free to drive for any trucking company of his or her choosing, the IRS seems to not be too concerned if the driver only drives for one company. EDD on the other hand will frequently interpret driving for only one company as evidence of an employment relationship. EDD is not particularly concerned with a how worker is paid, other than payment on a weekly basis often leads EDD auditors to consider a worker an employee.

Relationship

Unlike the EDD, the IRS puts more weight onto how the employer and worker relate to each other.  Here’s what the IRS said about the relationship between worker and employer.
Relationship. How the employer and worker perceive their relationship is also important for determining worker status. Key topics to think about include:
  • Written contracts describing the relationship the parties intended to create
  • Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation or sick pay
  • The permanency of the relationship, and
  • The extent to which services performed by the worker are a key aspect of the regular business of the company
  • The extent to which the worker has unreimbursed business expenses

There is a major divergence between the EDD and the IRS on how the parties relate to each other. While the IRS will tend to respect and defer to a written contract, the EDD tends to not recognize or honor written contracts between trucking companies and owner operators. It is unfortunate that EDD shows such a lack of respect for contracts, but that is the reality trucking companies are facing.

What does the future hold?

While the IRS has not been nearly as aggressive as the EDD when it comes to auditing California trucking companies, I think things are going to get worse – a lot worse – for California trucking companies. I believe there is going to be an increasing number of aggressive audits of trucking companies by the EDD. The EDD has recently hired a substantial number of auditors. The increase in the number of field auditors will eventually translate to an increase in the number of misclassification audits of trucking companies. I understand trucking companies often “roll the dice” in hopes that they won’t get audited – a risky business strategy for sure. However, in light of the recent hiring of new EDD auditors, it’s not a matter of “if” but “when” a trucking company will get audited by the EDD.
Call Transportation Attorneys so we can tell you what side of the Independent Contractor/Employee fence you will fall on if your company is accused of misclassifying drivers.
We here at Transportation Attorneys can help you with your Independent Contractor business model and your ability to withstand  the toughest scrutinization of anyone alleging your company is misclassifying its drivers. We are very experienced in dealing with the distinctions between independent contractors and employees and we constantly monitor the latest legal developments in this field. 

Attorney’s Fees Provisions – Put Some Teeth in ALL of your Agreements

by gspencermynko

I regularly speak with potential clients who have been screwed over in relatively small transactions (like non-payment of cargo fees, freight charges, and other cargo related disputes), and too often I have to tell them that you will have to spend more than you can recover if you sue them. Sometimes, the amount in dispute is not “relatively small”, but is in the tens of thousands or even low 6 figures, and I still have to tell them that by the time you pay your legal fees and the costs of going to trial, not much, if anything will be left over.  This may be good for the lawyer, but not good for the client.
 
Furthermore 

The losing side does not ordinarily have to pay the winning side’s attorney’s fees, contrary to popularly held belief. In the United States, the general rule (called the American Rule) is that each party pays only their own attorney’s fees, regardless of whether they win or lose.

 

 

 

However, there is a solution:
When two companies sign a contract (or any agreement) they can have the contract/agreement require that the losing side in a legal dispute has to pay the winning (or “prevailing”) side’s attorneys’ fees and costs.  And while your at it, these clauses can expressly provide for interest, lost profits, and any other “consequential” damages in addition to attorney’s fees if forced to sue for damages or collect on delinquent accounts. And trucking companies need to start protecting themselves: Consider this – Motor Carriers are the only vendors that extend credit without charging interest on delinquent accounts or providing for lost profits and opportunities. It’s time for trucking companies to put teeth into every agreement they have with any shipper, broker or customer. The “teeth” I’m referring to are well drafted attorneys’ fees and costs provisions. Your company needs to include them in all of your transactional documents.
Put them everywhere – Contracts, BOLs, Shipping Receipts, Etc.
 
Carrier’s should protect their interests as to make it worthwhile to seek enforcement of any breach of an obligation to get paid. For example, here’s a clause that can protect your interests:
“If Truck Co. has not received full payment of all of the charges within a period not to exceed 45 days from the date of its invoice, Truck Co. may, at its sole option, retain an attorney, file suit, or take any other action to collect its charges, and, in that event, any party responsible for payment of the charges will be invoiced and will be responsible for payment of attorneys’ fees, court costs, expert witness fees, and any other costs, fees and expenses incurred by Truck Co. in connection with the collection of any amount due.”
Another nice clause to insert in any Bill Of Lading, Shipping Receipt, Contract, etc. is “The court also may order payment of reasonable costs and attorney’s fees to the carrier”.
 
The bottom line however remains the same: If someone doesn’t pay your carrier bill, and if you have to sue them, make sure you are entitled to Attorneys’ Fees and Costs. That way, when you want me to go after someone who has stiffed you, we can ask the Judge to award you my fees. Furthermore, just the threat of having to pay your attorneys’ fees and costs will greatly improve your company’s ability to get a quick settlement or resolution of an outstanding debt.
Watch Out For Clauses That Prevent You From Seeking Attorneys’ Fees
For instance, a bill of lading may contain what are known as “nonrecourse” and “prepaid” provisions. If they have been separately signed or otherwise indicated by the parties, then the consignor may well be released from any obligation to pay the carrier.  These bill of lading provisions may, however, be overridden by a transportation contract that is drafted to cover a number of shipments over a period of time.
While a bill of lading is a type of contract for carriage it is most often used for one-time, individual shipments and is not intended to cover a series of shipments over time, that is what a transportation contract covers. Well drafted transportation contracts usually state that they take precedent over any conflicting language in a bill of lading. In such cases a bill of lading becomes only a routing document and delivery receipt. This is one reason many large shippers no longer use bills of lading.
However, the take-home message is the same: Attorneys’ fees and costs provision need to be included EVERYWHERE. An Attorneys’ Fees clause is exactly the hammer you need when going after someone who owes you money.
What Costs Are Included?
“Costs” refer to filing fees, fees for serving the summons, complaint, and other court papers, fees to pay a court reporter to transcribe depositions (pretrial interviews of witnesses) and in-court testimony, and, if a jury is involved, to pay the daily stipend of jurors. Often costs to photocopy court papers and exhibits are also included. (Typically, court costs are paid by the parties to the dispute. But, with the inclusion of an attorney fees clause, the losing party is held responsible for both parties’ court costs).
Watch Out for One-Way Attorneys’ Fees Provisions
 
Under a mutual provision, such as the example above referring to the “Prevailing Party”, the party that wins the lawsuit is awarded attorneys’ fees. This is fair and encourages the quick resolution of lawsuits. However, a “one-way provision” allows only one of the parties to receive attorneys’ fees, usually the party with the better bargaining position. One-way provisions, no matter which side they favor, create an uneven playing field for resolving disputes. Some states, such as California, have recognized this unfairness and automatically convert a one-way attorneys’ fees contract provision into a mutual provision.
However, a clause like this inserted to a Bill of Lading is probably enforceable: “In no event shall Carrier be liable for loss of profit, income, interest, attorney fees, or any special, incidental or consequential damages.”
Speak to an experienced Transportation Attorney to ensure you will be entitled to Attorneys’ Fees if you are forced to file or defend a lawsuit.
Judicial Enforcement of Attorneys’ Fees Provisions
Just because you include an attorneys’ fees provision in your contract, you shouldn’t assume that the clause will be enforced if a lawsuit arises and one side tries to get their legal costs reimbursed by the other. A requirement to pay attorneys’ fees is not always enforced even when parties have signed a contract including it. Courts are allowed to judge contracts for fairness and to change their terms if they decide that doing so is the more fair solution. If a judge decides that it would be unfair to enforce a requirement that one side pay the other’s attorneys’ fees or finds that one of the parties was forced into signing the agreement, the judge could cancel the requirement or change the amount of fees to be paid. But if a judge decides that an attorneys’ fees provision is reasonable and that it was negotiated by two parties with equal bargaining power, then the judge will likely enforce it.

 

We here at Transportation Attorneys can help you with Attorneys’ Fees and Costs provisions. If you are faced with the unfortunate situation of having to file or defend a lawsuit, we can ensure your right to be awarded attorneys’ fees and costs will be enforced. Too many times I have had victimized clients come to me and I say to myself “If they only had an Attorneys’ fee clause…”  It bears repeating: Each and Every document you have that affects how cargo gets from Point A to Point B needs an Attorneys’ Fees and Costs provision. We are very experienced in dealing with Contractual disputes and the award of Attorneys’ fees in Trucking and Transportation and we constantly monitor the latest legal developments in this field.