U.S. Department of Labor IC Test Rule

On January 10, the U.S. Department of Labor (DOL) published its final rule (the 2024 Rule) for determining employee or independent contractor status under the Fair Labor Standards Act (FLSA). In so doing, the DOL repealed and replaced the rule promulgated for similar purposes by the Trump administration in early 2021 (the 2021 Rule). A federal district court held an earlier attempt to repeal the 2021 Rule was unlawful and reinstated that rule. The same organizations (and having added others, including the American Trucking Associations) that prevailed in the challenge to the repeal have challenged the 2024 Rule, as have other lawsuits filed in federal courts in Georgia and Louisiana.

As compared to its 2021 predecessor, the 2024 Rule provides far less clarity and certainty, and suggests an increased likelihood for an employee status determination. It analyzes the totality of the circumstances guided by six enumerated factors: (1) opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the potential employer; (3) degree of the permanence of the work relationship; (4) nature and degree of control; (5) whether the work performed is an integral part of the potential employer’s business; and (6) skill and initiative. In contrast, the 2021 Rule included an investment within the opportunity for profit or loss factor and provided that if two factors – control and opportunity for profit or loss – weigh in favor of the same worker status, that would generally end the inquiry. Additionally, the 2024 Rule directs consideration of contractual rights – even if unexercised – as well as actual practices; whereas the 2021 Rule focused on actual practices.

There were, however, some incremental improvements from the originally proposed 2024 Rule. For example, the proposed rule suggested that investment in tools to perform a job would not count as a factor, but the final rule’s commentary notes that trucks purchased for a business purpose would be considered investments indicating independent contractor status. As proposed, compliance with laws, safety standards, and customer requirements could be considered control indicative of employee status; however, as finalized, compliance with specific laws would not be considered control. This notwithstanding, the rule left open the possibility that requiring compliance with safety best practices and customer requirements would indicate employer-like control. This poses numerous difficult challenges for transportation entities, where customer demands for on-time delivery and safe operations are ever-present.

The 2024 Rule poses a number of other challenges for a highly regulated industry, like trucking. The 2024 Rule will govern the DOL’s enforcement of the FLSA, but it is less clear to what extent it will influence federal courts that have been interpreting the FLSA for decades. The FLSA, which governs minimum wage and overtime at the federal level, may not be a law high on the U.S. DOL’s enforcement agenda with respect to interstate trucking, because of the motor carrier exemption from overtime (for vehicles over 10,000 lbs. GVWR) and the current $7.25/hr. federal minimum wage. Nevertheless, the 2024 Rule might be used in some state actions to help persuade judges to find employment status.

The effective date of the 2024 Rule, barring a court granting an injunction, was March 11. Although the 2024 Rule does not end the independent contractor model in transportation, it highlights the need for motor carriers to review their practices and contracts.

New Jersey Increased Minimum Required Insurance to $1.5 million

New Jersey enacted a provision that will require commercial motor vehicles with GVWR over 26,000 pounds to have minimum liability insurance in the amount of $1.5 million. Beginning in July 2024, all vehicles “principally garaged” or “registered” in NJ are subject to the increased liability insurance amount. It is unclear the extent to which it may apply to trucks in interstate operations with plates issued pursuant to the International Registration Plan. New Jersey has yet to offer clarification regarding the target of enforcement or how enforcement will occur. New Jersey’s action comes on the heels of efforts over the years to increase the required minimum insurance limit of $750,000 for general freight under federal law as enforced by the FMCSA.

 

The Corporate Transparency Act

The Corporate Transparency Act (the CTA) went into effect on January 1, 2024, and requires many companies not otherwise subject to reporting obligations to submit beneficial ownership information to the US Department of Treasury Financial Crimes Enforcement Network (FinCEN). This information is not accessible to the general public. Rather, FinCEN is only authorized to disclose the information to federal agencies that oversee national security, state law enforcement agencies, and certain financial institutions, among a few others.

Unless falling within one of the 23 exceptions, companies formed prior to 2024 must submit ownership information to FinCEN by January 1, 2025. Companies formed during 2024 must submit this information within 90 days of entity formation.

CARB Advanced Clean Fleets Rules Update

The California Air Resources Board’s (CARB) Advanced Clean Fleets (ACF) regulations have a number of requirements subject to either a January 1, 2024, deadline (a prohibition on adding new drayage trucks to a California fleet that are not zero-emission vehicles (ZEVs)) or a February 1, 2024, deadline (the reporting requirement for fleets under the ACF-High Priority regulations). Because CARB has sought a waiver from the U.S. Environmental Protection Agency (EPA) to enforce the ACF regulations, CARB will not enforce the deadlines until EPA either grants a waiver or determines a waiver is unnecessary. CARB has reserved the right to require removal from a carrier’s California fleet any truck improperly added to the fleet after the applicable deadline if EPA grants a waiver (or deems a waiver unnecessary). The California Trucking Association has challenged CARB’s authority to promulgate the ACF regulations, so whether the  regulations ultimately become enforceable remains unclear.

Comments Filed In Opposition to Petitions Seeking Waiver from California and Washington Meal and Rest Break Preemption Determinations

In 2018 and then again in 2020, FMCSA determined the meal and rest break (MRB) laws of California and Washington, respectively, were preempted under 49 U.S.C. § 31141. Last year, in an unusual maneuver, FMCSA invited petitions seeking a waiver from one or both of its own preemption determinations, and several parties submitted such petitions. The deadline for comments in opposition was February 26, 2024, and the Scopelitis Firm submitted comments on behalf of several motor carrier clients, noting that the MRB laws are not a component of a state’s motor carrier safety laws, have not been enforced as such, will burden already strained supply chains, and may have a deleterious impact on safety. Readers will recall that the MRB laws have been the subject of lawsuits filed by plaintiffs’ attorneys seeking economic gain and not for purposes of enhancing safety. FMCSA’s decision is expected later this year.

Spotlight: M&A – Connecting Buyers and Sellers

The mergers and acquisitions market within the transportation industry remains strong during the first quarter of 2024.  This strength has been led both by strategic buyers looking to grow their operations via acquisition rather than organically, along with continued private equity investment within transportation, and sellers looking to exit as they reach retirement age or deciding not to reinvestment in their businesses during the current down cycle in the industry.  Regardless of the reasons for going to market, many companies have difficulty identifying and making contact with quality buyers and sellers.

The Firm’s M&A practice group has extensive experience providing services related to the buying and selling of transportation companies, including motor carriers, freight brokers, 3PLs, equipment leasing companies, and warehouse operators.  Specifically, the Firm regularly serves as legal counsel in negotiating acquisitions and sales of transportation companies and, especially important in today’s environment, it is uniquely positioned to serve as “a finder” by introducing buyers to sellers and sellers to buyers.  Due to our many years as counsel to the transportation industry, we are positioned to connect interested parties, fostering trust through that connection given the quality and character of the Firm’s client base.   Importantly, as attorneys, the confidential nature of any proposed transaction is closely guarded.

In addition to the Firm’s client base, we have many other connections throughout the transportation industry. For example, our contacts with the American Trucking Associations, Transportation Lawyers Association, and the Canadian Transportation Lawyers Association allow us to easily expand the search for potential acquisition opportunities.  Our vast network affords us the ability to identify serious buyers and sellers, rather than those who are simply “testing the water.”  We do not employ a shot gun approach where many contacts are made, instead we focus on the opportunities that meet the acquisition criteria specifically established by the client.

If you or your company is looking to pursue growth via an acquisition or considering an exit from the industry, please contact one of the Firm’s M&A attorneys, Jay D. Robinson, Jr., Todd Metzger, or Katie Feary-Gardner to discuss our finder services and an appropriate strategy for your situation.