NLRB, courts read the reality when ruling on diesel-fuel taxation and leased employees

Recent court and agency rulings show how important it is for carriers to stay on top of legal developments, even when they believe their practices have always been within the law. This message has been driven home by two court cases covering everyday trucking issues -- diesel fuel and leased employees -- that did not even involve trucking companies. But the effects may spill over to for-hire as well as private fleets. Two other rulings, from the National Labor Relations Board (NLRB), distinguish between the practices of two companies toward their drivers.

The diesel case involved a major electric utility that received deliveries of diesel fuel for its trucks. The fuel delivery company one time mistakenly supplied dyed (untaxed) fuel. When the error was discovered, the supplier immediately agreed to pump out the fuel.

However, before they could do so, an Internal Revenue Service (IRS) diesel fuel inspector happened to visit the utility's terminal and found dyed fuel in the tank of a truck that had already been fueled and in the bulk storage tank. Even though the fuel supplier admitted responsibility, and even though the truck had not been seen driving off the premises, the IRS issued a penalty notice amounting to a dollar amount equal to 10 times the capacity of both the truck's tank and the storage tank.

A U.S. district court recently upheld the IRS penalty, saying that Congress had made no provision to waive or transfer responsibility for the penalty. The penalty applies when the vehicle's owner knows or has reason to know that dyed fuel is in the vehicle.

Coincidentally, the employee leasing case also involved a large electric utility. In this case, the company had used clerical workers supplied by an employment agency. The workers for years worked exclusively for and at the utility, using its computer system, telephones, and e-mail. They used the utility's letterhead and business cards and were sometimes reimbursed for expenses by the utility, although their wages were paid by the successive staffing companies that had the contract with the utility.

It was only after the utility changed the terms of the contract to be more arm's length that several workers sued for coverage under the utility's benefit plans. A U.S. district court ruled that the workers were leased employees and thus not eligible for benefits that were open only to the utility's own employees.

But this fall the U.S. Court of Appeals for the Ninth Circuit ruled that the district court should have examined the facts of the workers' employment before concluding they were leased employees. The tax code's definition of a leased employee for employee benefits purposes begins with a determination that a worker is not a common-law employee of the company receiving the worker's services, rather than automatic acceptance of the term leased employee as used in an employment agreement. The appeals court did not decide whether these workers were common-law or leased employees, but sent the case back to district court for that determination.

Meanwhile, in one of a pair of rulings, the NLRB decided that Dial-A-Mattress gave drivers enough discretion over how to do their job that they should be considered independent contractors and thus not subject to NLRB jurisdiction for purposes of union representation. At the same time, the Board ruled that RPS controlled its drivers so tightly that they were employees and could be the object of an organizing effort. Courts have not reviewed those decisions yet.

The bottom line: "If it's red, you're dead," the court said in effect in the diesel case. When it comes to fuel, you can't be too careful, especially if your fuel vendor also delivers dyed heating oil or dyed diesel to tax-exempt customers. The risk is even greater for fleets that add kerosene to diesel to keep it from gelling in the winter, since much kero is now dyed.

As for workers whom you consider leased employees or independent contractors, don't just read the fine print -- read the reality. Courts and the NLRB, as well as the IRS, are looking beyond contract terms to see if you control your workers to a degree that they in effect become your common-law workers.