With the definition of independent contractors (ICs) pinballing around the three-legged stool of the states, Washington and the federal courts, there’s a particular group of truck drivers with an additional level of uncertainty: those operating on lease purchases.
Whether a driver on a lease purchase program is truly independent is a central feature of a number of lawsuits making their way through the courts — including several filed by California attorney Robert Boulter, whose specialty in franchise law has branched out into a niche of lease purchase litigation.
Truck lease contracts have long been controversial. They are similar to leasing a car in that the owner of the vehicle is the company leasing out the vehicle. The person behind the wheel — often a sole truck driver who has entered into a lease — is making monthly payments that over time will work down the purchase price of the vehicle.
There are numerous ways to end that lease: with a balloon or knock-down payment that puts the truck into full ownership with the driver, or a new lease arrangement, maybe for a later-model truck (like a car driver who just goes from lease to lease, always driving a late-model vehicle).
The prospect of eventual ownership and subsequent independence is the primary selling point of lease purchases. The leases are advertised as a way a driver can gradually work toward becoming a true independent owner-operator.
That often happens. But the driver might also find the number of hours behind the wheel is barely covering the payments, or works out to a per-hour rate of compensation that makes a minimum wage job look attractive.
Sometimes the drivers just walk away from the lease. Other times they sue.
That is the theme that runs through many of the lawsuits filed by Boulter, who was part of the team that negotiated the large settlement with C.R. England over its lease program.
His firm has ongoing actions against three trucking companies over the issue of lease purchases: John Christner Trucking, Werner Enterprises (NASDAQ: WERN) and Western Flyer Express.
The suit against John Christner Trucking dates back to 2017 and has been certified as a class action for more than 3,000 drivers, though that certification is being challenged. The other suits are more recent. Boulter said none are near resolution.
Those three lawsuits, Boulter explained, focus on two key areas.
One is the issue of misclassification of the drivers as independent contractors when, the plaintiffs argue, the history of the job shows that the level of control companies have over the leasees marks them as employees, not ICs.
The suits also focus on what he described as “consumer-type claims” in which the plaintiffs are charging that the trucking companies that signed the leases with the drivers did not disclose a necessary amount of information.
The case against Werner, filed last October in Nebraska where Werner is based, has language in its introduction that sums up the argument running through the other lawsuits: “In offering the driver opportunity to drivers, defendants made misrepresentations and/or failed to disclose material information about the economic opportunity, income and miles the driving opportunity would provide and further misrepresented that drivers would be independent contractors rather than employees.”
Many lease purchases effectively tie the leaseholder to an individual company, presumably the one that offered the lease in the first place.
The wording in the Werner suit is similar to what one can find in not just other lawsuits, but the general critique of lease purchase lawsuits. Yet “there are plenty of success stories of hard-working folks who decided to build a business,” Jack Porter, managing director of the Truckload Carriers Association’s Profitability Program (TPP), said of leasing, of which he is a vociferous defender. “But the individual has to understand that truck driving jobs are hard, the truck driving business is hard.”
The end result, he said, is that lease operators are learning that making the lease successful can take a lot of work.
“When you read between the lines of some of these failures that hit the courts, it just shows that oftentimes, people think they want to have the American dream and it unfortunately doesn’t fit their lifestyle or business plan,” he said.
Matt Harris, the president of Denver-based Pathway Leasing LLC, put some numbers on it. Pathway is an independent leasing company that Harris said in an email to FreightWaves has “many relationships with carriers based on the repeated success of our program.”
Harris said that in 2020, Pathway had more than 25% of its entire portfolio complete their leases with the company. But that does not mean that the other other 75% of the leases failed, because the average lease is three years.
“To have over a quarter of our clients successfully complete their lease obligations in a year is a source of pride for our company,” he said.
Porter and others whom FreightWaves interviewed believe lease purchase programs have been unfairly maligned, with several citing the lingering effects of a USA Today article about drayage drivers that led to government officials in Los Angeles taking several steps in response. An NPR feature of the lease purchase program broadcast in 2020 was entitled “Big Rigged.”
Getting an accurate count of the number of lease trucks is pretty much impossible. Porter said there are about 35,000 trucks on the TPP platform, and about 35% of those are independent owner-operators. Porter said he would “surmise” about half of those are on lease. He did not suggest a clean extrapolation into the broader truck market. But it is a measurement, albeit imperfect.
Beyond questions of the financial obligations that lease purchase drivers are committing to, there is also the significant issue of whether a person who signs such a deal is an employee or an independent contractor while operating under the lease.
If they are found to be an employee in litigation, it raises an entirely new list of complications that will get stickier, given that the change in governance in Washington is raising new issues in the question of employee vs. independent contractor definition under the Fair Labor Standards Act.
The lawsuit against John Christner Trucking, filed in 2017, states that the action is about the company’s “policy and practice of unlawfully misclassifying its drivers as independent contractors who are exempt from the provisions of the Fair Labor Standards Act.” As a result, the suit claims, John Christner Trucking failed to perform a long list of actions that the defendant — a driver named Thomas Huddleston — believes he was entitled to, such as rest breaks and “[failure] to compensate for all hours worked.”
The reference to the FLSA is significant, because the definition of an independent contractor under the FLSA has taken several different forms in just the past few months.
A Trump administration rule seen as easing the rules to allow a worker to be defined as an independent contractor was announced in early January but effectively scuttled by the Biden administration. Precisely what the new administration will replace it with is not known.
But it is assumed by attorneys specializing in labor relations that the new definition will tilt toward defining a worker hired as an independent contractor ultimately being defined as an employee instead.
A change in the federal rules during the Trump administration on the question of joint employer and independent contractors proved to be a key moment in ongoing litigation brought by Denver-area attorney John Crone on behalf of several drivers on the question of compensation . Those drivers had lease purchase programs with Pathway Leasing.
Crone said after the trial was completed but before a verdict could be handed down — there still is not one — attorneys for defendant Pathway cited an earlier change in the Trump administration’s rule regarding joint employer arrangements, like the one Crone’s clients said existed between Pathway and CFI. It stopped the process toward a verdict in the case, Crone said.
(Pathway’s Harris confirmed there is no verdict yet. Asked if it was the change in the FLSA rule that has led to the delay, Harris said that Pathway “[has] introduced information to the court we believe is relevant to the case. What, if any, influence that has had on the status of the case is unclear.”)
As the definition of independent contractor changes from the Trump rule that was pulled back by the Biden administration and a new Biden rule, Crone noted that a court can use the FLSA definition of independent contractor in reaching a decision in future lease purchase litigation. “The court will have to look at whatever authority is binding on the court, so the FLSA rule could be applied,” he said.
Regardless of what independent contractor rules fleets will face on a federal or state level, or coming out of the court system, Porter said the trucking industry has to rise to the task of telling its story. “We don’t tell the stories of the people who are the owners, living in their trucks during the pandemic,” he said, noting that many of those people are operating those trucks under a lease purchase program.
“I think every single major trucking company got started with one truck and a dream, and look where they are today,” Porter added. “That process has not changed and in my mind shouldn’t change.”