Court Finds No Obligation to Pay Workers' Comp Premiums for Independent Contracting
Owner-Operator Motor Carriers

For those of you who use independent contractors, you should be familiar with this case involving workers' compensation premiums and the 10 key factors used by the court to determine true independent contractor status for owner-operator motor carriers.

In February of 1995, a California Court of Appeal ruled that a trucking company need not pay workers' comp premiums on independent contractor owner-operators since the individuals in question were held not to be employees. Mountain Valley Trucking Co. (MVT), successfully defended itself against a State Compensation Insurance Fund (SCIF) action for the collection of workers' comp. premiums.

This is a comprehensive decision regarding workers' compensation coverage and independent contractor truckers. It affirms and is consistent with the California Supreme Court's 1989 opinion in Borello v. D.I.R., 48 Cal.3d 341.

In SCIF v. Brown, 32 Cal. App. 4th 188 (Feb. 1995), State Fund sued in an attempt to collect over $210,000 from the owners of MVT in estimated workers' comp premiums and interest. Prior to 1988, the company had owned its trucks and employed drivers for interstate hauls. Then the State Fund announced a 300% surcharge for the 1989 premium year because of a series of claims the company experienced in 1988. However, in late 1988, the company owners decided to lay off its drivers, sell its trucks and thereafter became a "broker" in interstate commerce, a legally recognized entity under 49 U.S. Code, §13102(2). It then contracted with approximately 20 independent owner-operator motor carriers to provide the trucking service for customers. State Fund attempted to collect premiums for the independent motor carriers. The company refused to pay the premiums on the basis the drivers were independent contractors and not employees. The State Fund sued to collect premiums, including premiums for the independent contractor truckers. The trial court ruled in favor of the company and the California Court of Appeal affirmed the lower courts decision.

The Court of Appeal noted that while there is a "presumption in favor of employee status" and that under Labor Code Sec. 3203, the law is "liberally interpreted in favor of coverage", it nevertheless ruled that the defendant company had sufficiently demonstrated that the drivers in question were "independent contractors" as a matter of law and not "employees".

The opinion in this case, written by Justice Davis indicates an impressive (and unfortunately, all too rare) grasp of real world economics and the freedom of the marketplace.
In its opinion, the court discussed ten factors that led to the legal conclusion that the motor carrier drivers in question were independent contractors and not employees for which workers' compensation coverage and premiums would be required.

1. The drivers exercised complete control over their working conditions.
   
2. The drivers were not unskilled workers.
   
3. The drivers exercised a great deal of discretion in providing services.
   
4. The independent drivers have their own trade association.
   
5. The drivers worked for several brokers, not just the defendant company.
   
6. The drivers made a capitol investment in their truck.
   
7. The work is performed and compensated on a job-by-job basis, with no obligation to accept any assignment.
   
8. The company did not pay the drivers any benefits, withhold payroll taxes or make employer contributions.
   
9. All the drivers had written independent contractor agreements with MVT.
   
10. There was "true entrepreneurial opportunity", not just piece-work.

Identical or similar factors are included in CDTOA's form of Agreement For Transportation Services to establish an independent contractor relationship between overlying and underlying carriers operating in California. That form is available at the CDTOA office for a nominal charge.