Rise of Transportation Contractors Leading to Complex Coverage Litigation

The post-Covid influence over the “gig economy” has led to an expansion of self-employed or by-the-job employed individuals in the delivery and transportation industry. CDL jobs have proven they are not immune to this economic trend.

In recent months, we are seeing a growing number of independent contractors or owner-operator drivers that have been contracted, or more often than not, subcontracted by various retail stores, shipping warehouses, and trucking companies for the purposes of local deliveries.

Often times, these independent contractors, whether an entity or individual, do not have the appropriate insurance, and when injured on the job, they are seeking to establish an employment relationship with one of the entities in the chain of contracted and subcontracted companies in order to facilitate workers’ compensation coverage. There are often statutory provisions within a given state’s workers’ compensation laws that allows them to do so.

Typically, the best defense comes from proving the individual is truly an independent contractor under the laws of the state in which they are looking to establish coverage or to prove that our client is not the appropriately named business.

There are usually, at a minimum, four parties involved in such a scenario: the company with products that require shipment (“shipper”), the initially contracted trucking company (“initial contractor”), a subcontracted trucking company (“subcontractor”), and the driver who is ultimately hurt (“claimant”). There may be several subcontractors, depending on the facts of a specific situation.

Often times, the claimant themselves may be unaware of how far down the ladder they are in contracting and subcontracting from the original shipper. We have seen scenarios in New York, for example, where the claimant attempts to establish they are employees of the shipper and scenarios where they seek to establish that they are an employee of any of the initial or sub-contracted companies. They often name the first entity they can think of and that company is put on notice to defend the claim. This may not be the appropriate entity, depending on the facts of a given case.

IMPORTANT FACTORS & DEFINITIONS

1. What is an independent contractor?

Every state has their own statutory definition of an employee vs. independent contractor.  Common trends include a contract, payment by a 1099, and an absence of the would-be employer providing any additional benefits, or providing equipment, control, or oversight beyond requiring completion of the specified job. This list is not exhaustive and will vary by state.

2. What is a separate business entity?

Again, every state will have their own definition, but some common factors include: the business is established and exists outside of the immediate relationship for which they were contracted; their services are available to others and not exclusive; they are separately incorporated and file taxes, both profits and losses, as a business entity. An individual’s employment within that entity is not dependent on a specific contract’s existence, and they are responsible for payments and benefits to their own employees. They also separately maintain their own insurance or any licenses or permits that may be required. Just as above, this list is not exhaustive and will vary by state.

3. Statutory protections:

Several states have codified additional protections for the claimant. These will often have their own factors or fact-patterns to overcome in denying a claim. We recommend that you consult with a local attorney for specific state-by-state factors and requirements.

Examples in New York:

• NYS Commercial Good Transportation Fair Play Act: creates a presumption of employment to an individual injured while shipping commercial goods.
• NY WCL 56: creates a presumption of employment to the general contractor if the subcontractor does not have compensation insurance.
• NY Special/General Employment: if the contractor retains sufficient control over the subcontractor, employment can be found.

Examples in New Jersey:

• Section 79: if the subcontractor lacks coverage, the general contractor can be held liable.
• Dual Employment Doctrine: if the contractor retains sufficient direction over the subcontracted employer, the claimant can file against either entity.

BEST PRACTICES

1. Know where in the “ladder” your company falls.
   • Is your company the shipper, initial contractor, or one of many subcontracted entities?
   • You can attempt to bypass litigation altogether if your company contracted the shipment to another fully bonded, licensed, and insured company.
   • Having a copy of the contract or subcontract in which your company either is engaged or engages another entity or contractor.
   • Particularly if that contact contains:
     • A specific denial of an employee/employer relationship.
     • An outline of responsibilities of the parties specifically pertaining to payment, insurance requirements, and severability.
     • Provisions for the right of the contracted entity to subcontract its responsibility to another entity and whether such a provision must first be approved the shipping party.
     • A notice requirement for any claims/accidents or incidents that arise out of the job they were contracted to provide.
     • A signature requirement by an agent on behalf of a separate business entity.
     • An outlined use of equipment or branding.
     • How payment is calculated (mileage, tonnage, percentage, etc.).

2. You should require notice and a copy of the police report or any insurance claims made for incidents or accidents involving any driver that has been contracted or subcontracted by your company. This requirement can be added to your existing contractual language.
3. The best practice would be to limit the contracted party’s ability to subcontract out the specified job without your company’s express consent to ensure they are bound by the same provisions and requirements.

Negative facts for proving the claimant is not an employee:

• There is a mixture of employees and independent contractors performing identical work functions.
• The contract does not require or inquire into proof of insurance with the owner-operator or subcontracted entity.
• The owner-operator was provided with branding, phone, uniform, truck, GPS/location services by your company.
• The owner-operator was otherwise required to present themselves as an employee.
• The contractor retains a high level of direction or control over the subcontracted party or claimant.

WHAT COUNSEL WILL NEED

If your company is placed on notice as a potential employer in such a claim, it is imperative you obtain local counsel immediately as many states have very specific windows in which you can deny a claim.

Counsel will need:

• Any notice that you received about the accident, whether text, letter, or voicemail.
• A copy of any police report if the injury resulted from an MVA.
• A copy of a specific contract with the entity or the individual.
• 1099 payments to that entity or individual.
• A copy of the bill of lading (if applicable) as they often separately enumerate liability and responsibilities.
• Any proofs of bonding, insurance, or incorporation that is required at the time the contract or subcontract is created.
• The name of an employee, preferably a local or regional director who can be named as a potential witness regarding the use of subcontracted drivers (it is not always necessary to call a witness, but in many instances it is required to name any potential witnesses in the initial filing).
• Whether a contingent liability policy or overage carrier policy is in place for these types of claims.

BIG PICTURE

The arguments that a given individual is an employee vs. subcontracted employee vs. an independent contractor vary extensively based on the facts of each claim. Contracts and service agreements that exist between business entities are of primary importance, as they are reviewed and argued in all cases that address these issues.