The Transportation Brief®
A quarterly newsletter of legal news for the clients and friends of Scopelitis, Garvin, Light, Hanson & Feary
Spring 2018 | Vol. 25, No. 2

10 W. Market St, Ste. 1400
Indianapolis, IN 46204

Scopelitis’ Transportation Brief® is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

We are pleased to announce that Michael Reed has joined the Firm’s Chicago office.  Michael joins the Personal Injury, Property Damage, and Cargo Claims practice group.

Scopelitis attorneys on the latest transportation industry news and trends.

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Scopelitis attorneys are often invited to participate in meetings with transportation industry leaders. Learn more about their trips this quarter.

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10 W. Market St, Ste. 1400
Indianapolis, IN 46204

Scopelitis’ Transportation Brief® is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

The Transportation Brief®
A quarterly newsletter of legal news for the clients and friends of Scopelitis, Garvin, Light, Hanson & Feary
Spring 2018 | Vol. 25, No. 2

10 W. Market St, Ste. 1400
Indianapolis, IN 46204

My Driver Filed an Unemployment Claim Where?

Dealing with tax jurisdictional issues is an ongoing struggle for motor carriers with multi-state operations. For example, several states may be appropriate for unemployment tax reporting for an interstate driver. Determining where to report is not only important for employee fleets, but it can be a potential tool for defending against state unemployment tax worker misclassification challenges.

If a motor carrier is notified of an owner-operator’s unemployment claim, or an audit including owner-operators in a state where it can be challenging to defend independent contractor (IC) status, the motor carrier should consider whether the unemployment agency has jurisdiction over the interstate work performed by the owner-operator(s). A state does not automatically have jurisdiction to adjudicate a claim and/or conduct an audit based on a claimant’s (or group of workers’) state of residence.

Most states have adopted uniform statutory provisions clarifying which state is entitled to a putative interstate employer’s unemployment tax contributions based on “localization of the work.” If a worker’s services are not localized in one state, as is typical in interstate trucking, proper jurisdiction lies in the state where (1) some of the service is performed (e.g. pick-ups, deliveries, miles traveled, fuel purchased), and (2) the worker’s base of operations, or, if there is no base of operations, the state from which direction and control emanates (generally thought of in trucking as dispatch). Of course, owner-operators are not subject to direction or control, but dispatch may resemble a form of “direction.”

A fact-sensitive analysis is required to determine whether a jurisdictional defense exists, but the proper analysis is important, particularly when dealing with states where the defense of IC classification can be difficult. Motor carriers should consider where they are reporting and determine if they may be able to establish unemployment tax jurisdiction in a more IC favorable state, such as one of the 22 states with a statute exempting owner-operators from coverage.

Spotlight on Unemployment Tax Practice

State unemployment tax remains one of many misclassification battlefronts for motor carriers and other transportation companies utilizing equipment or services provided by independent contractors (IC). In addition to routine unemployment tax audits by state agencies, investigations often arise as a result of “obstructed” unemployment benefit claims filed by ICs. Because just one obstructed benefit claim can prompt a broader unemployment tax audit, which may result in a costly assessment for several years in arrears (plus interest and potential penalties), such claims should be aggressively challenged.

A timely and thorough initial response, relying on the state’s applicable IC favorable law, may increase the likelihood of receiving a determination affirming the claimant’s IC status. This may serve to both avoid a broader audit, and, depending on the determinations, help support a successful resolution of future similar misclassification inquiries in that state.

Scopelitis attorneys assist clients in defending unemployment worker reclassification challenges at various stages, including:

• Review and preparation of benefit claim responses;
• Claim determination appeals;
• Unemployment tax audit facilitation and responses;
• Assessment appeals;
• Preparation and appearance for administrative appeal hearings;
• Review board appeals; and
• Judicial level appeals.

The Firm can assist directly or behind the scenes according to a client’s preferred approach and strategy considerations. Our unemployment tax team also provides proactive guidance concerning unemployment tax reporting. This includes identifying state agencies that may be able to exercise jurisdiction over interstate services and options for establishing jurisdiction in a more IC favorable state.

Scopelitis Partner Steve Pletcher directs the Firm’s federal and state employment tax section. He regularly defends against IRS and state revenue department employment and unemployment tax controversies, including worker classification challenges and accountable plan employee expense reimbursement matters. Steve also directs the Firm’s employee benefits section. Along with Pletcher, Partner Becky Trenner’s practice primarily centers on state and federal employment and unemployment tax controversies, with a focus on defending the classification of transportation owner-operators as ICs. Attorney Brandon Wiseman assists with unemployment matters.

Warehouse Chargebacks

Chargebacks are most common in the retail industry, but they have application in other industries as well. A chargeback generally involves a return of funds to a customer by a shipper or intermediary and may include a fee. In the supply chain, a chargeback may occur when a vendor, such as a property broker, transportation company or warehousing entity, fails to meet certain standards of service, such as late delivery, poor packaging, or incorrect labeling. Given the substantial cost associated with chargebacks, warehousing clients have inquired as to whether they may be held responsible for chargebacks. Even when the applicable warehouse agreement is silent on the issue, some court have held chargebacks to be non-recoverable consequential damages if they were not reasonably foreseeable or contemplated by the parties during the negotiation or execution of the warehouse agreement. Nevertheless, Scopelitis attorneys recommend that warehouse companies should include language within their warehouse agreements disclaiming responsibility for chargebacks and consequential damages.

Full Enforcement of the ELD Mandate Commences

As of April 1, 2018, the FMCSA and state law enforcement have begun to fully enforce the electronic logging device (ELD) mandate. Previously, ELD violations, though listed on roadside inspection reports and sometimes prompting fines, did not result in out-of-service orders or negatively impact a motor carrier’s Safety Measurement System (SMS) scores. Now, drivers who are subject to the ELD mandate and found to be operating without a device will be placed out of service for 10 hours. Additionally, motor carriers will start to see ELD-related violations impacting their Hours-of-Service Compliance BASIC score in the SMS. Along these lines, the FMCSA recently updated its SMS methodology to include new ELD-specific violations and their associated severity weights. Notably, violations like “operating without an ELD” and “using a device that is not registered with FMCSA” carry severity weights of 5.

Buyers Be Diligent

When considering the acquisition of a motor carrier operation, a number of due diligence matters specific to transportation should be analyzed, including licensure, permitting and an analysis of federal or state regulatory regimes applicable to the motor carrier. If the target carrier utilizes an independent contractor work-force, understanding and assessing those relationships within the unique transportation fact-pattern are critical. The assessment for regulatory compliance of the independent contractor agreement and for areas of exposure given state law precedent and statutory exemptions based on contractor domiciles are both key to structuring a proper merger or acquisition. Equally important is consideration of post-acquisition restructuring when certain exposures have been identified during the due diligence process. The transaction often occurs in a rapidly changing legal environment where sensitivity to proposed legislative changes and recent common law precedent impacting transportation operations may be pivotal to an investment decision.

Eleventh Circuit Upholds Downstream Carrier’s Limitation of Liability

Barrett Moving & Storage (Barrett) was asked to transport two truckloads of equipment from Illinois to Texas. Barrett moved one truckload and retained Landstar under a broker/carrier agreement to move the other. When the goods in the second truck were damaged, the shipper’s insurer sued both carriers. Landstar moved to enforce the limitation of liability in its bill of lading. The District Court rejected Landstar’s limitation, holding that Barrett’s agreement with the shipper, which contained no limitation, was binding on Landstar. The Eleventh Circuit, in Essex Insurance v. Barrett Moving & Storage, reversed summary judgment against Landstar by upholding standing law that shippers are bound by liability limitations established between an intermediary and a carrier, notwithstanding the shipper’s claim that it was not aware that Barrett brokered the load. The Court further held that it is the initial carrier, not the unknowing downstream carrier, that bears the burden of expanded liability to the shipper.

We are pleased to announce that Michael Reed has joined the Firm’s Chicago office.  Michael joins the Personal Injury, Property Damage, and Cargo Claims practice group.

TAGLaw Southwest/Midwest Regional Meeting

Jake Fisher will attend the TAGLaw Southwest/Midwest Regional Meeting, July 20 -22, in Columbus, Ohio.

July 20, 2018 | Columbus, OH
Trucking Associations Executives Council's TAEC Annual Meeting

Greg Feary will present at the Trucking Associations Executives Council’s TAEC Annual Meeting, July 17, in Rockport, Maine.

July 17, 2018 | Rockport, Maine
Updates on Owner-Operator and Independent Contractor Issues

Updates on Owner-Operator and Independent Contractor Issues

Jul 15, 2018, Shannon M. Cohen, Braden K. Core, Jeffrey S. Jackson, Prasad Sharma, American Trucking Associations General Counsel Forum – Santa Ana Pueblo, NM

July 15, 2018 | Santa Ana Pueblo, NM
Update on Independent Contractor Status in Trucking

Update on Independent Contractor Status in Trucking

Jul 10, 2018, Gregory M. Feary, Hudson Insurance Group’s Annual Risk Management / Leadership Conference – Indianapolis, IN

July 10, 2018 | Indianapolis, IN
Conference of Freight Counsel's Summer 2018 Meeting

Kathleen Jeffries will serve as the Chair for the Conference of Freight Counsel’s Summer 2018 Meeting, June 23 – 25, in Alexandria, VA. Michael Tauscher will present an update on case summaries and Fritz Damm will also attend

June 23, 2018 | Alexandria, VA
California Trucking Association's Summer Board of Directors & Policy Committee Meetings

Chris McNatt will attend the California Trucking Association’s Summer Board of Directors & Policy Committee Meetings, June 20, 2018, in Newport Beach

June 20, 2018 | Newport Beach
Transportation Lawyers Association Executive Committee Meeting

Kathleen Jeffries will attend the Transportation Lawyers Association Executive Committee Meeting as Voting Past President, June 15 – 17, in Los Angeles. Jake Fisher and Fritz Damm (as Chair of Membership) will also attend.

June 15, 2018 | Los Angeles
BiTA Symposium

Jeff Jackson will attend the BiTA Symposium, May 21, in Atlanta.

May 21, 2018 | Atlanta
American Trucking Association's 2018 Mid-Year Management Session

Greg Feary and Shannon Cohen attended the American Trucking Association’s 2018 Mid-Year Management Session, May 20 – 23, in Marco Island, Florida.

May 20, 2018 | Marco Island, Florida
Accident Investigation and Preservation of Evidence, and the Rise of Frivolous Lawsuits and Strategies to Defend Them

Accident Investigation and Preservation of Evidence, and the Rise of Frivolous Lawsuits and Strategies to Defend Them

May 8, 2018, Renea E. Hooper, Janis E. Steck, Indiana Motor Trucking Association’s Safety & Maintenance Council Meeting – Indianapolis, IN

May 8, 2018 | Indianapolis, IN
International Trade and Customs Specialty Group at TAG Alliances' Spring International Conference

John Hove served as Co-Chair of the International Trade and Customs Specialty Group at TAG Alliances’ Spring International Conference, May 2 – 5, in Barcelona, Spain.

May 2, 2018 | Barcelona, Spain
The First Two Were High and Tight, So Where Do You Think the Next One's Gonna Be

The First Two Were High and Tight, So Where Do You Think the Next One’s Gonna Be

May 2, 2018, Kathleen C. Jeffries, Transportation Lawyers Association Annual Conference – Orlando, FL

May 2, 2018 | Orlando, FL
Transportation Lawyers Association Annual Conference

Moderator for trial practice panel “The First Two Were High and Tight, So Where Do You Think the Next One’s Gonna Be”

May 2, 2018, Kathleen C. Jeffries, Transportation Lawyers Association Annual Conference – Orlando , FL

May 2, 2018 | Orlando, FL
Transportation Lawyers Association Annual Conference

Don Vogel attended Transportation Lawyers Association Annual Conference as Voting Past President. Fritz Damm attended as Past President and Chair of the Membership Committee. Kim Mann and Leonard Kofkin also attended.

  • Brandon Wiseman reports, the FMCSA recently issued a final rule formally authorizing the use of electronic methods to generate, certify, sign, maintain, and exchange records that are required under the FMCSA’s safety and leasing regulations. The rule largely tracks the agency’s 2011 guidance on the issue and is meant to establish “parity between paper and electronic documents and signatures.” Examples of documents covered under the new rule include, among others, driver qualification files, maintenance records, bills of lading, and lease agreements.