The purpose of this article is to update readers on what has been happening recently with Illinois Department of Employment Security ("IDES") Hearings (and IDES audits) regarding the classification of owner-operator truck drivers (i.e., are they independent contractors or misclassified employees for purposes of Section 212.1?).
SECTION 212.1: Many readers will know that the IDES evaluates (at time of IDES audit or at time of an IDES benefits claim by a driver) whether a truck driver is a true owner-operator or a misclassified employee by applying Section 212.1 of the Illinois Unemployment Insurance Act.
Many IDES audits in 2018 occur on a purely random basis, and the trucking company is usually surprised to receive the Notice of Audit in the mail. Unless the Illinois trucking company being audited passes all six parts of Section 212.1 for a particular independent contractor owner-operator, the IDES auditor will reclassify that particular owner-operator to employee status.
If the IDES auditor finds that the drivers are misclassified and should really be employees of the trucking company (usually an Authority holder), then the audited trucking company will be hit with a bill from the IDES for back taxes (i.e., the taxes the company should have paid on the drivers as employees). The IDES calls these back taxes "unemployment insurance contributions." The back taxes can be hefty. It depends on the audited company's unemployment insurance rate and also how many independent contractors are reclassified. Additionally, there is 24% interest per year slapped on the tax bill to sometimes total a rather significant and unexpected tax bill. Many companies choose to protest (the protest must be timely-you cannot be even one day late), and then eventually there is an IDES Hearing.
WHETHER DRIVER CAN UNILATERALLY CHANGE HIS SCHEDULE: Evaluating a recent IDES Hearing decision, an interesting factual issue shows up in evidence where the trucking company admits that it requires the independent contractor owner-operator to be available to perform services at a specific time. But, the driver is free to accept or reject any delivery orders and free to create his own schedule. The driver can also give written notice to the trucking company of any changes he wishes to make to the schedule.
In that particular case, the Hearing Officer ended up agreeing with the audited trucking company that Section 212.1 is still satisfied because the driver could unilaterally change his schedule and has the right to reject the trucking company's delivery orders. So the IDES Hearing Officer ultimately decided that the owner-operator was in fact an independent contractor. This particular case shows how fact sensitive these IDES Hearing independent contractor Section 212.1 cases are.
TIP: In the independent contractor agreement, be sure to state that the driver is free to accept or reject any particular job and is free to create his own schedule.
WHETHER DRIVER OFFERS HIS SERVICES TO THE PUBLIC: In another recent IDES Hearing, a factual issue was whether the drivers offered their services to the public [required under Section 212.1(a)(6)]. Even where the drivers were incorporated, the Hearing Officer felt that it did not prove that the drivers actually offered their services to the public.
TIP: If your independent contractor drivers advertise in their business name, keep copies of their ads in independent contractor files.
WHETHER DRIVER MAINTAINS OWN SEPARATE BUSINESS IDENTITY: In another Hearing, the Hearing Officer again focused on whether the owner-operators named in the audit maintained their own separate business identities offering or advertising their services to the public [again required under Section 212.1(a)(6)]. So, it is clearly very important to have proof (to present as evidence at an IDES Hearing) that the independent contractor owner-operators do indeed maintain their own separate business identity offering or advertising their services to the public under their own business name.
CONCLUDING THOUGHTS: Illinois trucking companies should be aware of what steps they should take in order to have a legitimate independent contractor relationship with their owner-operators under Section 212.1 and be prepared to prove this before being audited by the IDES.
One way to "audit yourself" is to fill out the special Worker Relationship Questionnaire on Section 212.1 that the IDES has designed for auditors to question Illinois trucking companies as to their relationship with their independent contractor truck drivers.
Have an experienced attorney review your responses to the 212.1 Questionnaire. It is better to know what your legal problems under Section 212.1 might be up front-before being selected by the IDES for audit.
For assistance with IDES audits and hearings (or for consultations on limiting your liability in the use of Independent Contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in assisting companies who use Independent Contractors of all types. Nancy Joerg can be reached at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at [email protected].
If readers would like a free copy of Section 212.1 and the special 212.1 Questionnaire, please contact Legal Assistant Tammy Nelson at 630-377-1554 or via email at [email protected].