A truck-leasing relationship between a truckload carrier and an owner-operator can be a good deal for both. The carrier leases equipment to the driver, who, in return for making the lease payments and absorbing related costs, receives a steady flow of loads, has the right of first refusal on taking a load, and can drive for other carriers, depending on the scope of the carrier relationship. The driver gets a new truck without spending a fortune. The carrier, meanwhile, has access to a driver pipeline without labor and equipment costs appearing as liabilities on its balance sheet.
However, even a solid model can blow up. In a long-running legal dispute between Swift Transportation Co. and a class of five drivers who alleged the carrier used leasing and contractor agreements to misclassify them as contractors rather than employees, the gunpowder is on Swift's face.
On Jan. 6, Judge John W. Sedwick, hearing the case in the U.S. District Court for the District of Arizona, ruled that the drivers were Swift employees rather than contractors and that Swift had "full control of the terms of the relationship." The ruling puts the drivers in line to receive back pay under federal minimum wage laws. The drivers may also be reimbursed for such expenses as lease payments, tolls, fuel, maintenance, equipment, taxes, and insurance for the time they drove for Swift under their leasing agreements. There has been no judgment by the court on either point, according to attorneys representing the class.
The biggest issue of all rests with how many drivers could be affected by the decision, presuming it is upheld. Swift did not respond to requests for comment on its next steps, but plaintiffs' attorneys are assuming it will appeal Judge Sedwick's ruling. Phoenix-based Swift, the nation's largest truckload carrier, has more than 16,000 drivers; about 15 percent of them, according to one estimate, are owner-operators. In a note on its website, the law firm handling the case, Getman Sweeney, said the class is open to all drivers who leased a truck from Interstate Equipment Leasing Co. (IEL), a Phoenix-based firm that works with Swift, and who were contracted with the trucker as a lease operator at any time since April 16, 2010.
Legal skirmishes over the employment classification of drivers have been front-burner issues for several years. The most notable case has involved FedEx Ground, the ground-delivery unit of Memphis-based FedEx Corp. In 2015, FedEx Ground paid $228 million to settle claims by about 2,300 drivers in California that they were improperly classified as independent contractors and not company employees while they drove for the unit from 2000 to 2007.A Double Whammy
The plaintiffs had alleged that the language in the IEL leases, combined with "at will" termination agreements written into the contractor agreements, meant that drivers could be released at any time and still be on the hook for the remaining lease payments because they would be considered in default. They also argued that they could only drive for Swift, and that any attempt to leave would subject them to a crushing debt burden. The arrangement amounted to "forced labor" for drivers during the lease period, which could extend for four years, according to the plaintiffs.
Judge Sedwick ruled that the nature of the agreements effectively put Swift in full control of the relationship with drivers who leased trucks through IEL and drove for Swift.
Swift had argued that the lease language should not be considered a factor in the determination, according to a Getman Sweeney summation of the ruling. However, the judge disagreed, saying the lease and contract were part of a single package presented to drivers, and that they "were clearly designed to operate in conjunction for those drivers who leased equipment from IEL for purposes of becoming contract drivers with Swift."
The ruling may be a wake-up call to other big fleets whose equipment-lease agreements are structured similarly to Swift's. However, Charles (Chuck) Clowdis, managing director-transportation/economics and country risk at consultancy IHS Markit, suggested that the Swift case may be an anomaly. "The majority [of agreements] I have seen were much more liberal to the driver/owner-operator than was the Swift one," he said. "Swift had drivers who waited for loads from Swift only to have none come, and later learned they were effectively terminated, yet still owed the leasing company many thousands of dollars."
The ruling is also a victory for Dan Getman, the plaintiffs' attorney, who for nearly seven years has doggedly pursued Swift in federal appeals court, and even the U.S. Supreme Court. Getman did not respond to a request for comment. However, he told the publication Trucks.com when the ruling was issued that it has "taken us a while to get here, but fundamentally all of the pieces are falling into place. Now we must determine how much more the company wants to fight or pay what they owe the drivers."
Getman said in the interview that Swift will now face significant pressure to settle the claims. "It's time for them to face the music—the cost of continuing the case is likely to outweigh any financial benefit to Swift," he said.