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Terms & Conditions

by Jim Park
Untitled Document You don't have to hang around the driver's lounge very long before you hear someone's tale of woe about how they've just been ripped off. Less commonly heard are discussions of what their contract has to say about the incident, and an admission that, yes, the carrier can do that. Owner-operators bear some responsibility for being "ripped off" because they often sign contracts that don't protect their interests.

There's sometimes a lot of ground between what's "fair" and "what's in the contact," and when an issue arises where the owner-op feels he or she is getting the short end of the stick, the only way to settle it is to refer to the contract.

In a business-to-business relationship, a written contract is an absolute necessity to protect the interests of both parties. Not only does it outline expectations, obligations, and responsibilities - yours and the carrier's - it's the only basis for settling disputes. Signing the agreement indicates you accept its terms and conditions. So, if there's something inherently unfair about the contract, or you've got questions or need clarification, you must settle those concerns before you sign. The absolute worst time to get into a dispute with a carrier over an element of the contract is after you've signed, begun working, and discovered a problem.

Not to put too fine a point on it, the carrier sets out its terms and conditions in the contract - fair or otherwise. If you sign the contract, it means you agree with it.
Take the case of an owner-op named Derek. He's been in the business about three years, and readily admits he's still on the upward part of the learning curve. He signed on to a carrier that pays $15/hr waiting time after two hours, and $100 for a layover after the first 24 hours.

He asked about the carrier's track record with respect to waiting time, and was told drivers seldom spend more than two hours at the dock.

"I trusted them," he says of what he was told. "The reality is I'm averaging between two and five hours per stop, or close to 300 hours in two and a half months. They don't want to change the contract, and I can't absorb that kind of downtime."

Derek says he recently asked a customer's traffic manager what they were paying in terms of demurrage, and was told $65/hour after two hours.

"So [the carrier] bargains away two hours of my time, and pays me a quarter of what the shipper pays," he says. "And I agreed to it."

Performance Enhancers

A contract is a deal between two parties - and you're one of those parties. Look for clauses that will protect or enhance your interests too.

Rate Escalator Clause: the contract should set out a defined period of time over which a given rate will be in force. A contract that is silent on rate increases is a contract designed to keep the rate the same.

Fuel Surcharge Mechanism: a contract should spell out how the surcharge is calculated and how it's passed on. Don't depend on the "if we get it, you get it" deals. Fuel is a real cost, and you should be collecting surcharges from the party you do business with - the carrier.

Accessorial Charges:
carriers are billing for extra services over and above the quoted rate, and shippers like that flexibility. Consider this approach in your own contract - rather than raise the rate over all, tip the revenue scale in your favour by adding certain extras to your invoice - wait time, layover, deadhead miles, after-hours delivery, etc.
Holdbacks: interest should be paid to you on your holdback, and the funds should be held in a third-party escrow account. This protects your holdback if the carrier goes into receivership, and ensures you at least a modest return on the money the carrier retains.

Worker's Compensation Opt-out Clause: most jurisdictions in Canada permit self-employed owner-operators to opt-out of paying worker's compensation premiums - but many shippers and receivers are now demanding contractors be covered by some sort of insurance plan. Determine if some other form of coverage would be suitable to the carrier.

Contracts will vary from carrier to carrier because their needs differ. Given the number of carriers out there, chances are that any particular contract may not address all your needs, but there's nothing under the sun that says the owner-operator can't ask to have the contract amended. You're entering into a business relationship with the carrier, and you should both be in agreement with all the terms and conditions of the contract. In other words, the owner-operator should be as happy with the contract as the carrier.

"The contract is one of the owner-operator's most important business tools," says Joanne Ritchie, Executive Director of the Owner-Operator's Business Association of Canada (OBAC). "While it may not be the way they're used to doing business, both owner-operators and carriers should approach discussions about the contract with the view that they're trying to cement a business partnership, one that is workable and profitable for both of them."

The old paradigm isn't sustainable in today's competitive business climate, Ritchie says. As independent business-people, owner-operators should approach contractual arrangements as equal partners, and carriers need to recognize the value in establishing solid relationships with viable business partners. Anything else, and the contract is lopsided and ineffectual, she says.

"We need to get past the age-old labour/management mentality that has hamstrung the independent contractors in this country for years. There's nothing wrong with owner-operators using - and paying for - some of the carrier's resources to enable them to operate, but exactly what those services are, and how and when they're paid for, should be clearly defined in the contract. Our message to owner-operators: at the end of the day, after discussions with the carrier, if you conclude that the pay package or any other part of the deal doesn't work for you, don't sign - start negotiating or start walking."

Ritchie admits that's going to be a difficult message to get across, but it's one of the few bits of leverage owner-ops have in influencing the terms of their contracts.

Contractual Implications
Sad to say, but handshakes don't work anymore - they're subject to a whole pile of interpretations. With a contract, you know the deal going in. "If you want to work for us, here is the deal. Here's what you pay and here are the costs you cover. Here's what we pay, and here's what we cover. Here's what you're responsible for, here's what we expect of you, and here's what you can expect from us." That's what the contract should be saying to you.

When it comes to clarifying the independent status of owner-operators, the contract is an important first step, although there are often many other factors in that determination. Clearly defined roles and responsibilities for both parties can only help.

Clause for Concern

A signed contract has the power of law. Some clauses can have unforeseen consequences if your interpretation differs from the carrier's. Make sure you understand your obligations in these circumstances.

~ Any clause that requires you to purchase or rent a product, equipment, service, or insurance from a specific source. You could be obligated to pay inflated prices or settle for substandard product. Buyer beware.
~ Any clause that holds you responsible for loss or damage incurred by any party as a result of negligence, action or inaction on your part or the carrier's part - particularly with respect to penalties levied by shippers or receivers for lost production time, loss of customer confidence, or inventory control issues.
~ Any clauses that requires you to provide replacement equipment and/or labour in the event of a mechanical failure or forced absence from duty. You could be on the hook for immediate replacement, or required to pay the consequences (see above).
~ Any clause that governs ownership of your equipment, even in the case of insurance or vehicle registration requirements. The contract should indicate that you alone retain ownership of the equipment (if you are in fact the deeded owner) under any and all circumstances.
~ Any clause that addresses insurance is cause for concern. Deductibles are typically very high right now, and owner-ops could find they're responsible for more than they bargained for. Language used in insurance contracts may be difficult to understand, or use unfamiliar terms. Make sure you understand what your obligations are, and get it in writing.

Still, even with a good contract, there are bound to be disputes.

The contract should include some kind of dispute resolution mechanism. Whether it contains formal grievance and arbitration clauses, or simply spells out who needs to be informed, by what means, and in what time frame, you need something to govern the argument.

And OBAC's Ritchie says small claims court is often the owner-op's best resource in resolving a dispute.

"Small claims court is a simple and straight forward process," she stresses. "The filing fees are minimal, you don't need a lawyer - though you can retain counsel - and all you do is present your case to the judge. He or she hears the carrier's response and usually delivers a decision in a very short time."

Ritchie reminds us, however, that in any dispute, there's always the possibility of losing the argument. Courts do consider issues of fairness, but not when there's a contract involved. The contract rules, and ignorance of its terms and conditions is no defense. Having a contract as a reference improves your chances of winning -- if you're right. Courts will hear disputes without a frame of reference, but that can be a messy process.

Calgary-based owner-operator Terry Corbeil found himself in the midst of just such a dispute back in late June 2004. Convinced that his contract had been broken by the carrier, he faxed it to his lawyer from a truckstop fax machine, and directed the lawyer to write a letter to the carrier in hopes of resolving the problem. At issue was a larger holdback amount than the contract stated, and the possibility of not seeing that money again, because the carrier claimed that Corbeil had broken the contract by refusing a dispatch.

Corbeil says he had already given appropriate notice of his intent to quit, and did indeed refuse a dispatch - but only because the trip would have kept him out on the road after his annual safety inspection sticker expired.

So is he right? The carrier, of course, thinks not. Will it go to small claims court? That depends on the willingness of both parties to resolve the issue before it gets to that stage. Is Terry prepared to go that far? You bet.

"I honestly don't think that most carriers are out to screw owner-operators," says veteran owner-op, Ed Wesselius. "Sure there are some, but a contract is a contract, and you have to remember who wrote it. At the end of the day, there's no law saying you have to sign it."

OBAC has a set of contract guidelines on its website, and also offers a contract advisory service to its members. The modest fee for an appraisal of a contract is a spit in the bucket compared to the damage a bad contract can cause.
Visit www.obac.ca, click on Products & Services, or call for information: 888-794-9990.