August 2010
By: Nancy E. Joerg, Esq.
It is common practice for a trucking company to have an escrow program under which the company withholds a certain amount from a paycheck so that an escrow fund is established for the individual independent contractor/owner-operator. The typical amount of such an escrow fund might be $2,000.
The reason behind the escrow program is that in the event the independent contractor/owner-operator causes damage, and the trucking company has to pay for those damages, then funds are available for reimbursement.
Although establishing and maintaining the escrow fund is a very popular idea among trucking companies that work with independent contractor/owner-operators, this area is fraught with legal peril.
The federal written lease requirements are found in Title 49 of the Code of Federal Regulations (CFR), Part 376.12. Carriers who use independent contractor/ owner-operators should be sure to familiarize themselves with the federal written lease requirements.
One of the most litigated areas of these requirements relates to escrow funds. The federal requirements describe how a trucking company should set up and maintain its escrow funds, which is purely voluntary on the part of the carrier. However, there are many ways for a trucking company to violate, even accidentally, the strict requirements relating to escrow.
The federal written lease requirements tell carriers, in no uncertain terms, what must be clearly stated in the lease agreement - including all items which can be deducted from escrow by the carrier. The sudden appearance of "miscellaneous" or "unspecified" escrow deductions may lead to a bitter end of the independent contractor relationship - if not legal action against the carrier.
If an escrow fund is established, the lease agreement must cover the following issues (among others):
* Interest Rate: On the issue of the interest rate and the interest that must be reported and paid to the independent contractor/owner-operator, the written lease requirements state:
That while the escrow fund is under the control of the carrier, the carrier shall pay interest on the escrow fund on at least a quarterly basis. For purposes of calculating the balance of the escrow fund on which interest must be paid, the carrier may deduct a sum equal to the average advance made to the individual lessor during the period of time for which interest is paid. The interest rate shall be established on the date the interest period begins and shall be at least equal to the average yield or equivalent coupon issue yield on 91-day, 13-week Treasury bills as established in the weekly auction by the Department of the Treasury.
Questions about escrow or any other provision in Independent Contractor Agreements for owner-operators? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois, office: 630-377-1554 or email her at najoerg@wesselssherman.com.
By: Nancy E. Joerg, Esq.
It is common practice for a trucking company to have an escrow program under which the company withholds a certain amount from a paycheck so that an escrow fund is established for the individual independent contractor/owner-operator. The typical amount of such an escrow fund might be $2,000.
The reason behind the escrow program is that in the event the independent contractor/owner-operator causes damage, and the trucking company has to pay for those damages, then funds are available for reimbursement.
Although establishing and maintaining the escrow fund is a very popular idea among trucking companies that work with independent contractor/owner-operators, this area is fraught with legal peril.
The federal written lease requirements are found in Title 49 of the Code of Federal Regulations (CFR), Part 376.12. Carriers who use independent contractor/ owner-operators should be sure to familiarize themselves with the federal written lease requirements.
One of the most litigated areas of these requirements relates to escrow funds. The federal requirements describe how a trucking company should set up and maintain its escrow funds, which is purely voluntary on the part of the carrier. However, there are many ways for a trucking company to violate, even accidentally, the strict requirements relating to escrow.
The federal written lease requirements tell carriers, in no uncertain terms, what must be clearly stated in the lease agreement - including all items which can be deducted from escrow by the carrier. The sudden appearance of "miscellaneous" or "unspecified" escrow deductions may lead to a bitter end of the independent contractor relationship - if not legal action against the carrier.
If an escrow fund is established, the lease agreement must cover the following issues (among others):
- The lease must specify the amount of the fund to be established with the owner-operator's money and for what specific items and repairs it is to be used.
- Carriers must give a clear description of each escrow transaction monthly or by clearly indicating on individual settlement sheets the amount and description of any deduction or addition to the escrow fund.
- The owner-operator may demand an accounting of escrow transactions at any time during the lease.
- The carrier must pay interest on all escrow funds in an amount at least equal to the yield on a 91-day, 13-week U. S. Treasury bill (see note below*).
- After termination of the lease, the carrier has 45 days (and no more) to return all escrow funds. There are no exceptions to this rule.
* Interest Rate: On the issue of the interest rate and the interest that must be reported and paid to the independent contractor/owner-operator, the written lease requirements state:
That while the escrow fund is under the control of the carrier, the carrier shall pay interest on the escrow fund on at least a quarterly basis. For purposes of calculating the balance of the escrow fund on which interest must be paid, the carrier may deduct a sum equal to the average advance made to the individual lessor during the period of time for which interest is paid. The interest rate shall be established on the date the interest period begins and shall be at least equal to the average yield or equivalent coupon issue yield on 91-day, 13-week Treasury bills as established in the weekly auction by the Department of the Treasury.
Questions about escrow or any other provision in Independent Contractor Agreements for owner-operators? Call Attorney Nancy E. Joerg of Wessels Sherman's St. Charles, Illinois, office: 630-377-1554 or email her at najoerg@wesselssherman.com.
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