6/9/2017: Action Required for Motor Carriers using Owner-Operators in Light of the ELD Mandate

Owner-operators are an integral part of the trucking industry. With approximately 350,000 owner-operators registered in the United States, their contribution to the trucking industry is significant. Most importantly, owner-operators provide motor carriers with flexibility.

The Federal Motor Carrier Safety Regulations (“FMCSR”) afford owner-operators significant protections and dictate the requirements of owner-operator leasing agreements and certain aspects of the business relationship. A motor carrier’s failure to comply with the FMCSR provisions applicable to leasing agreements exposes them to disciplinary action, as well as lawsuits brought by owner-operators. As new federal regulations governing the transportation industry are constantly proposed and adopted, it is imperative that motor carriers adjust their owner-operator leasing agreements in light of the ever-evolving regulations to ensure compliance with all applicable FMCSR provisions. Motor carriers should be aware that the recent ELD Mandate may require modifications to their owner-operator leasing agreements.

The ELD Mandate

In December 2015, the Federal Motor Carrier Safety Administration (“FMCSA”) published a rule requiring commercial truck drivers to log their hours of service using an electronic logging device (“ELD”) approved by the FMSCA (“ELD Mandate”). The ELD Mandate was effective as of February 16, 2016 with a compliance date of December 18, 2017 for most carriers and drivers (carriers and drivers who were using automatic on board recording devices prior to the ELD Mandate may continue to use those devices through December 16, 2019).

The motor carrier must select and use an ELD that is approved by and registered with the FMCSA. The approved ELDs range significantly in price for the unit itself as well as the monthly service fees associated with its use. Many motor carriers are choosing to purchase the ELDs in bulk from the manufacturers at a discounted rate then offering to pass the savings through to their owner-operators by selling the ELDs to them as a convenience and at the discounted rate. Additionally, many motor carriers are choosing to pass the cost of the ELD’s associated monthly service fees to their owner-operators. Motor carriers must be mindful of the applicable regulations governing owner-operator lease agreements and ensure that their lease agreements and their actions are compliant with the regulations.

Owner-Operator Lease Agreement Requirements

FMCSR dictates the terms that must be contained in every lease agreement between an owner-operator and a motor carrier. Specifically, the FMCSR, and the case law interpreting the applicable provisions, require that all items charged back to the owner-operator be specifically identified in the lease agreement, along with how the amount charged back will be calculated or determined. This must be done within the lease agreement itself or through an addendum modifying the lease agreement, signed by both the owner-operator and the motor carrier. Additionally, the FMCSR prohibits a motor carrier from requiring an owner-operator to purchase any products or services from the motor carrier as a condition of entering into the lease agreement.

Required Action of Motor Carriers

Motor carriers utilizing owner-operators must take action to ensure that their leasing agreements, and their actions, are compliant with FMCSR in light of the ELD Mandate.  A motor carrier must remember that it is permitted to offer to sell the ELD unit to the owner-operator as a convenience, but cannot require the purchase of the unit from the motor carrier itself. The motor carrier can dictate the type of unit the owner-operator must purchase, but the owner-operator must be free to purchase the unit from any source available. Additionally, if a motor carrier is going to charge back the cost of the ELD unit, or the associated monthly service fee, the motor carrier must ensure that these items are specifically included in the lease agreement. If the ELD and/or service fee is not specifically identified as an item that will be charged back to the owner-operator, an addendum to the leasing agreement, signed by both the motor carrier and the owner- operator, is required.

If you have questions regarding whether your owner-operator leasing agreements are compliant with FMCSR in light of the ELD Mandate, or you need assistance in modifying the agreements to bring them into compliance, please contact Renee Bowen at rbowen@fandpnet.com or 410.230.3943.