Mkt. Transp., Ltd. v. Emp't Dep't

279 Or.App. 515

379 P.3d 608

Market Transport, Ltd., Petitioner,

v.Employment Department, Respondent.

A153545

Court of Appeals of Oregon.

Argued and submitted December 19, 2014.

July 20, 2016

Thomas M. Christ argued the cause for petitioner. With him on the briefs were Julie A. Smith and Cosgrave Vergeer Kester LLP.

Judy C. Lucas, Assistant Attorney General, argued the cause for respondent. With her on the brief were Ellen F. Rosenblum, Attorney General, and Anna M. Joyce, Solicitor General.

Before Ortega, Presiding Judge, and DeVore, Judge, and Garrett, Judge.

GARRETT, J.

The question in this unemployment insurance taxation case is whether remuneration that petitioner Market Transport, Ltd., paid to truck drivers who performed interstate transport services pursuant to a “contract lease agreement” (agreement) is subject to payroll tax in Oregon. An administrative law judge (ALJ) for the Office of Administrative Hearings upheld the Employment Department's assessments of unpaid taxes and interest based on remuneration that Market Transport paid to drivers for a period from the third quarter of 2007 through the fourth quarter of 2010. Market Transport seeks judicial review of the ALJ's order, challenging the ALJ's determination that those services constitute “employment” that is not exempt under ORS 657.047(1)(b). We review the ALJ's order for errors of law and substantial evidence, ORS 183.482(8)(a) and (c), and conclude that the ALJ erred in determining that the drivers' services are not exempt under ORS 657.047. We therefore reverse the assessments and remand for reconsideration.

We provide a brief summary of the relevant facts from the ALJ's findings, which are not disputed. Market Transport is a “for-hire” carrier in the business of interstate freight transport under licensing and authority from the United States Department of Transportation (USDOT).¹ Market Transport enters into agreements with contract drivers, who either own or lease their vehicles, to provide interstate transport services for Market Transport under Market Transport's authority. Market Transport, in turn, compensates the drivers by paying a rate per mile and providing equipment, licensing, insurance, and administrative support.

Market Transport uses the services of two categories of contract drivers—those who own their own vehicles and those who lease their vehicles from third parties. The issues on judicial review concern both types of contract drivers, all of whom are engaged by Market Transport through a standard “Contractor Lease Agreement.” That agreement states:

“As required by regulations of the United States Department of Transportation (‘DOT’), this Agreement recites that Contractor's Motor Vehicle is leased to Carrier for the exclusive possession, Control, and use of Carrier for the duration of the Agreement.”²

As relevant here, the agreement provides that, while it is in effect, the contractor may not use the vehicle to provide services for any other entity, even when the vehicle is not in service to Market Transport. The contractor is responsible for all costs of vehicle maintenance and repair. The ALJ found that the agreement is “perpetual,” and continues until terminated by Market Transport or by the contractor.

Market Transport pays for its interstate carrier authorization and license as well as insurance on the vehicle for the lease term, and it does not pass those costs on to the contractor. As an administrative convenience to the contractor, Market Transport advances the “Contractor's license fees, permit fees, prorate fees and federal highway tax fees” and “road use tax and fuel taxes applicable to Contractor's Motor Vehicle.” But, under the agreement, those fees are ultimately the contractor's responsibility and Market Transport is entitled to charge them back to the contractor.

The remuneration paid by Market Transport is set forth in the agreement as follows:

“a. Basic Payments and Mileage : For the use of Contractor's Motor Vehicle, and for services to be performed by Contractor , payments, including but not limited to the items described below, will be made based on additional information provided in related Attachments. Mileage will be computed by the Current Household Goods Carrier's Bureau Mileage Guide on a point-to-point basis, based on date of dispatch.

“ * * * * *

“c. Length of Service Bonus : In addition to Basic Mileage Contractor will be paid a ‘Length of Service Bonus' per dispatched mile pursuant to Attachment A–1[.]”

(Emphasis added; bold typeface in original.) Attachment A–1 is a “Schedule of Lease Payments and Charges” that describes the base mileage rate per month, a length-of-service incentive bonus, a length-of-service credit for previous experience, and other payments for services during transit.³ In short, the described payments are based on mileage, driver experience, and services provided by the driver while the vehicle is in service to Market Transport.⁴ The agreement does not separately allocate consideration for the use of the vehicle itself. The absence of such a provision is in large part the origin of this litigation.

After an audit in 2011, the department determined that Market Transport's contract drivers were employees and that their services were “employment” within the meaning of ORS 657.040. ORS 657.047 provides an exemption from the definition of “employment” for services performed by persons who “lease” their vehicles to for-hire motor carriers. The department determined, however, that Market Transport's payments were not lease payments for use of the vehicle but were, instead, remuneration for the driver's services, and that the exemption therefore did not apply. The department issued notices of assessment for unpaid payroll taxes for the third quarter of 2007 through the fourth quarter of 2010, and the ALJ upheld the department's assessments.

In addressing the issues raised by Market Transport on judicial review, we begin with a brief overview of the legal context. ORS 657.040(1) provides:

“Services performed by an individual for remuneration are deemed to be employment subject to this chapter unless and until it is shown to the satisfaction of the Director of the Employment Department that the individual is an independent contractor, as that term is defined in ORS 670.600.”

ORS 657.030(1) defines “employment” as “service for an employer * * * performed for remuneration or under any contract of hire, written or oral, express or implied.”⁵ ORS chapter 657 describes a number of exceptions to employment, among them the “for-hire carrier” exemption at issue here, ORS 657.047.

A body of federal law governs motor carriers and their use of leased vehicles for interstate transport. See 49 USC § 14102⁶ ; 49 CFR § 376.11 ; 49 CFR § 376.12.⁷ A federal regulation, 49 CFR section 376.2(e), defines a lease in this context as “[a] contract or arrangement in which the owner grants the use of equipment, with or without driver, for a specified period to an authorized carrier for use in the regulated transportation of property, in exchange for compensation.” When interstate transport is accomplished in a leased vehicle, federal law requires that the motor carrier “have exclusive possession, control, and use of the equipment for the duration of the lease.” 49 CFR § 376.12(c)(1).⁸ Under federal law, compensation for “the equipment and driver's services” can be based on mileage, and need not compensate for idle time. Additionally, federal regulations permit the compensation for the equipment and driver's services to be stated “either separately or as a combined amount.” 49 CFR § 376.12(d).

Against that backdrop, the Oregon Legislature in 1987 enacted the “for-hire” carrier exemption from employment. Or. Laws 1987, ch. 891, § 3. ORS 657.047 provides, in part:

“(1) As used in this chapter, ‘employment’ does not include:

“ * * * * *

“(b) Transportation performed by motor vehicle for a for-hire carrier by any person that leases their equipment to a for-hire carrier and that personally operates, furnishes and maintains the equipment and provides service thereto.

“(2) For the purposes of this chapter, services performed in the operation of a motor vehicle specified in subsection (1) of this section shall be deemed to be performed for the person furnishing and maintaining the motor vehicle.”⁹

Thus, under ORS 657.047, an exemption from employment exists when a person (1) leases “their equipment” to a for-hire carrier; (2) performs transportation services for the for-hire carrier; and (3) personally operates, furnishes and maintains the equipment. ORS 657.047(1)(b). The services performed in operation of the vehicle for the for-hire carrier are deemed to be performed for the person furnishing and maintaining the motor vehicle, rather than for the for-hire carrier. ORS 657.047(2). In other words, the person driving the vehicle is deemed to be an employee of the person furnishing and maintaining the vehicle and not an employee of the for-hire carrier. 3P Delivery, Inc. v. Employment Dept. Tax Section , 254 Or.App. 180, 183, 295 P.3d 83 (2012).

As upheld by the ALJ, the department's assessments determined that the services provided by contract drivers to Market Transport under the agreements were “employment” that did not fit within the exemption described in ORS 657.047(1)(b), for two reasons. First, the agreements were not “leases” within the meaning of Oregon law because they did not provide for consideration for the contract driver's forbearance of use of the vehicle during down time. Second, the lessee-drivers did not “furnish and maintain” the vehicles, as required by ORS 657.047(1)(b). Market Transport challenges each of those determinations on judicial review.

We first address Market Transport's contention that the ALJ erred in determining that the agreements were not “leases” within the meaning of ORS 657.047(1)(b). The ALJ reasoned that a “lease,” which is not defined in the statute, should be interpreted based on its commonly...