Thinking of leasing a truck to become your own boss? If you read a recent decision from a federal court in Colorado, you may think twice about it.
Or you may not. In fact, you may conclude that it’s absolutely the right move to make.
That’s the fun in digesting the recent decision handed down last week in the U.S. District Court for Colorado. The decision comes in a case first filed in September 2016 by a large group of plaintiffs against Pathway Leasing, a major provider of leases to individuals looking to become independent owner-operators, as well as its president, Matthew Harris.
Legally, Pathway and Harris won on virtually all the key points in the case. An argument that the terms of the lease violated the Fair Labor Standards Act was rejected by the judge in the case, Kristen Mix. Charges filed by the plaintiffs that they were employees rather than independent owner-operators were rejected by the court.
The decision, when piled on the lengthy body of law regarding driver classification, comes down pretty firmly on the side of Pathway and against the idea that the lessors — who made up the plaintiffs — were employees rather than independent contractors.
But within the 45-page decision is a broad overview of some of the pitfalls and potential successes of seeking to buy a truck using a lease, which generally runs three years. The decision almost reads as a primer on what to look for when moving from being a company driver to one’s own boss with a truck acquired through a lease.
In terms of learning about leasing, Judge Mix has produced a legal document that has a little something for everybody.
Among the oddities in the lawsuit: Several of the plaintiffs who filed suit against Pathway actually completed their leases and became what they set out to be — the owner of a rig and the ability to be a company, working for whoever they want, whenever they want.
According to the decision, seven of the plaintiffs in the case as well as other identified Pathway clients managed to complete their leases, make all their payments and walked away with ownership of their truck. And yet they filed suit against Pathway along with other lessors who had far less successful experiences.
“The seven plaintiffs who successfully completed their leases then had the opportunity to earn substantially more than their peers, in addition to owning their trucks,” Mix wrote.
She cited testimony from plaintiffs, one who said he finished his lease early and took over ownership of his truck in 2015, grossed more than $200,000 in 2014, more than $170,000 in 2015 and more than $155,000 in 2016. It also said that as of mid-2018, he was driving the same truck that he acquired through the Pathway lease.
Another plaintiff testified that he was making more as an owner-operator than he did as a company driver. Critics of the lease model have long held that ultimately, when all costs are calculated, a driver is better off as a company driver. Testimony by Harris said that in 2018, about 20% of the company’s clients were leasing a second truck from Pathway.
But the pitfalls for those who aren’t prepared can be significant. As Mix said, “Not all plaintiffs fully understood all portions of the equipment lease agreement.” She cited testimony from one plaintiff who said he hadn’t read the lease in its entirety “and signed it even though he did not understand ‘parts of it,’ because he felt that he needed to get back to work and make money.”
The court cleared Pathway of any allegation that it wasn’t straight with the lessors. “Pathway gave no verbal warranties or assurances to plaintiffs about the condition of their leased trucks,” the court ruled.
But there were criticisms that drivers were not given a chance to test drive their trucks. One plaintiff said he “kind of got forced into signing” the contract and that there was pressure to sign quickly.
Whether it was failure to read the entire document or getting rushed or a combination, some drivers thought there was a warranty on the truck and that the lessor would not be responsible for maintenance costs. But in lease deals, the lessor is responsible for maintenance.
Pathway did offer loans through promissory notes to cover maintenance costs if needed, “and some plaintiffs received little take-home pay after making payments on the notes.”
Ultimately, Pathway was victorious against the charge of misrepresentation. The plaintiffs had asked for “rescission” of their leases “based on a theory of misrepresentation by defendants.” But the court rejected that request.
That argument ultimately failed based in part on the court’s decision that the plaintiffs were independent contractors rather than employees. That ruling came in the court’s decision on the question of whether the plaintiffs, as drivers, were guaranteed minimum wage and other protection under the FLSA. The decision by the court was that they were not.
It cited the six-point test of independent contractor versus employee found in the Baker precedent from 1998. One of the court’s key findings was that an independent contractor can benefit from an investment in the business, whether it is monetary or the sweat of one’s brow.
Given that the drivers behind the wheel of the leased trucks could certainly make more money the harder they worked, the FLSA claim was rejected.
With the status of the drivers as independent contractors then settled, the court then rejected what it said was Pathway’s primary misrepresentation, that the drivers “thought they were going to be true independent contractors or owner-operators [and that] was never going to be true.”
Beyond that, the court said, “there is a decided lack of evidence regarding any specific material misrepresentations made by defendants.”
It wasn’t relevant to the decision, but most of the plaintiffs in the case were driving leased vehicles from Pathway that were operating for XPO Logistics (NYSE: XPO) or Con-way, the LTL carrier XPO acquired in 2015.
The decision lands on the big stack of legal cases that will be used to determine whether a worker is an independent contractor or an employee. In this case, the court comes down pretty clearly that a driver on a lease is independent.
But beyond that, the decision should probably be read by any individual trying to make it on his or her own as an independent owner-operator. It’s a road map that has lots of unplanned advice on what not to do to get there, but also has enough success stories to demonstrate that yes, it’s possible to become your own boss through a lease.