The Transportation Brief®
A quarterly newsletter of legal news for the clients and friends of Scopelitis, Garvin, Light, Hanson & Feary
Summer 2019 | Vol. 26, 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.

We are pleased to announce that Jared Kramer has joined the Firm’s Chicago office.  Mr. Kramer’s practice is primarily devoted to the Class Action Defense and Complex Litigation Practice Group.

Congratulations to Thakena Hogue who began her law practice this spring as an associate in the Indianapolis office.

Scopelitis attorneys on the latest transportation industry news and trends.

View Dispatches

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

View On The Road

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 2019 | Vol. 26, No. 3

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

Dynamex Weeds are Growing in the Garden State

Last year, the California Supreme Court expressed its belief that California public policy favors the classification of most workers as employees when it deemed the so-called ABC Test applicable to employment status determinations under various California laws in Dynamex Operations West, Inc. v. Superior Court. Because the “B” prong of the ABC Test considers whether the alleged employee performs work that is outside the normal course of the hiring entity’s business, and owner-operators’ normal course of business is often summarily (and erroneously) perceived as within the normal course of a motor carrier’s business, the Dynamex decision hit the trucking industry particularly hard.

As an outgrowth of Dynamex, transportation companies that rely on independent contractors for capacity have modified their operations to reduce the likelihood of worker classification claims and bolster their defense in the event such claims take root in California and elsewhere.  In whack-a-mole-like fashion, supposed public policy concerns akin to those expressed by the Dynamex court have recently popped-up in New Jersey (another ABC Test state), thereby increasing the Garden State’s allure to adversaries as fertile ground for a misclassification battlefront.

In July 2019, the New Jersey Department of Labor and Workforce Development released the Report of Governor Phil Murphy’s Task Force on Employee Misclassification. The Report specifically enunciates the “prevalence” of worker misclassification in the transportation and delivery service industry. It further encourages New Jersey lawmakers to adopt legislation modeled after California Labor Code provisions targeting misclassification in the transportation industry. Just days after the Report was published, a New Jersey appellate court issued a decision deeming owner-operators to be employees for purposes of New Jersey’s wage deduction law in Morales v. V.M. Trucking, LLC.

Transportation companies that utilize independent contractors in New Jersey continue to scrutinize their independent contractor model and implement operational changes to clarify their status as non-employers of owner-operators.  Implementing a modified compensation structure, doing business with small motor carriers, or adopting a gig economy platform are a few options being explored to address what may appear to be a dynamic political shift in the law.

Spotlight on Taxation Practice – Federal Employment Tax IC Classification Portfolio

Highly publicized cases and legislative initiatives have triggered increased scrutiny of non-asset-based transportation companies that engage owner-operators to furnish equipment and professional driving services as independent contractors (ICs). While headlines tend to focus on private, class-action litigation championed by the plaintiffs’ bar, federal employment tax audits remain an equally active battlefront for transportation companies that engage ICs. The ripple effects of such audits may be significant, particularly given the IRS’s information-sharing initiative with the U.S. DOL and state unemployment tax agencies.

Several special IRS programs are designed to focus on worker classification as a stand-alone issue. However, an IRS worker classification audit may stem from other IRS proceedings, including:

  • A general corporate income tax audit if the IRS learns the taxpayer under examination has issued multiple Form 1099s
  • Routine examinations of quarterly Form 940 and 941 tax returns
  • IC-initiated SS-8 determination requests (i.e., a process often initiated by an allegedly misclassified IC undergoing a personal income tax audit).

Because of this, it is best to use caution when responding to any IRS inquiry regarding worker classification, even if the initial inquiry relates to just one allegedly misclassified IC. A timely and thorough initial response may substantially reduce the likelihood of misclassification liability exposure. Often, these responses rely on the safe harbor available under Section 530 of the Internal Revenue Code, which is a legislative relief mechanism born out of the overly aggressive IRS independent contractor reclassification efforts in the 1970s. In the event of a misclassification determination, a putative employer may still limit its federal employment tax liability through strategic participation in various programs providing for reduced tax rates.

The Firm’s employment tax group regularly assists clients — both directly and behind the scenes — when responding to IRS inquiries. These matters include not only worker classification matters, but a multitude of other employment tax issues including, accountable (or “per diem”) plan expense reimbursement issues and matters involving interstate drivers properly classified as employees, such as state and local withholding tax issues.

Scopelitis Partner Steve Pletcher directs the Firm’s employment tax group along with assistance from Partners Kelli Block and Becky Trenner.

Mergers & Acquisitions-Deal Failures in Hot Trucking Market

Over the past five years or so, private equity firms and a steady stream of strategic buyers in the trucking market have taken a renewed and active interest in acquiring transportation businesses.  Despite an active market, in part due to greater availability of loans and underwriting insurance, deal failures have occurred with greater frequency. In large part, the failures pivot on technical legal issues involved in transportation-related transactions. Such issues include permits, authorities, and licensing problems often in highly sensitive areas involving hazmat, TSA, and federal maritime commission regulations. A fundamental misunderstanding of independent contractor documentation and operational practices also lead to problems. In addition, the asset-light logistics laws (where penalties have been added to inspire greater enforcement) have given insurers significant pause, while also discouraging sellers who are called upon to place greater sums in escrow. A number of these issues can be discovered and resolved via a mock due diligence audit. With some foresight by current owners as to the future sale of the transportation business, a mock audit might benefit both buyers and sellers—long before a deal is being discussed.

Canada’s Final ELD Rule

Transport Canada published its final ELD rule with a compliance date of June 12, 2021. While there is significant overlap with the U.S. ELD rule, there are notable differences of which cross-border motor carriers should be aware. First, when operating a commercial motor vehicle in Canada (even on a temporary basis), a motor carrier must operate with an ELD that complies with the Canadian ELD rule. The Canadian ELD rule requires ELDs to be certified through third-party testing prior to use in Canada.  There is not a grandfathering period for use of non-certified or U.S. “self-certified” ELDs. Next, personal conveyance will be capped at 75 kilometers in a 24-hour period, and any movement beyond this limitation will result in an automatic duty-status change to “on-duty driving.” Driver- and motor carrier-malfunctions are treated differently under the Canadian ELD rule, and motor carriers will be required to maintain a detailed log of malfunctions. Lastly, the Canadian ELD rule exempts ELD use for rentals up to 30 days in length and for drivers operating under either a permit or statutory exemption. It is expected that many self-certified U.S. ELD vendors will offer an over-the-air software upgrade to assist with compliant cross-border operations.

We are pleased to announce that Jared Kramer has joined the Firm’s Chicago office.  Mr. Kramer’s practice is primarily devoted to the Class Action Defense and Complex Litigation Practice Group.

Congratulations to Thakena Hogue who began her law practice this spring as an associate in the Indianapolis office.

Legal Issues Facing the Warehousing Industry

Legal Issues Facing the Warehousing Industry

Oct 2, 2019, Kevin  M. Phillips, International Warehouse Logistics Association’s Essentials of Warehousing Course – Jacksonville, FL

October 2, 2019 | Jacksonville,FL
Women in Trucking’s Accelerate! Conference & Expo

Rebecca Trenner, Shannon Cohen and Jannie Steck will attend the Women in Trucking’s Accelerate! Conference & Expo, September 30 – October 2, in Dallas, Texas.

September 30, 2019 | Dallas, Texas
Model Update

Model Update

Sep 20, 2019, Canadian Transport Lawyers Association’s 2019 Annual Conference – Winnipeg, Manitoba

September 20, 2019 | Winnipeg,Manitoba
Canadian Transport Lawyers Association’s Annual Conference

Don Vogel will attend the Canadian Transport Lawyers Association’s Annual Conference on September 19 – 21, in Winnipeg, Manitoba as a member of the Education Program Committee.

September 19, 2019 | Winnipeg, Manitoba
Canadian Transport Lawyers Association’s Annual Conference

Fritz Damm will attend the Canadian Transport Lawyers Association’s Annual Conference, September 19-21, in Winnipeg, Manitoba

September 19, 2019 | Winnipeg, Manitoba
Update on the Overlap of U.S. DOL and DOT Regulations Impacting Employment Issues

Update on the Overlap of U.S. DOL and DOT Regulations Impacting Employment Issues

Sep 16, 2019, James H. Hanson, North American Transportation Employee Relations Association’s 2019 Building Block of Employee Relations Conference – Alexandria, VA

September 16, 2019 | Alexandria, VA
North American Transportation Employee Relations Association’s Building Block of Employee Relations Conference

Don Vogel and Fritz Damm will attend the North American Transportation Employee Relations Association’s Building Block of Employee Relations Conference, September 16 – 17, in Alexandria, VA.

 

September 16, 2019 | Alexandria, VA
Current Warehouse Legal Issues

Current Warehouse Legal Issues

Sep 13, 2019, Eric J. Meyers, Kevin  M. Phillips, Southeastern Warehouse Association’s Annual Convention – Longboat Key, FL

September 13, 2019 | Longboat Key, FL
Protecting the Independent Contractor Model

Protecting the Independent Contractor Model

Sep 10, 2019, Kelli M. Block, FTR Transportation Intelligence 2019 Transportation Conference – Indianapolis, IN

September 10, 2019 | Indianapolis, IN
Dealer Regulatory Matters: Understanding How Federal and State Trailering Regulations May Impact You and Your Customers

Dealer Regulatory Matters: Understanding How Federal and State Trailering Regulations May Impact You and Your Customers

Sep 6, 2019, North American Trailer Dealers Association’s Trade Show & Convention – St. Louis, MO

 

September 6, 2019 | St. Louis, MO
Michigan Trucking Association’s Annual Meeting

Michael Tauscher will attend the Michigan Trucking Association’s Annual Meeting, August 22 – 24, in Traverse City, MI.

August 22, 2019 | Traverse City, MI
Current Issues with Motor Carrier Excess Insurance Panel

Current Issues with Motor Carrier Excess Insurance Panel

Aug 15, 2019, American College of Transportation Attorneys’ 10th Annual Motor Carrier Industry Meeting – Chicago, IL

August 15, 2019 | Chicago, IL
Trucking and the Ever-Changing Landscape

Trucking and the Ever-Changing Landscape

Aug 8, 2019, John W. Greene, the Texas Trucking Association’s 2019 Annual Conference – Bastrop, TX

August 8, 2019 | Bastrop, TX
Texas Trucking Association’s 2019 Annual Conference

Jim Ellman attended the Texas Trucking Association’s 2019 Annual Conference, August 7 – 9, in Bastrop, TX.

 

August 7, 2019 | Bastrop, TX
Protecting the IC Broker Model

Protecting the IC Broker Model Aug 6, 2019, Gregory M. Feary, National Home Delivery Association’s 2019 Forum Program – Denver, CO

August 6, 2019 | Denver, CO
Advocacy Committee Panel

Advocacy Committee Panel

Aug 5, 2019, Prasad Sharma, National Home Delivery Association’s 2019 Forum – Denver, CO

August 5, 2019 | Denver, CO
National Home Delivery Association’s 2019 Forum Program

Andy Butcher attended the National Home Delivery Association’s 2019 Forum Program, August 5 – 7, in Denver, CO.

 

August 5, 2019 | Denver, CO
Warehouse Law Update

Warehouse Law Update
Jul 30, 2019, Kevin M. Phillips, Global Cold Chain Association’s Policy Forum – Washington, D.C.

July 30, 2019 | Washington D.C.
  • Motor carriers will no longer be permitted to use AOBRDs within their fleets after December 16, 2019. Complete transition to ELDs by December 17, 2019 is mandatory. Due to vendor support and fleet integration concerns, Jerad Childress recommends fleets transition from AOBRD to ELD by the end of October leaving ample time to address unanticipated compliance issues before the deadline.
  • According to Jeff Jackson, the Indiana Department of Revenue (INDOR) has continued to aggressively assess statutory civil penalties on motor carriers for past overweight/oversize violations. These assessments can reach as high as $5,000 per violation and can involve citations dating back 3 years. Mr. Jackson has had significant success defending motor carrier clients against these weighty assessments.
  • Companies incorporated in Delaware should be on the lookout for an “invitation” from the Delaware Secretary of State (SOS) to participate in the Voluntary Disclosure Agreement (VDA) Program the SOS makes available for purposes of complying with Delaware’s Abandoned or Unclaimed Property (AUP) law. Kelli Block advises that the SOS refer any invitee that does not enroll in the VDA Program within 60-days of the invitation mailing to the State Escheator for an examination of the company’s compliance with Delaware AUP law.
  • Although last year’s FAA Reauthorization Act directed the FAA to issue regulations authorizing the carriage of property for compensation by small drones, that rulemaking has taken a back seat to work on drone traffic management and remote identification rules.  According to Prasad Sharma, using an existing authorization process utilized by passenger and cargo air carriers, the FAA authorized Google’s Project Wing in April to make drone deliveries around the Blacksburg, VA area, and UPS applied for similar air carrier authority for drone delivery operations in late July.
  • Blockchain technology continues to be a hot topic throughout the transportation/logistics industry. An increasing number of companies believe it has the potential to positively revolutionize aspects of commerce, generally, and transportation/logistics, specifically. Blockchain’s ultimate effect on the industry has yet to be defined, but Jeff Jackson advises early adopters of this technology to be careful. It is important to closely vet and review the terms and conditions and the underlying “smart” contracts of any blockchain before committing.  An important benefit of blockchain technology (but one that may be a double-edged sword) is the level of transparency between the participants. Companies should be specific about information they are willing to share (make public) and properly assess security risks.
  • Jeff Jackson reports a continued uptick in the number of motor carriers and third-party intermediaries, including property brokers, facing significant retrospective premium assessments due to the inclusion of uninsured independent contractor pay in the premium audit calculations by their workers’ compensation (WC) insurers.  With respect to property brokers, Mr. Jackson notes that more and more WC insurers are considering whether to include compensation paid to uninsured third-party motor carriers when calculating premium (with some aggressively doing so). Companies should challenge these assessments by strongly asserting the drivers’ or carriers’ independent contractor status during the insurer’s internal dispute procedures and then via the available state administrative channels.