Clear Contract Terms Help Avoid Disputes with Owner-Operators

July 1, 1998
Tank truck carriers that have agreements with independent contractors can prevent or ameliorate disputes by operating under contracts in which the terms

Tank truck carriers that have agreements with independent contractors can prevent or ameliorate disputes by operating under contracts in which the terms are clearly set forth, said Norman R Garvin, attorney with Scopelitis, Garvin, Light & Hanson of Indianapolis, Indiana.

"Proper disclosure that limits potential charges of misrepresentation is the most critical aspect of an owner-operator program," he said. Garvin discussed the legal issues during the National Tank Truck Carriers annual meeting May 18-20 in Washington, DC.

"Of the approximately 20 owner-operator programs reviewed by the firm over the last six months, most have contained material flaws," he said. "Accordingly, motor carriers utilizing owner-operators should continually monitor their programs to ensure compliance with regulations and to minimize the potential of lawsuits filed by disgruntled contractors or their associations."

Lawsuits against several motor carriers have been filed recently by the Owner-Operator Independent Drivers Association Inc (OOIDA). "A motor carrier having its programs and leases investigated by OOIDA attorneys can anticipate that the association will look for every violation, no matter how technical," he said.

The association has claimed that motor carriers have abused the contractual relationship with owner-operators over the past few years due, in part, to the demise of the Interstate Commerce Commission and decreased enforcement of leasing regulations. Today, federal leasing regulations are the responsibility of the Federal Highway Administration, he said. In order to comply with regulations, even though some of the regulations are outdated and impede benefits to both parities, carriers should audit their owner-operator contracts. "Scrutinize any agreements you may have," said Garvin.

Minimum steps a carrier should take when participating in owner-operator agreements include: Reviewing lease agreements for regulation compliance. Ensuring that what the lease states is actually happening in day-to-day operations. Exercising care in describing either the actual compensation to be paid or the method of compensation. Using a lease addendum to deal with compensation. Note that regulations require the lease or addendum must be delivered to the owner-operator before the trip begins. Being sure that operational cost responsibility is clear. If it is not, the cost may become the motor carrier's responsibility by default. Clearly identifying all charge-back items and how the amount of each charge-back item is to be computed. Scrutinizing any arrangement that involves the sale or lease of any products, equipment, or services by the motor carrier or an affiliated company. Analyzing escrow agreements associated with any equipment purchase programs to ensure compliance with regulations. Reviewing the means by which equipment purchase programs are paid for by the owner-operator, especially if payment is achieved from deductions of future settlements or escrow agreements. Being certain that insurance arrangements pertaining to owner-operators are clearly specified in the lease. Including a review of the means by which insurance arrangements and options are described to the owner-operator. Reviewing the allocation of liability, including deductibles. Reviewing employee-related coverages, such as workers' compensation. Reviewing the cost for the coverage to the owner-operator and the means by which payment is made. Reviewing issuance of policies and certificates of insurance. Reviewing the participation of the insurance agent or insurance carrier. Ensuring consistency with other company documents such as orientation manuals, safety policies, settlement documents, and driver manuals.

Garvin recommended that many of the required terms of a lease, such as compensation, not be included in other company documents due to the increased potential for inconsistency and allegations of misrepresentation.