Owner-Operator Agreements- Best Practices

If you are talking to your truckers, it is important to understand the contractural relationship and help them understand what needs to be a part of a lease to protect a truckers interest.

See the attached article from Robert Franklin from Big Truck TV

In working with motor carriers and private fleet operators, one of the most frequently overlooked issues we encounter is the failure to have an effective equipment lease in use with owner operators. There have been a number of lawsuits filed by OOIDA based on defective leases. Although the amount owed to any one contractor may be relatively small, such a case often qualifies for class action status, which can easily result in millions of dollars in exposure. Worse yet, you generally will have no insurance for such a lawsuit. Some such suits have driven motor carriers to bankruptcy.

The regulations governing equipment leases (49 CFR 376.12) are very specific in terms of minimum "do's and don'ts". The most frequently encountered deficiencies are failure to include the required language regarding the carrier's "exclusive possession, control and use" of the equipment during the lease; failure to pay interest on escrow funds; and failure to disclose "admin fees" charged in conjunction with insurance purchased through the carrier.

In addition to compliance with the applicable regulations, the lease is, after all, a contract, and there are a number of other important provisions which should be addressed. For example, one will generally want to include provisions regarding confidentiality and non-competition, in order to avoid having the contractor "back solicit" the carrier's customers. One should also include language prohibiting markings on the equipment, other than those required by DOT, without the carrier's prior written agreement, as such markings may increase exposure for the motor carrier in a related accident. For example, having "monster jaws" on the grill of the tractor may have an extremely inflammatory impact on a jury when that power unit is involved in a serious accident. One may also wish to include an indemnification requirement for accidents and fines caused by the contractor. There are many other typical contract issues (e.g. choice of law, venue, arbitration, etc.) which should also be addressed.

Additional issues arise when the contractor is subject to a "lease-purchase" contract regarding his or her tractor. That contract must give the contractor sufficient control over the tractor in order to properly qualify him as an "owner" for FMCSR purposes, and as an independent contractor for tax and workers' compensation purposes. Moreover, if the carrier wants to be able to deduct sums owed by the contractor from his or her settlement checks (which it almost certainly will want to be able to do), the regulations require that the terms of the lease-purchase agreement be incorporated into the lease's charge-back provision. That can usually be accomplished by attaching a copy of the lease purchase to the lease and incorporating it by reference.

If you haven't had your equipment lease reviewed and updated for some time, you should do so as soon as possible. While there is a cost associated with doing so, that cost is minimal, and pales in comparison to the exposure which the carrier may face without a proper equipment lease in place.