May 2013

By: Nancy E. Joerg, Esq.

Many Illinois trucking companies who use independent contractor owner-operators are well aware that if they are ever audited by the Illinois Department of Employment Security (IDES) [the state agency in Illinois that administers unemployment insurance benefits], they must pass the strict 6-part test called Section 212.1.

SECTION 212.1: Section 212.1 of the Illinois Unemployment Insurance Act defines when truck owner-operators are independent contractors and not employees for IDES purposes.

Most Illinois trucking companies understand the basics of Section 212.1. They know if they are ever audited or challenged in any way by the IDES as to the independent contractor status of the owner-operators, each and every one of the six parts of Section 212.1 must be passed or the owner-operator in question will be reclassified to employee status (and then the audited trucking company will owe back unemployment insurance contributions/taxes to the IDES).

When Illinois trucking companies look closer at the exact language of Section 212.1, they sometimes become confused because various parts of this law are not clearly spelled out. One of the parts of Section 212.1 is particularly confusing. This part is Section 212.1(a)(3).

SECTION 212.1(a)(3): Section 212.1(a)(3) is not “satisfied” (meaning ok for independent contractor status) unless the Carrier imposes no requirements on the independent contractor owner-operator to perform the services, or be available to perform the services, at a specific time or times, according to a specific schedule or for a specified number of hours. The Carrier is not considered as having imposed such a requirement where the Carrier informs the independent contractor owner-operator of a pickup or delivery time specified by the shipper or receiver of the property to be transported.

Trucking company owners and executives are often upset when they read Section 212.1(a)(3) because they know, on a very practical level, that independent contractor owner-operators must be scheduled in order for the Carrier to run a trucking operation in an organized and efficient fashion. So, with that in mind, what does Section 212.1(a)(3) really mean?

FIVE HELPFUL EXAMPLES TO EXPLAIN SECTION 212.1(a)(3): There are five very helpful examples in the IDES Rules explaining Section 212.1(a)(3). In four of these five examples, the independent contractor owner-operator is considered exempt from employment (i.e., the independent contractor owner-operator at issue is not reclassified to employee status for IDES purposes).

But, the first example in the Rules gives a fact pattern where the independent contractor owner-operator is reclassified to employee status. This example presents a fact pattern where the independent contractor owner-operator is required to call in at 8:00 am to see if there is any work for him from this Carrier. Once the Carrier informs the independent contractor owner-operator that there is indeed work for that particular independent contractor owner-operator, the independent contractor owner-operator must report to the Carrier by 9:00 am that day.

If the independent contractor owner-operator fails to make himself available by 9:00 am, the Carrier will enter a demerit on the independent contractor owner-operator’s personnel records. Under this Carrier’s system, the independent contractor owner-operator’s independent contractor relationship will be terminated by the Carrier if the independent contractor owner-operator accumulates five demerits during a year.

Under this fact pattern, the IDES concludes that the independent contractor owner-operator should be reclassified to employee status because the independent contractor owner-operator is required to adhere to a specific schedule set by the Carrier.

The other four examples in the Rules describe fact patterns in which the independent contractor owner-operator is not required to perform under a specific schedule but is merely meeting deadlines specified by a shipper or by a receiver.

One of the examples in the Rules illustrating this point is as follows:

Example: White operates a truck for the ABC Produce Company. ABC instructs White that produce picked up from ABC’s terminal must be delivered to XYZ Wholesaler by 4 A.M. on the delivery date. It is understood that White’s failure to meet the deadline may jeopardize his ability to drive for ABC again. The fact that ABC may be reluctant to transact future business with a driver who has failed to meet the delivery time ABC, as the shipper, has specified does not by itself indicate ABC has failed to satisfy Section 212.1. Under these facts, absent any other evidence that indicates ABC has failed to satisfy the requirements of subsections (e) through (k) of this Section, the services White performs for ABC are exempt from the Act’s definition of “employment”.

What all this unfortunate legalese means is that the independent contractor owner-operator is not reclassified to employee status in this example.

The key to “passing” Section 212.1(a)(3) is to make it clear in the written independent contractor agreement between the Carrier and the owner-operator that the owner-operator is free to perform his or her services per his/her own business judgment.

For a full list of all the examples, please contact Legal Assistant Tammy Nelson at 630-377-1554 or via email at tanelson@wesselssherman.com.

Questions? Call Attorney Nancy E. Joerg of Wessels Sherman’s St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.