In late September a rule change went into effect in New Jersey that could have far reaching ramifications for East Coast freight. It will now be more difficult for owner-operators to prove that they are in fact owner operators as opposed to employees. Now, instead of using the New Jersey Department of Labor rule known as the “20-factor test” to determine whether an independent contractor was independent, or under the control of a trucking company to such an extent that the company was the driver’s rightful employer. Owner-operators will now have to ask the Internal Revenue Service (IRS) for a letter stating they are an independent operator, or provide an IRS audit proving it, and to maintain exemption from federal employer taxes.
This change comes at precarious time for drayage around the country. Though the Port of New York and New Jersey’s cargo volume is increasing, drayage capacity is tightening, in part due to increased demand, in part due to a shortage of drivers, and of course, in part due to the ELD mandate. There are an estimated 9,000 trucks serving the port with around 85% being classified as independent-contractors.
This rule change was pushed by the Teamsters Union who believes a large chunk of the owner-operators are in fact employees. On the other side, there is serious concern that many truckers will leave the ports in general and the industry at large. Some drivers may look to take the reclassification, but owner-operators tend to stay that way for a reason. The trucking industry needs to be adding drivers and companies now not reducing them. It is also possible some drivers may look to move to other, growing ports around the country, putting the Port of New York and New Jersey at a disadvantage to regional counterparts.
Although it must be noted, this issue is larger than New Jersey. Ports across the country have been dealing with this debate, none more so then in Los Angeles-Long Beach. At the crux of the issue of who is a contractor, is the level of control exerted by the contracting company over the worker. For trucking that includes questions such as whether the driver works for more than one company, the control they have over their workflow, the jobs they take, and who bought or financed the purchase of their truck and other equipment. Some of the advantages of classifying workers as contractors is that companies save money by avoiding having to pay overtime, vacation, and other benefits.
From the Teamsters perspective, in many places, particularly California, employees can unionize, and contractors cannot so they are looking at expanding their base. On the other hand, many owner-operators chose that life because they want to be in control of their own hours and workloads. These are, small companies operating on tight margins. Shilling out money to go through the IRS application process is yet another hardship imposed on them.
Though it is important for a state to protect the rights of workers, this rule change is unlikely to do more than squeeze out small businesses and experienced professionals, and negatively impacting commerce along the vital New York-New Jersey core.