Legal battle over trucking independent contractors
The trucking owner-operator business model is getting more legal challenges. The 7th U.S. Circuit Court of Appeals overturned a lower court decision in May 2021 that ruled in favor of Schneider’s contract terms, creating a situation where an owner-operator is effectively an employee based on its interpretation of the Fair Labor Standards Act.
The suit, filed in July 2020 by Eric Brant, claimed he was effectively an employee instead of an independent contractor while driving for Schneider National between December 2018 and August 2019.
In reversing the decision, the federal appeals court wrote, “The district court erred by giving decisive effect to the terms of Schneider’s contracts. In many areas of the law, the district court’s approach would be sound but not under the Fair Labor Standards Act. … In determining whether a person is an employee under the Act, what matters is the economic reality of the working relationship, not necessarily the terms of a written contract. The FLSA is designed to defeat rather than implement contractual arrangements.”
Large carriers traditionally utilized owner-operators under lease to the carrier as a cost-saving tool, since they gain access to trucking capacity but save costs on health care, maintenance and other employee-related perks.
What I find notable is the legal escalation by both the 7th Circuit and 9th U.S. Circuit Court of Appeals via the California AB5 ruling. What will be important to watch is whether the Supreme Court will review these cases in the fall and the potential ramifications for the trucking industry. A change in the owner-operator structure for large carriers could bring about unforeseen rises in costs and operational changes to freight networks.
Loaded and Rolling episode: The hidden costs of trucking compliance
On Tuesday, I had the pleasure to speak with Hunter Yaw, LogRock CEO and co-founder, about the challenges many trucking companies face as they navigate the complex process of compliance documentation.
Depending on the trucking company’s size, the safety and compliance leader can be the dispatcher or part of a stand-alone department in a large organization. All of this back-office effort adds costs, and for trucking companies those costs are not often easily recognized.
Below are a few facts and figures from Hunter that also appear in an interview with FreightWaves’ Grace Sharkey.
- For a fleet of 70 drivers to be compliant with federal regulations, you need to keep track of over 3,010 documents.
- Trucking companies strong on compliance and safety boast 7% higher driver retention rates because the best and most loyal drivers want to work for companies with good records.
- There is a major financial risk to any trucking company that is actually not listed here — getting into conditional or unsatisfactory status with the Department of Transportation. If that happens, access to premium freight dries up when shippers and brokers cut you out, and your average rate per mile will likely drop by around 20%.
- The average cost to replace a driver — when you include plane tickets, hotels, background checks and idle equipment — while you wait for a new one to start is $9,500.
I highly recommend the article and the Loaded and Rolling interview if you want to learn more about trucking compliance.
Another interesting topic examined was the recent nuclear verdicts against large trucking companies and how opportunistic trucking injury law firms will purposefully wait years until close to the statute of limitations in an attempt to catch the trucking company for failure to properly keep record of all its documents.
Market update: Class 8 orders slump in July
In spite of souring demand, preliminary Class 8 truck orders for July fell to 10,600 units, the lowest level since November 2021. Part of the reason, the FTR Transportation Intelligence report noted, was OEMs have run out of build slots for 2022 and have not started orders for 2023 due to ongoing supply chain disruptions.
“Orders, though paltry, met expectations since OEMs have filled almost all available build slots this year,” said Don Ake, vice president of commercial vehicles for FTR. “July is typically the weakest order month of the year, so it is no surprise orders dipped to around 10,000 units. Fleets continue to shop around, looking for available trucks, but they are becoming increasingly difficult to find. The supply chain is improving very slowly but not nearly enough to meet demand.
FreightWaves’ Alan Adler wrote that truck dealerships are noting demand remains strong.
“We believe that because of supply constraints retail sales of Class 8 trucks have lagged demand by as many as over 100,000 trucks the last couple of years,” William “Rusty” Rush, CEO of Rush Enterprises, said in the company’s second quarter earnings call. “This pent-up demand for Class 8 truck sales and the pending changes to emissions guidelines in 2024 and 2027 [mean] the commercial vehicle market will remain strong through 2026.”
FreightWaves’ SONAR spotlight: Fuel prices hot on West Coast, while Midwest and Northeast feeling heat
Summary: The recent downward movement in diesel prices reported by the DOE/EIA will have various impacts across the country. The DTS, or Diesel Truck Stop Actual Price Per Gallon, is the average price of diesel fuel in a given market expressed as dollars per gallon. The map above shows the challenges carriers face when attempting to price into markets where fuel is more expensive. For larger carriers, they will purchase fuel at steep discounts due to buying agreements with various truckstop fuel providers. But smaller carriers that lack the size and pricing power will feel constricted margins. Rising fuel prices will eat away at operating margin. Freight brokers that work with smaller carriers will note adjusted carrier costs, as smaller carriers and owner-operators attempt to offset the rising fuel costs through spot rate negotiations.
The Routing Guide: Links from around the web
Supply constraints hamper JB Hunt’s replacements for its aging fleet (Transport Dive)
No precipitous plunge in container shipping rates, just ‘orderly’ decline (FreightWaves)
Viewpoint: How the Supreme Court’s decision on C.H. Robinson could upend trucking (FreightWaves)
Washington state agrees to dismiss meal/rest break appeal (FreightWaves)
Dollar General’s private fleet grows to 950 tractors (Transport Dive)