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For Newark, New Jersey-based American Cargo Enterprise, a new independent contractor rule creates an air of uncertainty and a difficult transition.
The new classification rule means owner-operators could be considered employees, President Kevin Persaud told Trucking Dive. The company hopes the lawsuits could overturn the federal rule, which took effect March 11, but is preparing for the worst.
American Cargo Enterprise estimates that the cost of switching drivers to employees would be 30% to 40% higher, which would be unsustainable, Persaud he said.
But with nearly all of the company’s drivers being owner-operators, they have already begun the transition, he said.
The new regulation specifies six factors to examine:
- Whether an employee has an opportunity for profit or loss — and how management affects that
- The extent to which an employee or employer invests in work tools and what this says about entrepreneurship
- How permanent is the employment relationship
- An employer’s ability to exercise control over an employee, such as by setting a schedule or limiting a person’s ability to work for others
- If the work is an integral part of an employer’s business
- If the job uses specialized skills and “contributes to the business initiative”
Additional factors may also be considered, according to the rule.
Fleets should think of the six factors as a scorecard, considering the combination of factors for a classification, Paul Torlina, a consultant for the Owner-Operator Association of Independent Drivers, told Trucking Dive.
The agency has informed owner-operator members that it does not expect the new rule to depart from decades of case law. If someone was able to work as an independent contractor or employee, or hire independent contractors or employees, as they preferred before 2021, then they should be able to do the same under this rule, Torlina said in an email.
The new test replaces 2021 rule which required two key factors to influence classifications: the nature and degree of control of the work and the employee’s opportunity for profit or loss based on initiative and/or investment. Three other factors served as additional drivers.
But the switch has created confusion for many parties.
“The 2021 rule was very simple,” said Pennsylvania Motor Truck Association President and CEO Rebecca Oyler. “When you make things complicated and hard to understand, it’s especially a problem for smaller businesses that don’t have the legal staff that larger businesses have.”
The new rules have frustrated not only trucking companies but also owner-operators. “If an independent contractor doesn’t want to be an employee, they have no choice,” Oyler said. “They can’t opt out of it.”
Meanwhile, challenges have mounted, including multiple lawsuits attempting to overturn the 2024 rule, including case concerning of the American Trucking Associations.
In another case, a group of three trucking companies, a moving and storage business, and a statewide transportation group sought relief in the form of a preliminary injunction, but a federal district court in Louisiana refused this request March 8.
Additionally, a Congressional move to repeal the rule has also been initiated, but would require a majority in both houses to reach the president’s office.
For now, the new rules create uncertainty, according to Lisa Yakomin, president of the Bistate Motor Carriers Association, which represents businesses that serve the Port of New York and New Jersey.
“At this point, no one knows exactly how the Department of Labor plans to enforce the new rule,” Yakomin said in an email. “So the best advice we can give our members is to do everything they can to meet all the factors and reduce the risk of being accused of misclassification.”