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When is an Independent Contractor an Employee Under the Law?

When a "consumer report" is used to prevent the contracting. Last month's column detailed the differences between Independent contractors and employees from the standpoint of the Internal Revenue Service. Let's assume you are a no-doubt about it, bona fide independent contractor in the IRS's beady little eyes. There is another Federal Agency that still considers you an employee when it comes to some of your rights.

The Federal Trade Commission (FTC) is responsible for the administration and enforcement of the Fair Credit Reporting Act (FCRA). The FCRA mandates actions that employers must take if they use a "consumer report" to disqualify a potential employee.

What's a "consumer report"? What's an "employee'? First, let's set some ground rules, I'll forego the three-paragraph, legal-speak terminology for the rest of this article and write plain. If you don't like it, or I miss some obscure nuance, sue us. [Publisher's Note: He's kidding about the sue part.]

A "consumer report" is a communication from an agency to a potential employer that affects a person's ability to get a job in any way. So, this could be a criminal record, employment history or MVR that is obtained from a company that does that.

If an employer uses a "consumer report" (in whole or in part) to not hire a person, they have to do things or they can get fined or sued. What are some of the things they must do?

  • They must tell you if information in your file has been used against you. Anyone who uses a credit report or another type of consumer report to deny your application for credit, insurance, or employment - or to take another adverse action against you - must tell you, and must give you the name, address, and phone number of the agency that provided the information.
  • You have the right to know what is in your file. You may request and obtain all the information about you in the files of a consumer reporting agency (your "file disclosure").
  • You have the right to dispute incomplete or inaccurate information. If you identify information in your file that is incomplete or inaccurate, and report it to the consumer reporting agency, the agency must investigate unless your dispute is frivolous.
  • Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information. Inaccurate, incomplete or unverifiable information must be removed or corrected, usually within 30 days. However, a consumer reporting agency may continue to report information it has verified as accurate.

Okay, the above talks about employee or potential employee rights. Do they pertain to owner operators?

This is exactly the question the Federal Trade Commission was asked in a letter. They were sent a letter inquiring whether "an employer that enters into a bona fide independent contractor relationship with an individual must comply with the applicable provisions of the Fair Credit Reporting Act ("FCRA") pertaining to consumer reports obtained for employment purposes."

The writer of the letter asking the question stated:

"it is quite common for trucking operations to engage as drivers individuals who own and operate their own equipment and who themselves may hire drivers to operate their equipment." They went on to say they "read the FCRA to not apply to a trucking operation as it relates to such an independent contractor because [they] consider the independent contractor relationship to be a "business relationship" as opposed to an "employment relationship," and…maintain, the independent contractor is not being hired "as an employee."

The FTC disagreed and responded

"…we conclude that a trucking operation that uses consumer reports to evaluate whether to engage individuals as drivers must comply with the applicable provisions of the FCRA pertaining to consumer reports obtained for employment purposes, including the disclosure and authorization provisions of Section 604(b), Section 606, and Section 615."

To sum up, the FTC considers Owner Operators to be employees for purposes of Fair Credit Reporting Act protections.

The FTC's entire response can be read at .

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