Words to Live By
by Jim Park
Most people would hesitate to loan a friend $1000 without some small assurance of a prompt payback. Yet, lots of owner-operators continue to hire on to a carrier, risking hundreds of times that amount, without a written contract.
Whether you prefer to call it a contract or an agreement, it's more than just a piece of paper you have to sign before you can start turning the miles. It's a legally binding agreement between two parties that defines the relationship from a business perspective and spells out each party's rights and obligations.
An owner-operator who works for a carrier is not an employee of that carrier; nor is he covered by any of the federal or provincial labor laws or regulations that govern the carrier's employee drivers. By definition, the owner-op is a contractor doing business with a larger business entity. The entire relationship is governed by the terms set out in the contract.
In other words, there are no pre-defined conditions or obligations as is the case under labor law. There, but for the grace of God, you go. A contract removes the guesswork and uncertainty from the relationship. In contrast, many owner-ops seem to prefer working without a contract. Their agreement, often verbal or even less than that, leaves an awful lot open to interpretation and it doesn't provide much in the way of ground rules if and when you wind up in court duking it out with the carrier.
A contract should be seen as a means of protecting your interests as well, because that's the way a carrier uses the contract. Unfortunately, far too few owner-ops ever even try to make the contract a two-way street.
"I guess most of them think they'd get laughed right out of the office if they tried to assert themselves before they sign," says Leo Van Tuyl.
Van Tuyl was an owner-operator himself for many years. He now runs a company called Truckers Business Consulting Group in Kitchener, Ont., dealing exclusively with trucker's business and financial issues. He's asked dozens of times every week to help resolve problems that stem from a lack of understanding of the contracts his clients have signed. We asked him to lead us through the issues.
"If they took more responsibility for themselves as businessmen, they wouldn't allow the carrier to call all the shots," he says. "They've got to start seeing the contract as a tool they can use to improve their businesses. They really have to use the contract to their advantage."
What Are You Signing?
When you sign the contract, you acknowledge your agreement to the terms and conditions of the contract - even if they're not completely understood or aren't exactly to your liking. So, why sign an agreement that doesn't protect your interests the way you'd like it to?
Van Tuyl feels that many owner-ops pay too much attention to the obvious stuff like rates and costs. Boilerplate stuff you'll find in any agreement.
"Where most of them get hurt is in the fine print, or the lack of fine print," he suggests. "There's often more to be concerned about by what's not in the contract than what is."
A contract should make clear all your rights and obligations. But if the contract is silent on an issue, then neither party can use the contract to resolve a dispute. We get a lot of e-mail at highwaySTAR asking for help in a dispute revolving around mysterious deductions from the statement. Unless the contract says otherwise, the carrier is free to make any deduction it wishes, and you may have no choice other than going to court.
But heck, you're no lawyer. How are you supposed to decide what's a good deal and what's not?
Van Tuyl is also the chairman of the advisory board of the Ontario Trucking Association's (OTA) Professional Driver & Operator Forum. The Forum is a group of truckers working to provide information to other drivers and owner-ops, while working with the OTA to help carriers develop better ways of dealing with driver issues. The Forum has just compiled a booklet called Guidelines for Carrier/Owner-Operator Contracts, which contains many enlightening bits of information about contracts and what they should contain.
Interestingly, the second item listed in the booklet states; "each party should be offered reasonable time to seek legal review of the contract before signing." It's telling you to take the thing to your lawyer before you sign it. Of course, the review might cost you $50 or $75, but isn't that ultimately less expensive than being taken to the cleaners for several thousand dollars later?
Now you're thinking: how many times have I asked for a review and the carrier refused?
"My suggestions is, if the carrier says 'no, you can't take it to your lawyer,' then that's not a carrier I'd want to work for," Van Tuyl says. Carriers will often cite concerns about confidentiality when letting a contract out of the office. If that's case, Van Tuyl suggests having the carrier fax it directly to your lawyer. "If there's any hesitation, you should be asking yourself, what is it that they don't want me to know about?"
The OTA board of directors approved the guidelines described in the booklet. Van Tuyl says everybody on the board got a copy before they voted on it, and it wouldn't be here if they hadn't approved. Still, there's little value in arguing the point with the carrier. If they don't want to let it go, consider walking.
"I wouldn't work for a carrier that wouldn't let me have at least that much. I mean, if we're already that much at odds before I've even started working, there's no point," Van Tuyl advises.
Another element that's usually absent from the contract is any discussion of rate increases. The going rate is stated, as well as pick and drop fees and the like, but that's the end of it. Van Tuyl says the contract is an excellent way to address the issue of an increase, but this is a feature YOU'LL need to negotiate into the contract.
Terms of the Deal
In a verbal agreement, or a contract that doesn't specify the length of the term of the contract, there's no mechanism by which you can force a review of the rate. A carrier is free to continue paying the originally discussed rate as long as it wants. You can ask and cajole all you want, but there's no reason for the carrier to provide an increase. If, on the other hand, you build a time limit into the deal, the rate issue will need to be dealt with.
"Owner-ops need to be adamant about building in reasonable rate increases every year," says Van Tuyl. "As long as there are guys willing to stay with a poor-paying carrier just because they like the job, it'll be a lot harder to implement this type of thing. If enough of them promise to leave if they don't get the increase, they'll probably get one."
He suggests asking for a built-in review of the rate or an escalator clause that will force a rate increase in a given period of time. You could also ask to have a rate increase built into the contract that would automatically kick-in on a specified date, such as one year after the contract is signed. "If you say, 'I'll work from now until March 1 at this rate, but I want a 2% increase written into my contract, effective March 1,' the carrier can either pay up or tell you to get stuffed," he said. "And why wouldn't he pay you if you're doing the job?"
This sort of arrangement can work to the carrier's advantage as well. He now has a quantifiable cost increase he can take to the shipper and request an increase in the freight rate. He may not get it, but at least your demands put a bit of upward pressure on the rate that isn't there now. Of course, the downside is, the carrier could decide not to raise the rate when specified, thereby voiding the contract and leaving you in need of another job. But realistically, the cost of recruiting and training new owner-ops would make that one a foolish decision if you've lived up to your end of the bargain.
The other mechanism that could be used to force an annual examination of the rate would be to create a 'cost-of-trucking index', upon which the rate is determined as the cost of doing business changes. This could be a package of goods and services, such as an hour of shop time, the price of a truck or the cost of a tire. If on average these prices rise by 3.5%, the rate should increase accordingly. Given today's climate, Van Tuyl suggests leaving the price of fuel out of the equation.
"It would be more beneficial to leave that as a separate adjustment, outside of the standard basket of goods and services," he says.
Another method Van Tuyl suggests is using the Niagara Frontier Tariff Bureau's (NFTB) annual freight-rate indicator. The NFTB is a body that calculates the cost of moving freight. Their figures are generally accepted everywhere in the country as gospel. This year, their suggestion to the carriers was to raise the freight rate by 5.5%.
"So why shouldn't that be the same increase the owner-ops need?" asks Van Tuyl. "If the NFTB says it's costing a carrier 5.5% more, then that's probably what it's costing you as well."
Any way you look at the issue, rate increases have been anything but predictable in the past. And it's largely because the owner-op agreement hasn't contained any provision to drive the rates up. "Even if the contract states that there'll be a periodic examination of the rate, it's up the owner-op to make the provision work," Van Tuyl says. "You have to be prepared to stand up for what you believe in, and be prepared to take the necessary action if your needs aren't satisfied."
In an interesting bit of insight, Van Tuyl suggests that too many owner-ops wait until it's too late to begin looking for another carrier. The guy has probably been losing money at his present carrier, he may be feeling some pressure from the bank or the family, and he needs to make a move - soon. In other words, he might not have all the time in the world to scope out dozens of carriers and read all the fine print on all the agreements he's presented with.
"Leaving it until it's too late presents the greatest risk for the owner-op to sign away any opportunity he might have to find a better deal," he said. "The better deal is the one he researches and writes himself."
There's a lot to be concerned about in any contract. It's vital that you understand every term and condition on the page. So, wouldn't it be easier for everybody if there was a standard contract, or a contract containing standard terminology?
How about a fill-in-the-blanks contract: one with standard terminology but flexibility to deal with local issues?
"That would remove many of the reasons that carrier A is better than carrier B. Everybody would be held to the same standards. A good, progressive carrier will always have a better contract than a fly-by-nighter," Van Tuyl says. "Besides, a fill-in-the-blanks contract would make it easier to compare the blanks, wouldn't it? That's not something most carriers really want."
By now you're probably saying, "Yeah, what a great idea. I can bargain all I want but if I'm doing it alone, nothing will ever happen." Don't forget, there are 50,000 more of you out there thinking the same thing. Given the difficulty of making these sort of changes, wouldn't it be easier if there was a union involved to bargain on your behalf? Well, maybe not.
There's good reason to be doing most of your negotiating on your own, or at the most, from within the company.
"Going the union route, like they're trying to do in Quebec, is suicide because at the very least you'll no longer be considered an owner-operator in the eyes of Revenue Canada or WCB," says Van Tuyl. "But worse, the best contract the union can negotiate is also going to become the worst contract." When you set standards, everybody works to the lowest common denominator. What happens to everybody who is working for a good carrier, and already earning more than the standard contract suggests?"
Like it or not, competition is one of the cornerstones of the North American economy. You can regulate and enforce all you want, but there will always be good and bad carriers, as well as good and bad owner-ops. How you separate the two is up to you. The good carriers shouldn't tolerate bad owner-ops any more than good owner-ops should tolerate bad carriers.
By definition, a contract is an agreement between two parties. That means there are two sets of interests that must be considered. "As long as you are prepared to take what ever you're offered, then your needs aren't even being considered," says our wise friend, Leo. "If the carrier isn't prepared to negotiate, or he isn't willing to at least allow you to take the contract to your lawyer, then head for the hills."
Copies of the contract guidelines booklet can be obtained from the OTA Drivers and Owner Operator's Forum for $10.00 each (call 416-249-7401). Call Leo Van Tuyl at The Truckers Business Consulting Group. 519/893-1299.