IDES Audits of Illinois Trucking Companies

Issues to Consider

Illinois Department of Employment Security (IDES) audits pop up suddenly! Your trucking company may get a phone call or letter out of the blue from an IDES auditor!

IDES audits can arise due to an unemployment claim by an owner-operator who is a “1099 Independent Contractor”, a purely random selection, or due to other triggers. Companies who issue many 1099s are more likely to have an IDES audit (this is a recent audit development).

If your trucking company is faced with an IDES audit and you use independent contractor owner-operators, consider the following issues:

 

1. BUSINESS NAME AND ADDRESS ON TRUCK: All of the owner-operators who are independent contractors should have their business name and business address on their trucks. This is required by law. The IDES auditor will usually ask for proof of this. Therefore, the trucking company should take photos of all of the owner-operators’ trucks, showing the business name and business address of the owner-operator. The placement of the owner-operator’s business name and business address on the truck is not important for IDES purposes. The size and color of the business name and business address on the truck is also not important for IDES purposes. The IDES regulations are silent on this. It is simply the legal requirement that the owner-operators have their business name and business address—somewhere—anywhere—on their trucks.

2. INDEPENDENT CONTRACTOR AGREEMENT: The trucking company should carefully review each word in its independent contractor agreement for owner-operators. Where an independent contractor agreement can get a trucking company in trouble is if it indicates that the trucking company covers some of the operating and licensing expenses, beyond that required by state or federal law. Remember under Section 212.1 of the Illinois Unemployment Insurance Act (which is the strict six-part legal test the IDES auditor uses in evaluating whether a truck owner-operator is an independent contractor or an employee), independent contractor owner-operators are required to shoulder all operating and licensing costs (except for those costs that the trucking company may be required to pay by law). 

3. NON-COMPETES ARE PROHIBITED: If the independent contractor agreement for owner-operators contains a non-compete/non-solicitation provision, all bets are off. This will be a disaster! In other words, per Section 212.1, independent contractor owner-operators must be free of any restrictive covenants such as a non-compete or a non-solicitation agreement. Sometimes these non-compete provisions are dangerously buried in the language of an independent contractor agreement. In the trucking setting in Illinois, non-competes are FATAL to an independent contractor relationship between the trucking companies and owner-operators!

4. SPECIAL QUESTIONNAIRE: There is a special (very tricky) questionnaire that IDES auditors use to decide whether independent contractor owner-operators are really employees.  The standard IDES Worker Relationship Questionnaire is not used for independent contractor owner-operators. The special Questionnaire is based on Section 212.1.

The Illinois trucking company being audited by the IDES should complete the special multi-page Questionnaire prior to the IDES auditor actually asking the company to complete such a questionnaire. By filling out the Questionnaire ahead of time, the Illinois trucking company will be well aware of the questions the auditor is likely to focus upon. It is a great preparation exercise to understand the thought process and legal concerns of the IDES auditor in a trucking setting.

Readers can contact my legal assistant, Tammy Nelson, at 630-377-1554 or via email at tanelson@wesselssherman.com, for a free copy of the 212.1 Questionnaire.

5. INDEPENDENT CONTRACTOR OWNER-OPERATORS CAN ONLY LEASE TRUCKS FROM UNRELATED THIRD PARTIES: Under Section 212.1, any independent contractor owner-operators who lease their trucks from the Authority holder trucking company for whom they provide services will be reclassified to employee status upon audit.

 A strange legal provision in Section 212.1 provides that independent contractor owner-operators can only lease their trucks from unrelated third parties—not the Authority holder for whom they are driving. This is another deal breaker for independent contractor status!

If an IDES auditor discovers that the independent contractor owner-operators lease their trucks (or finance their trucks) through the Authority holder for whom they are providing services, the IDES auditor will reclassify these drivers to employee status for IDES purposes. This is a special, unique law in Illinois. It baffles many of my trucking clients who are upset by what seems to be an irrational anti-business obstacle to independent contractor status.

In view of all of the above (and the resulting liability), it is very wise for an Illinois trucking company to seek immediate legal counsel before they begin any conversations with an IDES auditor. There are many traps for the unwary.

For assistance with an IDES, DOL, or IRS audit; drafting an independent contractor agreement; or evaluating your use of independent contractors,  contact Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.

The Difficult Job of Proving Misconduct to the Illinois Department of Employment Security (IDES) When a Truck Driver is Terminated for Poor Performance

March 2015
By Nancy E. Joerg, Esq.

As one would expect, sometimes a trucking company finds it best to terminate a truck driver for poor performance. This poor performance may involve very serious accidents or negligence (such as cross-dropping no lead gasoline into a premium tank, thereby contaminating that product). Sometimes, instead of properly loading thousands of gallons of no-lead and thousands of gallons of mid-grade, the driver carelessly loads thousands of gallons of no-lead and thousands of gallons of premium.

While there is of course usually no problem in terminating a driver who has had many accidents which cost the company time, money and damage to their reputation, our trucking clients are often surprised when they don’t win with the Illinois Department of Employment Security (IDES) - if the terminated truck driver files for unemployment insurance benefits with the IDES.

What many trucking clients don’t realize is that the IDES WILL give unemployment insurance benefits to drivers (even when they have had many serious accidents in the course of their employment) if the trucking company cannot successfully prove that these accidents were willful and deliberate on the part of the employee truck driver.

IDES DEFINITION OF MISCONDUCT: The IDES works under a strict legal definition of misconduct which requires that the trucking company prove that the incident was intentional, willful and deliberate. Mere negligence and terrible driving or a series of significant mistakes or accidents do not qualify as misconduct under the IDES definition.

Under Section 602A of the Illinois Unemployment Insurance Act, the definition of misconduct is:  “the deliberate and willful violation of a reasonable rule or policy of the employing unit, governing the individual’s behavior in performance of his work, provided such violation has harmed the employing unit or other employees or has been repeated by the individual despite a warning or other explicit instruction from the employing unit.” 

Section 602A requires deliberate and willful behavior and that behavior must have caused harm to the trucking company.  (These elements need to be proven by the trucking company in order for unemployment insurance benefits to be blocked.)

TIPS FOR TERMINATION LETTER: When you terminate a truck driver for a series of incidents in the course of their truck driving, indicate in the termination letter what reasonable rule or policy the truck driver intentionally failed to follow. This is a way to win with the IDES, by emphasizing the deliberate and willful nature of the driver’s behavior. For example, if the driver failed to double check the gasoline in a manner in which he was instructed by the trucking company, then that might be a winning strategy to block his claim for unemployment insurance benefits.

PROTESTING THE DRIVER’S CLAIM FOR UNEMPLOYMENT: Keep this in mind the next time you protest a truck driver’s claim for unemployment insurance benefits with the IDES…your goal is to prove to the IDES that the truck driver’s behavior was willful, deliberate and intentional. Merely pointing out what a bad driver that individual was is NOT a winning strategy. Accidents and negligence are (sadly) not enough.

For assistance with IDES audits, hearings, and independent contractor agreements (or for consultations on limiting your liability in the use of independent contractors), contact Attorney Nancy E. Joerg, who enjoys a nationwide reputation in working with 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 najoerg@wesselssherman.com.