24 May Continuation of the Owner-Operator Model in Trucking
STATEMENT OF SUPPORT OF NASTC
The National Association of Small Trucking Companies (NASTC) is an association with more than 15,000 member companies, nearly all of which are small businesses under the Small Business Administration definition. These small carriers are representative of the over 500,000 that are regulated by the Federal Motor Carrier Safety Regulations. Among the services we offer is a New Entrant Survival Training (NEST) program, a class designed to teach new entrants seeking motor carrier authority how to comply with federal regulations unique to the trucking industry.
NASTC has conducted New Entrant Survival Training for more than a decade now. We average 13 NEST classes per year, each attended by about 45 companies/65 people. In recent years, these classes are filled to capacity. In 2019, we conducted 13 classes serving a total of approximately 845 new entrants. In 2020 during the COVID pandemic, NEST class size was reduced to conform to social distancing protocols while the number of classes were increased; by this means, NASTC maintained the same numbers of participants. Notably, about half of NEST class attendees are one-truck, one-driver businesses. Thus, we are very familiar with federal regulations, their application to small motor carriers, and in particular, the importance of independent contractor status for owner operators.
Independent contractor treatment of so-called lease operators or owner operators is an essential component of maintaining entrepreneurial opportunities in trucking for small business people. Truck drivers who operate commercial motor vehicles weighing more than 10,000 pounds gross vehicle weight must be highly qualified professionals, including maintenance of a commercial driver’s license, being subject to random drug testing and background checks, and maintenance of clean driving records free of driving infractions and wrecks. The same standards apply to truck drivers regardless of whether they are paid by the hour and subject to control as employees, or to those who choose to be owner-operators and perhaps lease their equipment with driver to a motor carrier in accordance with federal contracting requirements.
In the more than 30 years NASTC has been in operation, there has never been an oversupply of qualified truck drivers; hence a qualified driver can easily choose to be a company employee, work regular hours for a fixed rate, and receive the tax benefits of employee status. On the other hand, ambitious professional drivers become independent business owners, where they select their rates, routes, and loads, and have the freedom to prosper or fail based upon their own management skills and hard work. They themselves choose the option of independent contractor, not employee.
In the full-truckload sector, almost all companies begin with a single truck. The one-truck, one-driver business model, often as an owner-operator, is the genesis of all motor carriers, large or small. Many such one-truck owner-operators obtain their own authority through the Federal Motor Carrier Safety Administration and run as a one-truck business. Many owner-operators remain at the one-truck size for their entire tenure in the trucking industry. Their independent business may become a contracting party with shippers through freight brokers. Some owner-operators choose to lease on, through contract, with a larger entity and run under the larger carrier’s authority. The latter are referred to as “leased-on owner-operators” and retain their independent status.
Utilizing the well established independent contractor treatment of owner operators, drivers who want to become entrepreneurs and ultimately own and operate their own licensed motor carriers typically start as owner-operators by buying a truck. In turn, some lease on to established carriers under the requirements of 49 C.F.R. 376.
Owner-operator businesses typically operate as a proprietorship, LLC, or corporation. Like any other business entity, they receive compensation based on work performance, choosing to handle or reject loads based on the routes and rates available to them, and handle their own asset management, taxes, depreciation, etc.
About half of the new entrants that file for authority and come through our NEST program are current or former owner-operators who gained entrepreneurial experience as independent contractors using the owner-operator model to get the additional expertise and earn the financing to take the final step of becoming a regulated carrier in their own right, even with a single truck.
An estimated more than 1,000,000 owner-operators use the Truth in Leasing regulations to acquire truck ownership. A high percentage of our new entrants who began as owner-operators are minorities and immigrants who want the freedom to control their own future and view the independent contractor model as the best opportunity.
Also, we note that many of our 15,000 small licensed carriers in turn retain and depend upon independent contractors to grow their business and add customers. A new tandem-axle tractor typically costs more than $150,000 per unit. Typically, these new trucks are resold for 30-40 percent of the original purchase price after 3 years, with manufacturer’s warranty remaining. This price differential results in supply of relatively new equipment that an owner-operator can purchase or finance and, with proper maintenance, amortize the remaining costs while building equity.
We file this statement in support of the request that the National Labor Relations Board recognize the significant, unique role the independent contractor model plays in encouraging entrepreneurship in the highly regulated trucking industry. We believe the NLRB’s proposed joint-employer rule ignores economic and industry realities and would be highly detrimental and unconscionably disruptive to this sector. We urge the NLRB to affirm that the use of independent contractors, who are subject to FMCSA regulations, is a beneficial, established practice in trucking. NLRB must acknowledge that its proposed rule is wholly inconsistent with the factual, legal, and economic aspects of these essential self-employed entities and individuals and their independent employment status. The inevitable mischief the proposed rule would inject will have a chilling effect on the future of the small business model, unnecessarily causing confusion where clarity is needed and foreclosing an entire set of viable, essential employment status options.