Motor Carriers Beware - Lack of Written Independent Contractor Agreement Can Be CostlyClient Alert
Given recent changes in Ohio workers’ compensation law, “motor carriers” (as defined by Ohio law) operating in Ohio should carefully review their arrangements with independent contractor drivers and promptly implement changes to ensure compliance with statutory criteria.
This past year, the Ohio Legislature revised the definition of “employee” as applicable to motor carriers. The statutory revisions can be viewed as either a burden or benefit to the motor carrier. For the motor carrier that carefully examines its practices and ensures compliance with the statutory criteria, the new law can certainly be viewed as additional protection against increased exposure to administrative actions, lawsuits, and substantially higher workers’ compensation premiums.
Until recently, Ohio courts and the Bureau of Workers’ Compensation (and Industrial Commission) utilized a test developed at common law to determine whether a driver performing services for a motor carrier was an independent contractor or employee. The common law test required an analysis as to whether the carrier controlled the means and manner of the driver’s work – a test often subject to inconsistent application and, consequently, inconsistent rulings by the applicable tribunal. Motor carriers were left with little direction.
Revised Code 4123.01(A)(1)(d) provides the motor carrier with a test which, if followed, should help the decision-maker find that the carrier’s independent contractors remain as such in the eyes of administrative agencies and the courts. If the driver meets the following seven criteria, the driver will likely not be regarded as an “employee” for purposes of workers’ compensation:
- The contractor owns the vehicle or vessel that is used in performing the services for or on behalf of the carrier, or the contractor leases the vehicle or vessel under a bona fide lease agreement that is not a temporary replacement lease agreement. For purposes of this division, a bona fide lease agreement does not include an agreement between the contractor and the motor carrier transporting property for which, or on whose behalf, the person provides services;
- The contractor is responsible for supplying the necessary personal services to operate the vehicle or vessel used to provide the service;
- The compensation paid to the contractor is based on factors related to work performed, including on a mileage-based rate or a percentage of any schedule of rates, and not solely on the basis of the hours or time expended;
- The contractor substantially controls the means and manner of performing the services, in conformance with regulatory requirements and specifications of the shipper;
- The contractor enters into a written contract with the carrier for whom the contractor person is performing the services that describes the relationship between the contractor and the carrier to be that of an independent contractor and not that of an employee;
- The contractor is responsible for substantially all of the principal operating costs of the vehicle or vessel and equipment used to provide the services, including maintenance, fuel, repairs, supplies, vehicle or vessel insurance, and personal expenses, except that the carrier may pay the contractor from the carrier’s fuel surcharge and for incidental costs, including tolls, permits, and lumper fees; and
- The contractor is responsible for any economic loss or economic gain from the arrangement with the carrier.
With this test, motor carriers operating in Ohio should expect greater predictability in terms of application and enforcement. Motor carriers that do not effectively implement the necessary changes may find themselves deemed “noncomplying” by BWC and thus subject to costly lawsuits by injured drivers, loss of common law defenses, and administrative enforcement proceedings and assessments. Note that this test is also now used to determine the driver’s status for purposes of unemployment compensation and minimum wage and overtime laws. Motor carriers should be quick to examine their written agreements and practices.