Independent Contractors: A Driving Force in Intermodal
There’s been a more concerted effort in recent months and years in some parts of the U.S. for intermodal drivers who are independent contractors to be reclassified as employees.
Elected officials in New Jersey, California and elsewhere have passed or proposed legislation that would push trucking companies that rely on independent contractors toward making the drivers employees.
Legislators in some cities and states across the U.S. are championing so-called ‘ABC’ tests, in which contractors fitting any one of three specified criteria [A, B or C] can be classified as employees of the company they work for.
The legislation is mostly aimed at protecting workers for rideshare companies like Uber and Lyft, but affects any business that relies on contractors.
Although there has been a small, yet vocal, group of drivers that have advocated for such a change, they are in the minority as Insights has learned there are more drivers who prefer the freedom that being an independent contractor offers.
Among them is Roberto Ramos, an independent driver for Eagle Systems’ Kearny, New Jersey operation. Ramos, who said he’s worked as an owner-operator for over 25 years, told Intermodal Insights that he previously was a company driver before going out on his own.
"The reason I left [is] I saw the benefits of being an owner-operator outweighed the benefits of being a company driver," he said.
Another driver preferring the independent life is Felix Mercedes, who also works for Eagle Systems in New Jersey and also previously spent time as a company driver.
"When I met an owner-operator from Eagle Systems, he made me realize the opportunities that I missed not becoming one, and he took me under his wing and I worked for him in his other truck. After a year with him, it inspired me to become an owner-operator. Now, working on my own as a contractor, I have a choice to where I go, how I run and what I can do. I have all the control.
"I am currently working on getting another truck for another driver so that way I can start this cycle again, and hopefully inspire another person to challenge themselves and be an owner-operator as well," Mercedes added.
Lawmaker Efforts Likely to Impede Business
However, Ramos and Mercedes work in a state in which the legislature is moving toward making it more difficult for trucking companies to operate unless their drivers are company employees.
New Jersey legislators appear poised to pass S67, the Portable Benefits Act for Independent Contractors, in an upcoming session. If passed, the bill would create a financial disincentive to businesses utilizing contractors by requiring companies that employ 50 or more contractors in 12 consecutive months within the state to contribute funds to a trust fund for the benefit of the independent contractors, provide them with workers’ compensation and other benefits.
The amount contributed would have to equal 25% of the contractor’s total fee or $6 per hour, prorated to 10 cents per minute, and contributions would have to be made at least monthly.
Critics say that if passed into law, the bill could substantially increase the cost of using independent contractors within New Jersey. The bill continues what some say has been a months-long concerted effort to stamp out the contractor industry.
"Over the past year, NJ has systematically changed rules and regulations making it impossible to be an independent contractor," New Jersey Motor Truck Association Executive Director Gail E. Toth said.
"From the many independent owner-operators I have spoken to, they all want to be owner-operators," Toth said. "They want the flexibility of time to work when they want, they want to take time off when they want and many have extended vacation time — which an employee driver can’t get. Ultimately, they generally make more than their employee counterpart. If they wanted to be an employee truck driver there are tons of opportunities. No one is forced to be an owner-operator — it’s their choice."
"Our drivers, they favor the independent contractor model, that’s what they want to do," added Eagle Systems President and CEO Dave Hensal, who said that some of his drivers have said it’s part of their American dream to own their own business, and that they like the flexibility of being a contractor because many of Eagle’s drivers are immigrants and like to be able to take time off and go back to their home countries for two or three weeks at a time, especially around the holidays.
"If they were to be an employee, they wouldn’t have that opportunity," Hensal said. "And I think the majority of them believe they can earn a better living by running their own business and being an independent contractor."
Hensal also said that he believes that politicians favor the employee model in order to help organized labor to try to get drivers to eventually become union members.
Eagle, which operates under a 100% independent contractor model, runs about 400 trucks nationwide, including 55 trucks in New Jersey, Hensal said. The narrative that most drivers want to be employees is false and is being spread by a very vocal minority, Hensal said, adding that independent contractor drivers could do more to let the public and politicians know that they’re fine with not being classified as employees.
"We need them to speak up more and get their message out that it isn’t just the companies saying that this is the model that we want to do, the reality is that these guys want to run their own business," he explained.
Peter Schneider of central California-based TGS Transportation, said that when asked, the majority of his company’s drivers have said they prefer being independent contractors.
"We have had drivers go both ways … employee to IC and vice versa," he said. "They usually start as a company driver, save up, then buy their own truck and become an IC. We don’t care either way, we just want them to be successful and happy."
The president of a trucking company east of the Mississippi River told Intermodal Insights that they believe 95 out of 100 independent owner-operators would like to keep their current status, and that 80 out of 100 company drivers would prefer to be independent contractors.
The executive, who asked not to be quoted by name, also said that when drivers want to be employees, it’s usually because they prefer not to leave certain aspects of work to others.
"We have some drivers that are not good business people or they don’t have success with owning a truck for a variety of reasons," the person explained. "Not all owner-operators are successful. When that happens, we have let drivers become company drivers for us. Most get frustrated and leave as they lose some of the advantages of being an owner-operator — flexibility, start when they want, leave when they want, time off when they want, etc."
The AB5 Effect
California is another state with a big push to reclassify some contractors who meet certain criteria as employees. The most recent drive is in the form of Assembly Bill 5, or AB5, which would make it harder for companies to classify workers as independent contractors rather than employees.
The legislation, which was signed into law in mid-September and is set to go into effect Jan. 1, 2020, implements a legal ruling last year by the California Supreme Court regarding workers at delivery company Dynamex, in which a strict standard was set for who’s considered an employee.
AB5 puts the burden of proof on employers to show that a worker is properly classified as an employee or independent contractor. It codifies a type of ‘ABC’ employment test where a hiring entity must demonstrate that a worker is A: free from direction and control, B: performing work outside the usual course of the hiring entity’s business, and C: engaged in an independently established occupation, trade or profession. Fail any of those three prongs of the test and the worker is considered by the state to be an employee.
"It has been evident that the California legislature and courts were not accepting of IC relationships in transportation," C.R. England President of Intermodal Brandon Leonard said. "This appears to essentially outlaw the transportation independent contractor as we know it. While there will be abundant litigation over this issue, we think it is very risky to hire an independent contractor as a driver if you are a motor carrier. It may also be risky for shippers."
"The bottom line," Schneider added, "is that AB5 is making it harder for a truck driver to stay or enter the marketplace as an IC."
No one in the industry that Intermodal Insights spoke with said they oppose the concept of company drivers, but they believe drivers should be able to choose which business model they prefer, not have one placed upon them via government regulations. Certain stakeholders within the goods transport industry have so many issues with the legislation that on Nov. 12, the California Trucking Association sued to stop the law from taking effect, claiming that it would deprive more than 70,000 contractor drivers of an ability to work.
"Independent truckers are typically experienced drivers who have previously worked as employees and have, by choice, struck out on their own. We should not deprive them of that choice," CTA CEO Shawn Yadon said.
Weston LaBar, CEO of the Harbor Trucking Association, said that his organization has always supported giving drivers an option.
"We support the ability for companies to choose their business models and for drivers to choose the type of business model they want to drive for," he said. "Most companies and drivers have chosen the independent model, which is why labor has reverted to their attempts to mandate the employee model on companies and drivers alike."
As far as how AB5 changes things in California for drivers and the companies they work for, LaBar said that right now, it is too soon to tell.
"There are many moving parts, including trailer legislation, ballot measures and federal litigation," he explained. "The next 6-12 months will be very important as we figure out what rules we have to play by and if AB5 even applies to the interstate trucking community."
But although there’s a strong belief among many in the trucking industry that most drivers prefer to be independent contractors, that’s not to say that there shouldn’t also be a role for an employee driver model, some say.
"There will always be a role for employee drivers to provide core services," Yadon told Intermodal Insights. "The question is, what is lost in terms of productivity, quality of drivers and ability to provide consistent service if owner-operators can no longer service the intermodal sector?"
"Different companies have different models," LaBar added, "and there is a place for every type of business model and driver classification."