Opinion: Illinois Law May Catch Some Off Guard

By Nancy E. Joerg, Attorney

Illinois trucking companies are going to be very surprised when they are audited by the Illinois Department of Employment Security under its new legal definition of independent contractor status for owner-operators (Section 212.1 of the Illinois Unemployment Insurance Act).

Many of my trucking clients still do not realize that the IDES will be using an extremely strict test to determine which owner-operators will be considered independent contractors for IDES purposes — that is, for Illinois unemployment insurance purposes — and which drivers will be considered employees for IDES purposes.

Many Illinois trucking companies celebrated when they learned several years ago that the Illinois Legislature had passed a new test defining independent contractor status for owner-operators for unemployment insurance purposes. These happy companies assumed that the new test would be easier than the old legal test used by IDES auditors. The situation is more complicated than that.

The reality is that Illinois trucking companies whose managers understand — and comply with — the many strict requirements of the new law will pass IDES audits. They will, of course, be delighted with the new law. However, Illinois trucking companies that have not carefully prepared for total compliance under the new law will be hammered with IDES tax assessments on each and every owner-operator reclassified from independent contractor status to employee status. They will be furious with the new law.

The obvious message here is that Illinois trucking companies need to immediately review their independent contractor agreements — and their practices with their independent contractor owner-operators — to make sure they fully comply with all six subsections of this new law. For example, under the new law, the independent contractor owner-operators must pay all operating and licensing costs. If the trucking company pays for the operating and licensing costs for the owner-operators, those owner-operators may be reclassified to employee status upon audit.

Another example under the new law: Trucking companies can no longer lease-purchase trucks to the independent contractor owner-operators who drive for them. This particular restriction is sure to create angry howls and turmoil.

All six subsections of the new and unforgiving law must be followed strictly. If even one subsection is violated, the owner-operator at issue will be reclassified to employee status upon IDES audit (unless some other defense is available). Total compliance is required here.

My concern, as an attorney who drafts and reviews independent contractor agreements for trucking companies, is that many Illinois companies have got the situation wrong. They mistakenly believe that the new law is easier than the old law. That simply is not the case — although the new law is clearer than the old law.

Of course, the good news is that if Illinois trucking companies are in strict compliance with this tough, new law, they will be able to survive an IDES audit.