ATA Joins Industry Group on Contractor Law to Protect Owner-Operator Business Model

This story appears in the July 27 print edition of Transport Topics.

Concern about the possibility of legislative threats to the use of owner-operators has led American Trucking Associations to join a Washington, D.C., lobbying group.

ATA told its membership July 16 it joined the Coalition to Preserve Independent Contractor Status — led by tax attorney Russell Hollrah — because, “Bills eroding independent contractor status . . . were introduced in the [2007-08] Congress and are expected to resurface at some point during the current session. The IC Coalition provides ATA another resource in its effort to ensure the continuing viability of the independent contractor business model in the trucking industry.”

Motor carriers use a mixture of company drivers and owner-operators to move freight, said Robert Digges, ATA’s deputy chief counsel.

“A vast majority of our members use at least some owner-operators, and some companies use all owner-operators,” Digges said.

The two most worrisome bills from the previous Congress, Digges said, were affiliated with then-Sen. Obama (D-Ill.). In September 2007, Obama introduced the Independent Contractor Proper Classification Act. A year later, he was a co-sponsor of the Employee Misclassification Prevention Act. Neither bill was enacted into law.

Obama’s 2007 bill proposed “reformation of safe harbor to close its use as a tax loophole,” making reference to Section 530 of the Revenue Act of 1978. However, what the bill called a loophole, John Smith, chief executive officer of CRST International, called an important force for stability.

Before the adoption of Section 530, the Internal Revenue Service “would challenge trucking companies — and other industries — as to who was an employee and who was a contractor. That law eliminated the IRS challenges, so long as you stayed within the safe harbor provisions,” said Smith, whose Cedar Rapids, Iowa, fleet uses both dry vans and flatbeds and has a mixture of company drivers and owner-operators.

“If that were repealed, it really would concern me. You’d go back to case-by-case common law challenges from the IRS, and those cost a lot of money,” Smith said.

An IC Coalition analysis says Section 530 provides contractors and the companies that hire them with a process that creates “absolute certainty that the independent-contractor status of their relationship will be respected for federal employment tax purposes.”

Digges said the classification argument has two components. Labor unions prefer to have people classified as employees rather than independent contractors, he said, because employees can be organized as union members but contractors cannot.

The other issue, said Digges and Hollrah, the coalition director, is that the IRS and state

tax authorities find it easier administratively to collect tax withholdings in bulk from large employers rather than from large numbers of small independent contractor businesses.

While trucking’s use of owner-operators is well established, Hollrah said many industries have similar structures. He listed representatives of the health-care, home-care, fitness, sales and marketing, and newspaper distribution industries among his three-year-old coalition’s members.

Beyond the appeal of the contractor arrangement for businesses, Hollrah emphasized that “some people want to be self-employed. This is a gateway to entrepreneurship.”

Hollrah said his concern is that “an excessively hostile regulatory environment” could either deter people from starting or maintaining independent contractor businesses, or that larger companies will shy away from using independent contractors.

For example, Hollrah said, some states mete out penalties of $5,000 per worker for misclassification.