What must a carrier do before making deductions to your compensation?

This is the second in a series of exclusive articles describing how owner-operators can spot illegal motor carrier leasing practices

by Belinda Harrison
The Cullen Law Firm, PLLC, Washington, DC

There are things in life that should never be a mystery, like why a motor carrier makes a deduction from your compensation, or how the amount of a particular deduction is calculated. You should never have to wonder about what is being deducted from your compensation and why.

Rules that govern chargebacks
To answer these questions, we look again to the truth-in-leasing regulations that make up “I-376, The Road to Better Treatment From Your Motor Carrier.” Chargebacks and deductions from owner-operator compensation are strictly governed by federal law. Section 376.12 (h) of Title 49, in the Code of Federal Regulations says

(h) Chargeback items. The lease shall clearly specify all items that may be initially paid for by the authorized carrier, but ultimately deducted from the lessor’s compensation at the time of payment or settlement, together with a recitation as to how the amount of each item is to be computed. The lessor shall be afforded copies of those documents which are necessary to determine the validity of the charge.

This regulation prohibits carriers from taking chunks out of your compensation without your consent — the consent you gave when you signed the lease.

Essentially, there are three important things to remember about chargebacks. First, your lease must “clearly specify” every item that will be charged back to you. This means there should never be a chargeback item on a settlement sheet that an owner-operator, who has carefully read his or her lease, does not recognize. The settlement sheet should not be the first place an owner-operator learns of a chargeback. If the chargeback was not initially identified in the lease, the carrier cannot legally charge that item back to the owner-operator.

Second, the amount of the chargeback should never be a mystery to you. The law clearly states the lease should be specific about the charge. This means you should not only recognize the chargeback, but understand how the amount was calculated. In other words, an entry like “physical damage” is not specific enough if you do not know how the amount of the physical damage chargeback was determined. If no specific amount is listed in the lease for a particular chargeback, then the lease must provide a formula, or enough information, that will enable you to calculate what the amount of that chargeback will be. An unsubstantiated claim for cargo damage that the driver has been given no opportunity to evaluate or contest should never be the subject of a chargeback on a settlement sheet.

Finally, you have a right to ask for and be provided with documentation from the carrier to determine the validity of a particular charge. For example, if your lease says you are to be charged the “premium” for bobtail insurance, and $50 per week is deducted from your compensation as “bobtail premium,” you have a right to documentation to confirm that $50 per week is the true cost of the premium. The simplest way for a carrier to do this is to provide you with a certificate of insurance and/or a policy setting out the premium. In the end, if your lease provides that you will be responsible for the “cost of” something, then you must be provided with the documentation that proves what the “cost of” that something actually is. The bottom line is that there should be no surprises when you review your settlement sheet. As an owner-operator, you are guaranteed this information so that you can predict your expenses and understand whether the lease is a good deal for you.

Federal ban on forced purchases 
The truth-in-leasing regulations also protect owner-operators from being required to make purchases from their motor carriers. Forced purchases most frequently appear as chargebacks to your compensation. Section 376.12 (i) of the truth-in-leasing regulations state:

(i) Products, equipment or services from authorized carrier. The lease shall clearly specify that the lessor is not required to purchase or rent any products, equipment, or services from the authorized carrier as a condition of entering into the lease.

For example, the carrier cannot say, “If you want to haul for me, you must … purchase insurance through me, purchase a satellite communications system from me, or pay an administrative fee when you get your compensation.” Agreements to pay weekly administration fees associated with the preparation of your settlement sheets constitutes the forced purchase of a service which is forbidden by the regulations.

The carrier may offer owner-operators products and services, and the driver may choose to purchase them, but the carrier may not require that an owner-operator purchase or rent something as a condition of entering into the lease. If you do elect to purchase or rent something from or through the carrier, for which the carrier will make deductions from your compensation, the lease must clearly specify the terms of that purchase or rental agreement.

If you consent, the lease can require that you obtain extra equipment or insurance, but not from the carrier. If you do not want to purchase the product or service from a carrier, then it does not matter whether the chargeback complies with the chargeback rules discussed above; the required purchase is unlawful. The prohibition on forced purchases gives you the freedom to shop around and get the best deal on those items rather than having to pay the carrier’s price for them.

While it is an owner-operator’s responsibility to read and negotiate the terms of a lease, it is important to understand and use the federal truth-in-leasing regulations that protect owner-operators. If something is being deducted from your compensation, you have the right to know beforehand the amount of the deduction, the reason for the deduction, and how the carrier determined the amount of the deduction. Ask questions when you don’t understand something in your lease or settlement sheet. Ask for the documentation that supports the charge a carrier is imposing upon your compensation. If your carrier refuses to answer your questions, you may legitimately wonder whether the carrier is making legal deductions from your compensation. It is your right and your responsibility to be well informed about your compensation. You, and not the motor carrier, must control your expenses in order to steer your business down “I-376, the Road to Better Treatment From Your Motor Carrier.”

Questions about your lease or your carrier’s practices?

Editor’s note: If you have any questions about these regulations, about the legality of your lease, or the legality of your motor carrier’s practices, send your question, a copy of your lease and a copy of any other pertinent documents to: Donna Ryun, OOIDA, P.O. Box 1000, Grain Valley, MO 64029. E-mail: dryun@ooida.com. All communications will be held in the strictest confidence. The most frequently asked questions will be published (no names mentioned) in future issues of Land Line, along with answers.

Carriers cannot violate the truth-in-leasing regulations with impunity. The leasing regulations specifically forbid a carrier from providing regulated transportation services in equipment it does not own unless that equipment is covered by a lease that complies with these regulations. Federal courts have the authority to enjoin carrier operations (i.e. stop them cold) until valid leases are executed. OOIDA has obtained one such injunction and is eager to seek injunctions against additional carriers in order to put an end to bad leases.

The next article in the series will focus on insurance and your lease. The way motor carriers treat owner-operators on this sensitive topic is a common theme in OOIDA member complaints. This article will try to take some of the curves out of this stretch of I-376. It will advise you on carrier practices to watch out for, the kind of information and documents you are entitled to, and what rights you have under the federal truth-in-leasing regulations.

Future topics in this series
There are many other important issues raised by the leasing regulations that owner-operators should know. Can a carrier make any deductions it wants to from your compensation if it has the paperwork to back it up? Can a carrier require you to purchase extra insurance? What are a carrier’s obligations when you use its fuel card? If you are in the household goods industry, is the parent motor carrier or their local agent liable for violations of the leasing regulations? When can motor carriers refuse to give back your escrow? These topics will be discussed in the next several I-376 articles to be featured in Land Line.