By: Nancy E. Joerg, Esq.
Life goes on---Carriers continue to use truck drivers as independent contractor owner-operators and the Illinois Department of Employment Security (IDES) continues to audit under Section 212.1 (Truck Owner-Operator).
Section 212.1 of the Illinois Unemployment Insurance Act defines when truck owner-operators are independent contractors [and not employees for Illinois Department of Employment Security (IDES) purposes only].
Section 212.1 is an IDES exemption from employment-in other words, any truck owner-operator who meets all the criteria for Section 212.1 will not be treated as an employee for Illinois unemployment insurance purposes (this has nothing whatsoever to do with the IRS and its view of independent contractor status for truckers and owner-operators).
In reviewing IDES Decisions from IDES Administrative Hearings over the past year, it is clear that there are certain issues that keep popping up. In this article, I will hit some of the legal issues that seem to repeatedly arise in IDES Hearings on the subject of whether truck owner-operators are exempt from employment under Section 212.1:
- JURISDICTION: Are the owner-operators at issue performing services which constitute employment in Illinois? Or, are they performing services which are in another state such as Indiana (and therefore should not even be involved with an IDES audit). Section 207 of the Illinois Unemployment Insurance Act deals with determining in which state a worker's services constitute employment. When a Carrier is audited by the IDES and there are out-of-state owner-operators, the Carrier should make the argument that those out-of-state drivers should be removed from the IDES audit.
In one of the recent IDES Decisions, the IDES looked at Section 207 and noted that although the Carrier was an Indiana corporation with a warehouse located in Indiana, the Carrier also had a warehouse located in Illinois and the individuals named in the audit performed services in Illinois. The Administrative Law Judge (ALJ) conducting the Hearing decided (unfortunately for the Carrier) that the services of the drivers named in the audit constituted Illinois employment rather than employment in another state.
- SCOPE OF SECTION 212.1: Section 212.1 is only applicable to truck owner-operators. Therefore, the services of loaders, sorters, dispatchers and others cannot be brought under the Section 212.1 exemption for purposes of an audit.
- SEPARATE BUSINESS IDENTITY: Under a recent IDES Decision, the ALJ noted that the owner-operators must maintain a separate business identity, offering or advertising their services to the public by displaying their name on their equipment or otherwise. If they don't, they will fail Section 212.1 and will not be exempt from employment under that law (i.e., they will not be considered independent contractors).
- INCORPORATED IN ANOTHER STATE: Another recent IDES Decision addressed the matter of a Carrier (which happened to be a Utah corporation) that had its owner-operators working out of a distribution center located in Illinois. The ALJ decided under Section 207 of the Illinois Unemployment Insurance Act that Illinois law (and not Utah law) should be applied and that the owner-operators at issue are under the Illinois Unemployment Insurance Act as they perform services in Illinois and one of the Carrier's bases of operations is in Illinois. Therefore, Illinois law was applied in the IDES audit at issue.
- IDES IS ALLOWED TO IGNORE THE CONTRACT BETWEEN THE CARRIER AND THE OWNER-OPERATOR: Another issue that came up in another recent IDES Hearing is whether it is constitutional for the IDES to ignore a contract between the Carrier and the owner-operator (and instead make its own independent decision as a state unemployment insurance agency as to whether the owner-operator is an independent contractor or an employee for IDES purposes). The Decision found that the IDES can constitutionally ignore the contract between the parties and make its own decision (the Illinois Supreme Court has said that the IDES has the right to make its own independent analysis of the independent contractor relationship and not be bound by the independent contractor agreement between the parties).
- LICENSING & OPERATING COSTS: Another IDES Decision found that the owner-operator at issue was an employee and not an independent contractor because the Carrier paid the Illinois tolls that the owner-operator incurred while driving for the Carrier (and also the Carrier provided the owner-operator with a subsidy in the purchase of the fuel). Because of these generous activities by the Carrier, the owner-operator was found to be an employee under Section 212.1 of the Illinois Unemployment Insurance Act.
- USING A SEPARATE CORPORATION TO LEASE TRUCKS: Under another recent IDES Hearing Decision, the Carrier had used a separate corporation to lease trucks to the drivers. The Decision found that this was too close of a relationship to satisfy Section 212.1. If a Carrier leases a tractor from a firm operated and owned by the Carrier directly or indirectly, the owner-operator will be considered an employee for purposes of Section 212.1.
As the reader can see, constitutional arguments have been put forth by the attorneys of Carriers who are under IDES audit. In those cases, so far, the constitutional arguments have not been successful in shielding the Carrier under audit from Section 212.1. Likewise, the Administrative Law Judges are strictly interpreting Section 212.1 and the owner-operators involved in those audits. The owner-operators will be found to be employees of the Carriers unless the Carriers can pass each and every part of Section 212.1. It is a strict and unforgiving test.
All Carriers should be fully aware of the various provisions of Section 212.1 so that if they are audited by the IDES, they will be in a solid position to convince the auditor that the owner-operators are not employees.
Have an experienced attorney review your independent contractor relationships, independent contractor agreements, website, manuals, training materials, etc. before any challenges to independent contractor status arise. Lower your risk in every way possible now. Do a "self audit" of all independent contractor relationships so you are fully prepared before the IDES auditor arrives on your doorstep. Restructure and strengthen independent contractor relationships where there are opportunities to do so.
Questions? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at email@example.com.