The Transportation Brief®
A quarterly newsletter of legal news for the clients and friends of Scopelitis, Garvin, Light, Hanson & Feary
Summer 2017 | Vol. 24, No. 3

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.

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
Summer 2017 | Vol. 24, No. 3

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

Best Practices for Structuring Lease-Purchase Programs

Responding to increased interest in entrepreneurship opportunities and capacity demands, many lease-purchase programs are available for sole proprietor owner-operators. Some of these programs are available “in-house,” with the motor carrier or its equipment leasing affiliate leasing/selling the truck to the owner-operator. Other programs offered by unaffiliated equipment and finance vendors require the motor carrier to provide credit assurance and to settlement-deduct the lease payments.
These various types of lease-purchase programs fare differently under federal and state laws impacting the independent-contractor status of owner-operators. That said, several best practices have emerged from recent cases and other authorities:

  • In-house lease-purchase programs run by an affiliate instead of the carrier fare better, on average, than carrier-run “leaseback” programs, largely due to trial attorneys and paternal regulators “spinning” an employment narrative that disregards the commercial terms and market realities of the programs.
  • In certain states, an affiliate-run program preserves statutory independent contractor exemptions from workers’ compensation and unemployment laws.
  • An Equipment Lease Agreement that features commercially reasonable terms (e.g., reasonable valuation of the vehicle; owner-operator assumes risk of loss and damage to the vehicle) has been recognized by the IRS as supporting independent contractor status because it reflects the existence of an arms-length bargain between the parties.
  • Lease-purchase programs that are not exclusive to the carrier (i.e., those allowing the owner-operator to operate the truck for non-affiliated carriers) add further indicia of truck ownership by the owner-operator. However, credit assurance arrangements that facilitate the carrier-to-carrier portability of the lease-purchase program remain valid regardless of the equipment finance source.
  • Lease-purchase programs that include lease-to-buy options building equity in the truck tend to be more readily understood as an investment by the owner-operator, while many courts instead focus on the risk of loss to determine if ownership investment exists.
  • An Equipment Lease Agreement that is compliant with certain provisions of the Federal Leasing Regulations is supportive of a business-to-business relationship with owner-operators and mitigates the expense of legal disputes over their applicability.
  • If the carrier agrees to settlement-deduct lease payments (owed either to an affiliate or a third party), it should first obtain written authorization for the deduction from the owner-operator.

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.

Spotlight on Scopelitis’ Collaborative Economy/Emerging Technology Portfolio

In today’s economy, businesses are rapidly expanding and evolving to take advantage of the latest efficiency gains that technology has to offer. One such area is the collaborative economy. Alternative names for the phenomenon include gig economy, platform economy, access economy, and collaborative consumption. These names attempt to capture the concept of peer-to-peer activity that centers around obtaining, giving, or sharing access to services.  The collaborative economy stands to create a disruption in the transportation industry — users at any point in the supply chain could potentially gain instant, digital access to individuals or organizations that can help grow their audience and move their goods from place to place in the most efficient, cost-effective manner. In its early stages, this movement was seen as a niche for start-up companies. However, now that the collaborative economy has established itself as more than a trend, many large, traditional companies are expanding their services or fine-tuning their business model to take advantage of the convenience and expanded markets (for both customers and drivers) that can be gained through the use of a smartphone app or other online crowdsourcing tools.

While many businesses want to act quickly so they are not left behind in the age of the collaborative economy, approaching the transition to a collaborative model in this ever-changing environment can be a landmine in the regulated transportation industry. Many times, businesses discover that the individuals best-suited to help them are those who have a historic knowledge of the transportation industry and a cutting-edge perspective on what the collaborative economy means for the future of their business.

As part of their practice, Scopelitis Partners Greg Feary, Andy Light, and Shannon Cohen combine their unique knowledge of the transportation industry, including regulatory restrictions and best practices for independent contractor status, to help clients structure their new business models to be both flexible and defensible under existing regulations. They represent both traditional carriers seeking to expand their service offerings and new companies that intend to grow their business from the (digital) ground up. In providing these services, they examine what spaces a company may operate in with various types of operating authority, and at the same time, counsel clients regarding contractual and operational best practices to protect the independent contractor status of drivers.

The Burdens of Employing California Workers Continue to Grow

California’s Fair Pay Act was recently amended to prohibit paying employees of different genders, races, or ethnicities who do substantially similar work (i.e., work requiring equal skill, effort, and responsibility performed under similar working conditions) differently unless the disparity in pay is justified by a bona fide reason. The amendment specifies that differences between prior salaries is not a legitimate reason.

California has also increased the protections available to immigration status. It extended the definition of criminal extortion to include threats related to an employee’s immigration status as retaliation for complaints about working conditions or wage and hour disputes.

Certain California cities have also expanded their wage and hour rules, with many local ordinances having their own minimum wage and paid sick leave rules that carry steep penalties and may apply to any employee who spends at least two hours per week in the relevant city.

Arbitration with Owner-Operators Continues to Offer Promise and Peril

When correctly applied, arbitration can be an efficient method of resolving disputes and mitigating the risk of class and collective litigation. For transportation providers, arbitration poses unique challenges due to the exception from the Federal Arbitration Act for “contracts of employment” with “transportation workers.” This exemption has mired several motor carriers in lengthy battles over whether arbitration agreements with owner-operators are enforceable. Even worse, some courts have concluded that owner-operators work under “contracts of employment” as a matter of law, as in a recent opinion by the U.S. Court of Appeals for the First Circuit (Oliveira v. New Prime). Transportation providers should review state law as an alternative means to compel arbitration for disputes with owner-operators. Lease agreements that are exempt under the FAA may still be enforced under state law. While those laws will vary and require careful study, they can provide an independent means of compelling arbitration and rendering moot any question as to whether the FAA applies.

Occupational Accident Coverage in the Gig Economy

The collaborative economy or “gig economy” continues to make its mark on the independent contractor landscape. As these services and the companies that oversee them mature, the market is responding to contractors’ business needs in much the same way the market has responded to independent contractors in other, more traditional business models. One example is a new work injury policy with a pricing and coverage structure to address the on-demand, collaborative economy model in which workers may provide services for a variety of companies for successive short periods of time.

Uber and insurer OneBeacon unveiled a plan to provide such structured work injury insurance a/k/a occupational accident insurance (occ-acc) for independent contractor drivers earlier this year. While some of Uber’s drivers and third-party commentators have criticized the occ-acc program as an attempt by Uber to avoid offering workers’ compensation coverage (without regard to the threshold question of whether workers’ compensation coverage is in fact required), other industry participants and legislators have appeared willing to evaluate occ-acc as an alternative to workers’ compensation that is specifically tailored to independent contractors in the collaborative economy. In fact, three states have had such laws in place for several years as applied to more conventional owner-operator freight transportation. The value of this development is that it may lead to creative insurance coverages that can account for the increasingly flexible independent contractor model.

To the extent critics’ arguments gain traction, Uber has addressed similar concerns by adopting a decisive strategy of lobbying state legislatures to enact laws that favor the emerging gig economy, e.g., obtaining legislative exceptions to licensing laws imposed upon taxi services. Early signs indicate Uber may well pursue a similar legislative strategy to address the independent contractor status of its drivers. If it chooses to pursue legislative clarification on the issue, this could be an opportunity to clarify similar obligations in other areas of trucking and transportation. The Firm regularly monitors state and federal legislative initiatives that affect driver classification.

Warehouse Law

International Warehouse Logistics Association’s Legal Symposium- Chicago, IL

November 9, 2017
How Relationships Impact Outcomes

Trucking Industry Defense Association’s (TIDA) 25th Annual Seminar – Las Vegas, NV

October 26, 2017
Avoiding Class Action Lawsuits and Worker Misclassification

Customized Logistics and Delivery Association’s (CLDA) 2017 Fall Forum & Lobby Day “Making Washington Work for You” Conference – Washington D.C.

October 24, 2017
Warehouse Law

International Warehouse Logistics Association’s Essentials of Warehousing Course- Minneapolis, MN

October 4, 2017
Warehouse Law

Illinois Trucking Association’s Annual Meeting and Expo – Normal, IL

September 26, 2017
Government Regulation of Supply Chains Panel

Council of Supply Chain Management Professionals- Atlanta, GA

September 25, 2017
The Foreign Corrupt Practices Act: What You Don't Want to Know Can Hurt You

University of Tulsa College of Law’s Richard B. Risk Practicum CLE Series – Tulsa, OK

September 22, 2017
Asset Management and Taxes

McLeod Software User’s Conference- Atlanta, GA

September 17, 2017
E-Commerce and Final Mile's Effect on LTL and Parcel Supply Chains

2017 FTR Transportation Conference- Indianapolis, IN

September 14, 2017
  • Prasad Sharma reports on July 17, the House Committee on Appropriations passed its version of the FY 2018 funding bill for the Department of Transportation, H.R. 3353.  The bill eliminates $500 million in funding for TIGER grants (a program the funds national infrastructure projects) but increases funding for FMCSA by $113.6 million.  The bill contains a provision to clarify that state meal and rest break laws are preempted, with an effective date going back to the 1994 enactment of the FAAAA.  The accompanying report language, which is non-binding, asks the FMCSA to consider the readiness of ELD suppliers to meet the rule and to also consider the need for a delay.  FMCSA has indicated it does see the need for a delay of the ELD rule.  On July 27, the Senate Committee on Appropriations passed its version, S. 1655.  Unlike its House counterpart, the Senate panel not only funded the TIGER grant program, but it increased funding by $550 million.  Both panels funded highway programs at $45 billion, as authorized by the FAST Act. The Senate version did not contain any FAAAA relief. The 2018 fiscal year begins October 1. Congress will have to resolve their differences and pass a funding measure or some form of extension by that time to avoid a funding lapse.
  • According to J.T. Young, the U.S. Department of Labor (DOL) published a Request for Information (RFI) on July 26 indicating its intent to revisit the salary test the Obama administration had adopted for purposes of the Fair Labor Standards Act’s (FLSA) “white collar” exemption from overtime pay. The 2016 Final Rule increased the minimum salary necessary to meet one part of the FLSA test from $455 per week to $913 per week, which the DOL estimated would result in 4.2 million workers changing from exempt to non-exempt status. By a final order issued on August 31, a District Court has enjoined enforcement of the Final Rule. The RFI seeks input on 11 questions designed to aid the DOL in formulating a new rule, including whether there should be a salary component to the standard test. Written comments are due by September 25, 2017.
  • Despite efforts to repeal the Affordable Care Act, continued compliance with the ACA’s Employer Mandate is still necessary. Katie Feary-Gardner reports that in a Chief Counsel’s Office letter to a congressional representative, the IRS indicated that it intends to enforce this obligation, including the use of substantial penalties for failing to comply. The penalty amounts will vary depending on the number of full-time employees offered coverage by those employers subject to the ACA Mandate. Until there is further action with respect to the ACA, employers are advised to revisit their ACA compliance practices.