Independent Contractor Misclassification Made Clear



Recently the Department of Labor (DOL) provided guidance and clarification on how independent contractors should be classified according to the Fair Labor Standards Act (FLSA). Worker complaints concerning misclassification across all industries brought about by poorly written contracts and negligence to adhere to contractual obligations has made this a major issue for businesses who employ contractors. Taking into account the large number of driver owner-operators, this guidance will have a major impact on the transportation industry.

The DOL is where complaints are initially filed and eventually make their way to the courts. So while the DOLs guidance does not carry the force of regulation, they do make their position clear in this matter that when contracting with an independent contractor, the employer must follow these guidelines or face workers complaints that can lead to increased audit activity. Neither of which are good for business.

Independent contractor lawsuits due to misclassification can be costly and damaging to your reputation as a motor carrier who utilizes owner-operators and wants to maintain this relationship. It is good practice to regularly review your owner operator lease agreements and then follow them as written. A recent audit of a standard motor carrier lease agreement by HUB’s Transportation team highlighted the following issues that if audited could deem the independent contractor an employee.

  • The language in the agreement didn’t apply to the motor carrier using it. 
  • The agreement referred to workers’ compensation coverage, when the motor carrier meant occupational accident coverage. 
  • The contract specified that the motor carrier would “provide” items to the independent contractor, which if audited could render the contractor a full employee.

Unfortunately, these findings are typical. Make sure your lease agreement is consistent with your business operations and comprehensive in nature. We recommend the following to mitigate worker complaints and protect your business.

  1. Regularly have your independent contractor agreement reviewed by a labor or transportation attorney.
  2. Review policies and procedures to ensure that independent contractors are not being treated like employees. This includes dispatch, uniform, and time off requirements.
  3. Educate your supervisors on how to interact with independent contractors. They cannot violate the terms of the agreement made with your independent contractors.
  4. Review best practices for utilizing independent contractors.
  5. Contact your local HUB representative to ensure that insurance options are available to protect the financial interests of independent contractors. These can include cargo insurance, occupational accident insurance, and non-trucking liability insurance.
  6. Maintain a good relationship with all drivers so that they do not have the desire to report your organization in retribution for a wrong that they feel was done to them.

HUB Transportation offers guidance and counsel on contractual issues related to owner-operator agreements. Look for the upcoming eBook, Don’t Get Caught Asleep at the Wheel that advises on contractual best practices and highlights cautionary tales of contractual issues gone wrong, and then take the survey to test your knowledge on owner-operator agreements.

Contact a HUB Transportation expert.