- Owner-Operators Can Be Classified As Independent Contractors
- August 26, 2003 | Author: Andrew L. Levy
- Law Firm: McNees Wallace & Nurick LLC - Harrisburg Office
The Pennsylvania Supreme Court recently decided a case of monumental importance to motor carriers with owner-operator relationships. In Universal Am-Can v. WCAB (Minteer), the state Supreme Court held that an owner-operator who was injured on the job was not entitled to recover workers' compensation benefits from the carrier lessee.
Clarence Minteer was an owner-operator of a tractor-trailer unit. Pursuant to an operating agreement, Minteer's tractor-trailer was under lease to Universal Am-Can. While making a shipment, Minteer fell from his truck and sustained serious injuries as he was attempting to secure a tarp. Minteer then filed a claim for workers' compensation benefits against Universal Am-Can claiming that he was an employee who was entitled to benefits under the Workers' Compensation Act.
The Workers' Compensation judge concluded that Minteer had established that he was an employee, since Universal Am-Can controlled the work to be done and the manner in which it performed. The judge's decision was based, in large part, upon the terms of the operating agreement which provided that Universal Am-Can took exclusive control of the leased unit and imposed significant requirements on the manner in which Minteer was to perform his job. Both the Workers' Compensation Appeal Board and the Commonwealth Court of Pennsylvania affirmed. The Commonwealth Court agreed with the judge's decision that Universal Am-Can controlled Minteer's work; however, the Commonwealth Court went even further in its decision and also found that federal and state motor carrier regulations created an "irrebuttable presumption" that the use of a carrier's insignia upon the tractor-trailer of an owner-operator creates employee status. Under the Commonwealth Court's decision, every owner-operator would have been deemed an employee of the carrier whose permit he or she was shipping under.
The Pennsylvania Supreme Court reversed the order of the Commonwealth Court and held that Minteer was not entitled to workers' compensation benefits, since he was not an employee of Universal Am-Can. First, the Supreme Court rejected the notion that federal and state motor carrier regulations mandate a finding of employee status when a driver places a carrier's insignia on his or her vehicle. The Supreme Court noted that in order for Minteer to operate under Universal Am-Can's ICC and DOT permits, the parties were required to enter into a contract or operating agreement and that the motor carrier regulations required Universal Am-Can to maintain exclusive possession, control and use of its leased vehicles. However, contrary to the Commonwealth Court, the Supreme Court held that even though the motor carrier is required to maintain exclusive possession, control and use of its leased vehicles, the regulations do not require that an employment relationship exists between the motor carrier and the owner-operator. The Supreme Court relied upon the following provision in the federal regulation:
Nothing in the provisions of paragraph (c)(1) of this section is intended to affect whether the lessor or driver provided by the lessor is an independent contractor or an employee of the authorized carrier lessee. An independent contractor relationship may exist when a carrier complies with 49 U.S.C. 11107 and the attendant administrative requirements. 49 C.F.R. §376.12(c)(4).
The Supreme Court concluded that the language of the federal regulations clearly provide that compliance with the regulatory requirements cannot serve to establish an employment relationship. Accordingly, the Supreme Court flatly rejected the Commonwealth Court's conclusion that an owner-operator's use of a carrier's insignia will mandate a finding of employee status.
After rejecting the notion that federal and state regulations mandate a finding of employee status, the Court went on to examine whether Minteer had established that he was an employee of Universal Am-Can under the applicable common law principles. The Supreme Court set forth the following test to be applied when determining employee/independent contractor status:
While no hard and fast rule exists to determine whether a particular relationship is that of employer-employee or owner-independent contractor, certain guidelines have been established and certain factors are required to be taken into consideration.
Control of the manner in which work is to be done; responsibility for result only; terms of agreement between the parties; the nature of the work or occupation; skill required for performance; whether one is engaged in a distinct occupation or business; which party supplied the tools; whether payment is by the time or by the job; whether work is part of the regular business of the employer; and also the right to terminate the employment at any time.
Whether some or all of these factors exist in any given situation is not controlling. However, the Supreme Court made clear that "control over the work to be completed and the manner in which it is to be performed are the primary factors in determining employee status." In this regard, it is the existence of the right to control that is significant, irrespective of whether the control is actually exercised.
Applying this test to the case at hand, the Supreme Court held that Minteer had not established that he was an employee of Universal Am-Can. The Court reached its determination despite the following standard provisions in the operating agreement:
- Universal Am-Can had exclusive control of Minteer's tractor-trailer unit.
- Minteer was required to place Universal Am-Can's identification insignia on his truck.
- Although Minteer had a right to haul cargo for others, he could exercise this right only if Universal Am-Can had no cargo to haul and only with the permission of Universal Am-Can.
- While Minteer was fully responsible for hiring, firing and directing drivers of his tractor-trailer, Minteer was required to obtain Universal Am-Can's approval of all drivers he selected.
- Minteer was required to comply with Universal Am-Can's drivers manual which required him to contact Universal Am-Can's dispatcher by telephone every 12 or 24 hours in order to conduct mandatory vehicle inspections, to observe speed limits, to cover all loads with tarps and to comply with hours of service requirements.
After casting aside all aspects of the relationship that were required by the state and federal motor carrier regulations, the Supreme Court held that Universal Am-Can did not exercise any control over Minteer's work with respect to any other aspect of the relationship. In this regard, it was extremely significant that Minteer retained the right to refuse assignments, to choose his travel routes, to maintain and fuel his tractor-trailer and to hire and fire his drivers and haul loads for other carriers subject to Universal Am-Can's approval. The fact that Minteer's right to haul loads for others was subject to Universal Am-Can's approval did not indicate that Universal Am-Can controlled his work, since such approval was required by the motor carrier regulations. Such "trip leasing" arrangements are standard in the industry and are required under the federal motor carrier safety regulations. Since Universal Am-Can assumed complete responsibility for the operation of the tractor-trailer unit for the duration of the lease with Minteer, in the absence of a trip lease with a different authorized motor carrier, Universal Am-Can would be ultimately responsible for the use of the equipment even when the shipment was being made for a different carrier. Thus, the Court did not believe that the trip leasing arrangement was in any way relevant to the determination of employment status.
The Supreme Court's decision establishes that the motor carrier regulations do not create an employment relationship with owner-operators, and that compliance with these regulations should not be considered in the determination of whether such a relationship exists. However, the Supreme Court's decision does not foreclose the possibility that, under certain circumstances, an owner-operator could be deemed an employee of a motor carrier.
We advise all of our clients to take this opportunity to review existing and potential relationships with owner-operators to ensure that an employment relationship has not been inadvertently created.