The Devil in the Details

A contract that defines the business relationship between a trucking company and its owner-operators is supposed to be a two-way street. Yet many owner-ops sign without really understanding their rights and obligations-or at least raising questions about them.

“Most think they’d be laughed out of the office if they tried to assert themselves before they signed,” says Leo Van Tuyl, an owner-operator himself for many years who now runs Truckers Business Consulting Group, a management consulting firm in Kitchener, Ont. Van Tuyl gets calls every week to resolve problems that stem from a lack of understanding of the contracts his clients have signed. From an owner-operator’s perspective, we asked him to guide us through the issues that keep his phone buzzing.

> The finer points: A contract should clearly communicate each party’s rights and obligations, not bury them amid small type and legal mumbo-jumbo. And owner-operators should look beyond the boilerplate stuff, like rates and costs.

“Most people get hurt in the fine print, or the lack of fine print,” he suggests. “There’s more to be concerned about by what’s not in the contract than what is.” If the contract is silent on an issue, then neither party can use the contract to resolve a dispute over it. Unless the contract-or a court-says otherwise, the carrier is generally free to make any deduction it wishes.

> Hire a pro: Van Tuyl says each party should be offered reasonable time to seek legal review of the contract before signing. A lawyer might cost you a couple hundred bucks, but that’s ultimately less expensive than being taken to the cleaners for thousands of dollars later. “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 states. If there are concerns about confidentiality when letting a contract out of the office, have the carrier fax it directly to your lawyer.

> Mo’ money: One key element often missing from contracts: rate increases. Unless the contract states when rate reviews take place, a carrier is free to continue paying the originally discussed rate for the length of the agreement. Van Tuyl suggests asking for a built-in review of the rate or an escalator clause that will force a rate increase after a given period of time-say, after one year.

This sort of arrangement can work to the carrier’s advantage, as well. The company now has a quantifiable cost increase it can take to the shipper when it requests a higher freight rate. The carrier may not get the increase, but at least your demands put some upward pressure on the rate that doesn’t exist now.

Of course, 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.

> Cost allowance: 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. Van Tuyl suggests leaving the price of fuel out of the equation, given today’s unsteady pricing climate. “It would be better to leave that as a separate adjustment, outside of the standard basket of goods and services,” he says.

Another pricing benchmark Van Tuyl suggests is the Freight Carrier Association’s annual freight-rate indicator. The FCA, based in Fort Erie, Ont., is a former tarrif bureau that now calculates the cost of moving freight, among other consulting tasks. Its figures are generally accepted as being pretty close to the mark.

This year, the FCA suggested that carriers should raise rates by 5.5% to offset rising costs. “So why shouldn’t that be the same increase the owner-ops need?” asks Van Tuyl. “If the FCA 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. It hasn’t helped that owner-op agreements often don’t contain any provision to drive rates up.

“Even if the contract states that there’ll be a periodic examination of the rate, it’s up to the owner-op to make the provision work,” Van Tuyl says. “Be prepared to stand up for what you believe in, and be prepared to take necessary action if your needs aren’t satisfied.”

> Get it in writing: For whatever reason, some 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.

Save yourself the aggravation. Save yourself the cost and time of a legal fight. Don’t work without a contract-and don’t sign a contract you don’t clearly understand.