U.S. Court Ruling Challenges Owner-Operator Model

Posted on: Jan 25, 2017

Swift Transportation has appealed a recent federal court’s decision that its owner-operator contractor agreements constitute employment, opening the door for the driver plaintiffs to receive back pay and other relief from the company, as sought in their lawsuit.

About 5,000 of Swift’s 19,000 drivers are owner-operators, but only five owner-operators are involved in the lawsuit explicitly. Swift, the country’s largest truckload carrier, filed for appeal on January 11th, following a ruling which allows the truckers to seek class action certification. In 2014, the Supreme Court denied Swift’s request that it review the seven-year-old case. The five plaintiffs signed Swift’s contractor agreements, which require contract disputes to be resolved through arbitration. However, the FAA exempts employees engaged interstate commerce from being compelled to use arbitration instead of the courts.

“Altogether, the terms of the contractor agreements, bolstered by the evidence presented as to how those terms worked in practice, persuade the court to find that plaintiffs had contracts of employment which are exempt from arbitration,” Senior U.S. District Judge John W. Sedwick wrote. The truckers signed the agreements and leases with Interstate Equipment Leasing at the same time. “Under the terms of the IEL leases, the ability of plaintiffs to keep leasing their trucks was explicitly dependent on them maintaining their contractor agreements with Swift, when read in conjunction with the at-will termination provision in the contractor agreements, Swift effectively had full control of the terms of the relationship,” Sedwick stated, meaning the drivers were more of an employee than contractor.

If Sedwick’s decision is upheld, Swift eventually could be hit with millions of dollars in damages, including back wages, for a yet undetermined number of drivers who have leased equipment from the company as contractors since 2009. On a broader level, the decision may have a ripple effect on truckload carriers that contract with owner-operators and specifically, those that lease equipment to drivers and then contract them. The case isn’t likely to prove a threat to the owner-operator model prevalent in the truckload business, but it could cause some carriers to rethink how they contract with owner-operators, especially if they’re also involved in arranging equipment leases.