Independent contractors clause samples

The Company relies exclusively on independent third parties for its hauling capacity other than for trailing equipment owned or leased by the Company and utilized primarily by the BCO Independent Contractors. These third party transportation capacity providers consist of BCO Independent Contractors, Truck Brokerage Carriers, air and ocean cargo carriers and railroads.

BCO Independent Contractors. Management believes the Company has the largest fleet of truckload BCO Independent Contractors in the United States. BCO Independent Contractors provide truck capacity to the Company under exclusive lease arrangements. Each BCO Independent Contractor operates under the motor carrier operating authority issued by the U.S. Department of Transportation (“DOT”) to Landstar’s Operating Subsidiary to which such BCO Independent Contractor provides services and has leased his or her equipment. The Company’s network of BCO Independent Contractors provides marketing, operating, safety, recruiting and retention advantages to the Company.

The Company’s BCO Independent Contractors are compensated primarily based on a contractually agreed-upon percentage of revenue generated by loads they haul. This percentage generally ranges from 62% to 73% where the BCO Independent Contractor provides only a tractor and 72% to 77% where the BCO Independent Contractor provides both a tractor and trailing equipment. The BCO Independent Contractor must pay substantially all of the expenses of operating his/her equipment, including driver wages and benefits, fuel, physical damage insurance, maintenance, highway use taxes and debt service, if applicable. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. During fiscal year 2016, the Company billed customers $129.7million in fuel surcharges and passed 100% of such fuel surcharges to the BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation.

At December31, 2016, 11,066 of the trailers available to the BCO Independent Contractors were owned by the Company and 239 were leased. In addition, at December31, 2016, 3,865 trailers were provided by the BCO Independent Contractors. Approximately 32% of Landstar’s truck transportation revenue was generated on Landstar provided trailing equipment during fiscal year 2016.

Status of independent contractors. In recent years, the topic of the classification of individuals as employees or independent contractors has gained increased attention among federal and state regulators as well as the plaintiffs’ bar. Various legislative or regulatory proposals have been introduced at the federal and state levels that may affect the classification status of individuals as independent contractors or employees for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefits available to employees (most notably, workers’ compensation benefits). Recently, certain states (most prominently, California) have seen significant increased activity by tax and other regulators and numerous class action lawsuits filed against transportation companies that engage independent contractors.

Table of Contents contractually agreed-upon fixed rate per load. Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled and purchased transportation paid to ocean cargo carriers is generally based on contractually agreed-upon fixed rates. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated by Truck Brokerage Carriers. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation. Purchased transportation costs are recognized upon the completion of freight delivery.

Also, as previously mentioned, the Company reports two operating segments: the transportation logistics segment and the insurance segment. External revenue at the insurance segment, representing reinsurance premiums, has historically been relatively consistent on a year-over-year basis at 2% or less of consolidated revenue and generally corresponds directly with the number of trucks provided by BCO Independent Contractors. The discussion of indirect cost line items in Management’s Discussion and Analysis of Financial Condition and Results of Operations considers the Company’s costs on a consolidated basis rather than on a segment basis. Management believes this presentation format is the most appropriate to assist users of the financial statements in understanding the Company’s business for the following reasons: (1)the insurance segment has no other operating costs; (2)discussion of insurance and claims at either segment without reference to the other may create confusion amongst investors and potential investors due to intercompany arrangements and specific deductible programs that affect comparability of financial results by segment between various fiscal periods but that have no effect on the Company from a consolidated reporting perspective; (3)selling, general and administrative costs of the insurance segment comprise less than 10% of consolidated selling, general and administrative costs and have historically been relatively consistent on a year-over-year basis; and (4)the insurance segment has no depreciation and amortization.

The Company relies exclusively on independent third parties for its hauling capacity other than for trailing equipment owned or leased by the Company and utilized primarily by the BCO Independent Contractors. These third party transportation capacity providers consist of BCO Independent Contractors, Truck Brokerage Carriers, air and ocean cargo carriers and railroads. Landstar’s use of capacity provided by third parties allows it to maintain a lower level of capital investment, resulting in lower fixed costs. During fiscal year 2018, revenue generated by BCO Independent Contractors, Truck Brokerage Carriers and railroads represented approximately 43%, 49% and 3%, respectively, of the Company’s consolidated revenue. Collectively, revenue generated by air and ocean cargo carriers represented approximately 3% of the Company’s consolidated revenue during fiscal year 2018. Historically, the gross profit margin (defined as gross profit, which is defined as revenue less the cost of purchased transportation and commissions to agents, divided by revenue) generated from freight hauled by BCO Independent Contractors has been greater than that from freight hauled by other third party capacity providers. However, the Company’s insurance and claims costs, depreciation costs and other operating costs are incurred primarily in support of BCO Independent Contractor capacity. In addition, as further described in the “Corporate Services” section that follows, the Company incurs significantly higher selling, general and administrative costs in support of BCO Independent Contractor capacity as compared to the other modes of transportation. Purchased transportation costs are recognized over the freight transit period as the performance obligation to the customer is completed.

At December29, 2018, 12,280 of the trailers available to the BCO Independent Contractors were owned by the Company and 377 were leased. In addition, at December29, 2018, 4,086 trailers were provided by the BCO Independent Contractors. Approximately 30% of Landstar’s truck transportation revenue was generated on Landstar provided trailing equipment during fiscal year 2018.

Status of independent contractors. In recent years, the topic of the classification of individuals as employees or independent contractors has gained increased attention among federal and state regulators as well as the plaintiffs’ bar. Various legislative or regulatory proposals have been introduced at the federal and state levels that may affect the classification status of individuals as independent contractors or employees for either employment tax purposes (withholding, social security, Medicare and unemployment taxes) or other benefits available to employees (most notably, workers’ compensation benefits). Recently, certain states (most prominently, California) have seen significant increased activity by tax and other regulators and numerous class action lawsuits filed against transportation companies that engage independent contractors. For example, on January25, 2019, a purported class action was filed in the Superior Court of the State of California for the County of San Bernardino by Hany Tanious, as an individual and on behalf of all others similarly situated, against Landstar System, Inc. and Landstar Ranger, Inc.

On January25, 2019, a purported class action was filed in the Superior Court of the State of California for the County of San Bernardino against Landstar System, Inc. and Landstar Ranger, Inc. (together, the “Defendants”). The complaint purports to bring this action on behalf of Hany Tanious, as an individual, and “all owner operators who performed work for the Defendants, and who were classified as independent contractors, during the four years preceding the filing of this action through the present.” Mr.Tanious is a truck owner-operator and formerly a BCO Independent Contractor who was a party to an independent contractor operating agreement with Landstar Ranger, Inc. The complaint asserts claims based on the alleged misclassification of Mr.Tanious as an independent contractor and alleges violations under California law relating to overtime, minimum wage, meal and rest breaks, expense reimbursement, wage statements, waiting time and unfair competition. Mr.Tanious is seeking, on behalf of himself and the purported class, payment of minimum wages, restitution and certain statutory damages and penalties, including compensatory, consequential, general, liquidated and special damages. None of the California Labor Code provisions under which Mr.Tanious seeks relief apply to independent contractors. Due to a number of factors including the preliminary status of this matter, the Company does not believe it is in a position to conclude whether or not there is a reasonable possibility of an adverse outcome in this case or what damages, if any, the plaintiffs would be awarded should they prevail on all or any part of their claims. However, the Company believes it has meritorious defenses and it intends to assert these defenses vigorously.

At December30, 2017, 11,436 of the trailers available to the BCO Independent Contractors were owned by the Company and 295 were leased. In addition, at December30, 2017, 3,803 trailers were provided by the BCO Independent Contractors. Approximately 31% of Landstar’s truck transportation revenue was generated on Landstar provided trailing equipment during fiscal year 2017.

Interstate motor carrier operations are subject to safety requirements prescribed by the FMCSA. Each driver, whether a BCO Independent Contractor or Truck Brokerage Carrier, is required to have a commercial driver’s license and may be subject to mandatory drug and alcohol testing. The FMCSA’s commercial driver’s license and drug and alcohol testing requirements have not adversely affected the Company’s ability to source the capacity necessary to meet its customers’ transportation needs. In addition, FMCSA mandated the use of electronic logging devices (ELDs) in certain over-the-road commercial motor vehicles effective December18, 2017. The FMCSA’s ELD mandate has not adversely affected the size of the Company’s fleet of BCO Independent Contractors. However, no assurance can be provided regarding the potential impact of the ELD mandate on truck capacity provided by Truck Brokerage Carriers.

We are the fifth largest asset‑based truckload carrier in the United States by revenue, generating over $1.8billion in total operating revenue in 2018. We provide services primarily throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. We offer customers a broad portfolio of services using our own truckload fleet and third‑party carriers through our non‑asset‑based truck brokerage network. As of September 30, 2019, our fleet consisted of approximately 7,100 tractors and approximately 15,000 trailers, including approximately 2,100 tractors provided by independent contractors. All of our tractors have been equipped with electronic logs since 2012, and our systems and network are engineered for compliance with the recent federal electronic log mandate. Our terminal network and information technology infrastructure are established and capable of handling significantly larger volumes without meaningful additional investment.

For the nine months ended September 30, 2019, purchased transportation, net of fuel surcharge reimbursement, decreased $5.8 million, or 1.8%, compared to the same period in 2018. This decrease was primarily due to the $46.2 million decrease in Brokerage revenuepartially offset by the 31.3% increase in average independent contractors compared to the same period in 2018. This expense category will fluctuate with the number andpercentage of loads hauled by independent contractors and third‑party carriers, as well as the amount of fuel surcharge revenue passed through to independent contractors. If industry‑wide trucking capacity continues to tighten in relation to freight demand, we may need to increase the amounts we pay to third‑party carriers and independent contractors, which could increase this expense category on an absolute basis and as apercentage of total operating revenue and revenue, before fuel surcharge, absent an offsetting increase in revenue. Our recent success in growing our lease-purchase program and independent contractor drivers have contributed to increased purchased transportation expense. If we are successful in continuing these efforts, we would expect this line item to increase as apercentage of total operating revenue and revenue, before fuel surcharge.

Our contracts with independent contractors are governed by the federal leasing regulations, which impose specific requirements on us and the independent contractors. If more stringent federal leasing regulations are adopted, independent contractors could be deterred from becoming independent contractor drivers, which could materially adversely affect our goal of maintaining our current fleet levels of independent contractors.

All of our drivers are independent contractors, as opposed to employees of the Company. The Company does not pay or withhold any federal or state employment tax with respect to or on behalf of independent contractors. From time to time, taxing authorities in Canada have sought to assert that independent contractors in the transportation industry, including those utilized by the Company, are employees, rather than independent contractors. The Company believes that the independent contractors utilized by the Company are not employees under existing interpretations of federal Canadian and provincial laws. However, there can be no assurance that federal Canadian, or provincial authorities or independent contractors will not challenge this position, or that other laws or regulations, including tax laws, or interpretations thereof, will not change. If, as a result of any of the foregoing, the Company were required to pay withholding taxes and pay for and administer added employee benefits to these drivers, the Company’s operating costs would increase. Additionally, if the Company is required to pay back-up withholding with respect to amounts previously paid to such drivers, it may also be required to pay penalties or be subject to other liabilities as a result of incorrect classification of such drivers. Any of the foregoing circumstances could have a material adverse impact on the Company’s financial condition and results of operations, and/or cause the Company to restate financial information from prior periods.

Our point-to-point delivery services are performed by independent contractors. These independent contractors are responsible for paying for their own vehicles, equipment, fuel and operating expenses. However, increases in fuel costs, insurance costs, increased costs of new and used vehicles or reduced financing sources available may discourage current independent contractors from continuing to provide services to us, and potential independent contractors from entering the industry. If we are able to retain our independent contractors, we may be required to increase the amounts paid to such independent contractors in order to obtain their services, which could adversely affect our business and results of operations.

As a non-asset based provider of point-to-point delivery of medical specimen services in Ontario province, Canada, we do not own any equipment and our services are provided through our strategic alliances with independent contractors. Our point-to-point medical specimen delivery service emphasizes safety and all our contractors are certified by the Government of Ontario to handle and transport biomedical materials.

The Company has engaged family members that are related to the sole officer and director as independent contractors. For the years ended December 31, 2015 and 2014, the Company paid family members of the sole officer and director $19,350 and $2,445, respectively.

XML 72 R102.htm IDEA: XBRL DOCUMENT /* Do Not Remove This Comment */ function toggleNextSibling (e) { if (e.nextSibling.style.display=='none') { e.nextSibling.style.display='block'; } else { e.nextSibling.style.display='none'; } } v3.19.3.a.u2 Leases Operating Lease Revenue and Rental Income (Details) - USD ($) $ in Thousands 12 Months Ended Dec. 31, 2019 Dec. 31, 2018 Property, Plant and Equipment [Line Items] Gross property and equipment $ 3,742,739 [1] $ 3,305,944 Less: accumulated depreciation and amortization (892,019) [1] $ (693,107) Operating lease revenue 46,858 Variable lease revenue 2,169 Revenue Equipment [Member] Property, Plant and Equipment [Line Items] Gross property and equipment 91,600 Less: accumulated depreciation and amortization (18,600) Depreciation 16,400 Total lease revenue ¹ [2] 49,027 Land, Buildings and Improvements [Member] Property, Plant and Equipment [Line Items] Operating lease revenue [3] $ 9,982 [1] Amounts represent reclassification of operating lease liabilities to finance lease liabilities, as the Company became reasonably certain to purchase certain revenue equipment off of operating leases during 2019. [2] Primarily represents operating revenue earned by the Company's financing subsidiaries for leasing equipment to third-party independent contractors. [3] Represents non-operating income earned from leasing real estate to third parties. X - DefinitionAmount of accumulated depreciation, depletion and amortization for physical assets used in the normal conduct of business to produce goods and services.

The Company executes the services it provides to its domestic clients through independent field merchandising, auditing, assembly and other field personnel (each a "Field Specialist"), almost all of whom are independent contractors. Substantially all of the Company's domestic Field Specialists are engaged and provided as independent contractors by SBS. For contractual details and payment amounts, see Note 6 to the Company's Consolidated Financial Statements – Related Party Transactions – Domestic Related Party Services, above.

Melissa Clothier was engaged by SBS (then known as SPAR Marketing Services, Inc.) and provided services pursuant to the terms of an "Independent Merchandiser Agreement" acknowledging her engagement as an independent contractor. On June 30, 2014, Ms. Clothier filed suit against SBS and the Company styled Case No. RG12 639317, in the Superior Court in Alameda County, California, in which Ms. Clothier asserted claims on behalf of herself and a putative class of similarly situated merchandisers in California who are or were classified as independent contractors at any time between July 16, 2008, and June 30, 2014. Ms. Clothier alleged that she and other class members were misclassified as independent contractors and that, as a result of this misclassification, the defendants improperly underpaid them in violation of California minimum wage and overtime laws. The Company was subsequently dismissed from the action without prejudice. The court ordered that the case be heard in two phases. Phase one was limited to the determination of whether members of the class were misclassified as independent contractors. After hearing evidence, receiving post-trial briefings and considering the issues, the Court issued its Statement of Decision on September 9, 2016, finding that the class members had been misclassified as independent contractors rather than employees. The parties have now moved into phase two to determine damages (if any). No trial date for phase two has been set and the parties are currently engaged in discovery as to the measure of damages in this case. SBS has advised the Company that SBS will appeal the adverse phase one determination when permitted under the court's rules.

Paradise Hogan was engaged by and provided services to SBS as an independent contractor pursuant to the terms of an "Independent Contractor Master Agreement" with SBS acknowledging his engagement as an independent contractor. On January 6, 2017, Hogan filed suit against SBS and SPAR Group, Inc. ("SGRP" and part of the Company), styled Civil Action No. 1:17-cv-10024-LTS, in the U.S. District Court for District of Massachusetts. Hogan initially asserted claims on behalf of himself and an alleged nationwide class of similarly situated individuals who provided services to SBS and SGRP as independent contractors. Hogan alleged that he and other alleged class members were misclassified as independent contractors, and as a result of this purported misclassification, Hogan asserted claims on behalf of himself and the alleged Massachusetts class members under the Massachusetts Wage Act and Minimum Wage Law for failure to pay overtime and minimum wages, as well as state law claims for breach of contract, unjust enrichment, quantum meruit, and breach of the covenant of good faith and fair dealing. In addition, Hogan asserted claims on behalf of himself and the nationwide class for violation of the Fair Labor Standards Act's overtime and minimum wage provisions. On March 28, 2017, Company moved to refer Hogan's claim to arbitration pursuant to his agreement, to dismiss or stay Hogan's case pending arbitration, and to dismiss Hogan's case for failure to state a specific claim upon which relief could be granted. Plaintiff’s counsel subsequently notified SGRP’s attorney of their intent to amend their Complaint without prejudice. The Amended Complaint, which was filed on May 2, 2017, eliminated all of Plaintiff’s claims except for a single claim against SGRP for failure to pay Hogan and a similarly situated class of Massachusetts independent contractors all wages under the Massachusetts Wage Act and a separate, but identical claim against SBS. The result of the amendment significantly narrowed the scope of the litigation and eliminated the original nationwide Fair Labor Standards Act claims. The Company has been granted leave to refile their motion to compel arbitration pursuant to Hogan’s agreement, to dismiss or stay Hogan’s case pending arbitration, and to dismiss Hogan’s case for failure to state a specific claim upon which relief could be granted. The Company’s motion is due on May 24, 2017.

Purchased transportation represents the amount a BCO Independent Contractor or other third party capacity provider is paid to haul freight. The amount of purchased transportation paid to a BCO Independent Contractor is primarily based on a contractually agreed-upon percentage of revenue generated by loads hauled by the BCO Independent Contractor. Purchased transportation paid to a Truck Brokerage Carrier is based on either a negotiated rate for each load hauled or, to a lesser extent, a contractually agreed-upon fixed rate per load. Purchased transportation paid to railroads is based on either a negotiated rate for each load hauled or a contractually agreed-upon fixed rate per load. Purchased transportation paid to air cargo carriers is generally based on a negotiated rate for each load hauled and purchased transportation paid to ocean cargo carriers is generally based on contractually agreed-upon fixed rates. Purchased transportation as a percentage of revenue for truck brokerage, rail intermodal and ocean cargo services is normally higher than that of BCO Independent Contractor and air cargo services. Purchased transportation is the largest component of costs and expenses and, on a consolidated basis, increases or decreases as a percentage of consolidated revenue in proportion to changes in the percentage of consolidated revenue generated through BCO Independent Contractors and other third party capacity providers and external revenue from the insurance segment, consisting of reinsurance premiums. Purchased transportation as a percent of revenue also increases or decreases in relation to the availability of truck brokerage capacity and with changes in the price of fuel on revenue generated by Truck Brokerage Carriers. The Company passes 100% of fuel surcharges billed to customers for freight hauled by BCO Independent Contractors to its BCO Independent Contractors. These fuel surcharges are excluded from revenue and the cost of purchased transportation. Purchased transportation costs are recognized over the transit period as the performance obligation is completed.

In addition to the company drivers that we employ, we enter into contracts with independent contractors. Independent contractors operate their own tractors (although some employ drivers they hire) and provide their services to us under contractual arrangements. Except for generally providing independent contractors with the use of our trailers, they are responsible for the ownership and operating expenses and are compensated by us primarily on a rate per mile basis. By operating safely and productively, independent contractors can improve their own profitability and ours. We believe that the fleet of independent contractors we engage provides significant advantages that primarily arise from the motivation of business ownership. Independent contractors tend to produce more miles per tractor per week. As of December31, 2020, the approximately 1,800 independent contractors we engage comprised approximately 26% of our available capacity, as measured by tractor count.

We provide financing to certain qualified independent contractors. If we are unable to provide such financing in the future, due to liquidity constraints or other restrictions, we may experience a decrease in the number of independent contractors we are able to engage. Further, if independent contractors we engage default under or otherwise terminate the financing arrangement and we are unable to find a replacement independent contractor or seat the tractor with a company driver, we may incur losses on amounts owed to us with respect to the tractor.

As part of our marketing strategy, we are also now onboarding clients in a traditional staffing company model through our wholly-owned subsidiary ShiftableHR, and we intend to migrate these companies to the new nextGEN ShiftPixy Solution. In addition, we are joining the hot topic dialogue currently going on in the nextGEN Gig Economy about companies such as Uber and others who have been targeted by plaintiff's attorneys and government agencies for allegedly mischaracterizing employees as independent contractors. We believe that our ShiftPixy business model is a perfect solution for these companies, because we embrace the compliance obligations associated with being an employer.

We have seen a potential new market based upon the issue of worker misclassification in the Gig Economy. Gig Economy companies such as Uber regularly classify the people working for them as "independent contractors" rather than "employees" for jobs (gigs). The companies can pay much less for services and in regulatory requirements if their workers are classified as independent contractors. Under state and federal employment laws, workers classified as employees are much more expensive for these companies. However, increasing litigation against Uber and others has increased awareness about this issue. ShiftPixy provides a solution by absorbing workers for these types of Gig Economy companies as employees of ShiftPixy, eliminating any risk of litigation, fines and other worker misclassification problems for these types of Gig Economy companies which become ShiftPixy clients.

These GIG Economy companies regularly classify the people working for them as "independent contractors" rather than "employees" for jobs (gigs). The companies can pay much less for services and in regulatory requirements if their workers are classified as independent contractors. Under state and federal employment laws, workers classified as employees are much more expensive for these companies.

Melissa Clothier was engaged by SBS (then known as SPAR Marketing Services, Inc.) and provided services pursuant to the terms of an "Independent Merchandiser Agreement" acknowledging her engagement as an independent contractor. On June 30, 2014, Ms. Clothier filed suit against SBS and the Company styled Case No. RG12 639317, in the Superior Court in Alameda County, California (the "Clothier Case"), in which Ms. Clothier asserted claims on behalf of herself and a putative class of similarly situated merchandisers in California who are or were classified as independent contractors at any time between July 16, 2008, and June 30, 2014. Ms. Clothier alleged that she and other class members were misclassified as independent contractors and that, as a result of this misclassification, the defendants improperly underpaid them in violation of various California minimum wage and overtime laws. The Company was originally a defendant in the Clothier Case but was subsequently dismissed from the action without prejudice. The court ordered that the case be heard in two phases. Phase one was limited to the determination of whether members of the class were misclassified as independent contractors. After hearing evidence, receiving post-trial briefings and considering the issues, the Court issued its Statement of Decision on September 9, 2016, finding that the class members had been misclassified as independent contractors rather than employees. The parties have now moved into phase two to determine damages (if any), which has included discovery as to the measure of damages in this case.

Paradise Hogan was engaged by and provided services to SBS as an independent contractor pursuant to the terms of an "Independent Contractor Master Agreement" with SBS acknowledging his engagement as an independent contractor. On January 6, 2017, Hogan filed suit against SBS and SGRP (and part of the Company), styled Civil Action No. 1:17-cv-10024-LTS, in the U.S. District Court for District of Massachusetts. Hogan initially asserted claims on behalf of himself and an alleged nationwide class of similarly situated individuals who provided services to SBS and SGRP as independent contractors. Hogan alleged that he and other alleged class members were misclassified as independent contractors, and as a result of this purported misclassification, Hogan asserted claims on behalf of himself and the alleged Massachusetts class members under the Massachusetts Wage Act and Minimum Wage Law for failure to pay overtime and minimum wages, as well as state law claims for breach of contract, unjust enrichment, quantum meruit, and breach of the covenant of good faith and fair dealing. In addition, Hogan asserted claims on behalf of himself and the nationwide class for violation of the Fair Labor Standards Act's overtime and minimum wage provisions. On March 28, 2017, the Company moved to refer Hogan's claim to arbitration pursuant to his agreement, to dismiss or stay Hogan's case pending arbitration, and to dismiss Hogan's case for failure to state a specific claim upon which relief could be granted.

We believe we are the fifth largest asset‑based truckload carrier in the United States by revenue, generating over $1.7billion in total operating revenue in 2019. We provide services primarily throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. We offer customers a broad portfolio of services using our own truckload fleet and third‑party carriers through our non‑asset‑based truck brokerage network. As of December31, 2019, our fleet consisted of approximately 6,900 tractors and approximately 15,500 trailers, including approximately 2,000 tractors provided by independent contractors. All of our tractors have been equipped with electronic logs since 2012, and our systems and network are engineered for compliance with the federal electronic log mandate. Our terminal network is established and capable of handling significantly larger volumes without meaningful additional investment. In June 2018, we completed our initial public offering (the “IPO”).

For 2019, net fuel expense decreased $18.8 million, or 21.8%, compared with 2018. During 2019, the decrease in net fuel expenses was primarily the result of a $10.6 million decrease due to the divesture of our Mexico business, a 5.4% decrease in company driver miles, and a 3.3% increase in average miles per gallon, offset by increased fuel surcharge paid to independent contractors. Independent contractors accounted for 27.3% of the average tractors available compared to 22.1% in 2018. In the near term, our net fuel expense is expected to fluctuate as apercentage of total operating revenue and revenue, before fuel surcharge, based on factors such as diesel fuel prices, thepercentage recovered from fuel surcharge programs, thepercentage of uncompensated miles, thepercentage of revenue generated by independent contractors, thepercentage of revenue generated by team‑driven tractors (which tend to generate higher miles and lower revenue per mile, thus proportionately more fuel cost as apercentage of revenue).

The Company believes it has the largest trucking fleet in Canada and a significant presence in the U.S. market. As at March 31, 2020, the Company had 7,634 tractors, 25,174 trailers and 9,988 independent contractors. This compares to 7,878 tractors, 26,207 trailers and 8,446 independent contractors as at March 31, 2019.

The Company provides financing to certain qualified Canadian independent contractors and financial guarantees to a small number of U.S. independent contractors. If the Company were unable to provide such financing or guarantees in the future, due to liquidity constraints or other restrictions, it may experience a decrease in the number of independent contractors it is able to engage. Further, if independent contractors the Company engages default under or otherwise terminate the financing arrangements and the Company is unable to find replacement independent contractors or seat the tractors with its drivers, the Company may incur losses on amounts owed to it with respect to such tractors.

includes individuals who performed work as lease operators, who leased equipment from us, and who were designated as independent contractors. The complaint alleges that independent contractors are improperly designated as such and should be designated as employees and thus subject to the Fair Labor Standards Act (“FLSA”). The complaint further alleges that U.S. Xpress,Inc.’s pay practices with regard to the putative class members violated the minimum wage provisions of the FLSA for the period from March26, 2016 to present. The complaint further alleges that we violated the requirements of the Truth in Leasing Act with regard to the independent contractor agreements and lease purchase agreements we entered into with the putative class members. The complaint further alleges that we failed to comply with the terms of the independent contractor agreements and lease purchase agreements entered into with the putative class members, that we violated the provisions of the Tennessee Consumer Protection Act in advertising, describing and marketing the lease purchase program to the putative class members, and that we were unjustly enriched as a result of the foregoing allegations. The matter is not yet in discovery, and we are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We believe the allegations made in the complaint are without merit and intend to defend ourselves vigorously against the complaints relating to such actions.

For the quarter ended June 30, 2019, net fuel expense decreased $4.3 million, or 20.4%, compared with the same quarter in 2018. During the quarter ended June 30, 2019, the decrease in net fuel expenses was primarily the result of a $2.6 million decrease due to the divesture of our Mexico business, 2.4% increase in average miles per gallon, and a decrease in the fuel surcharge per mile paid to independent contractors. Independent contractors accounted for 27.6% of the average tractors available compared to 21.3% in the same quarter of 2018.

shall for any purpose whatsoever or in any way or manner create any employer-employee relationship between inVentiv, its directors, officers, employees and any persons providing Services under the Agreement and Client. inVentiv may utilize independent contractors in connection with its performance of the Services only with Client’s prior written approval; provided, further, that inVentiv will remain fully responsible for the conduct of its independent contractors. For purposes of this Agreement, the parties agree that Client’s prior written consent is not required for inVentiv to use third party contractors in inVentiv’s general business operations and the underlying support services supporting such general business operations (for example, IT services and/or internal software, equipment, CRM, etc.) which may be used in the provision of Services.

The Company has two reportable segments: (i)Trucking, consisting of the Company’s truckload and dedicated freight service offerings, and (ii)USAT Logistics, consisting of the Company’s freight brokerage, logistics, and rail intermodal service offerings. Our truckload service offering provides motor carrier services as a medium-haul common and contract carrier, utilizing equipment owned or leased by the Company or independent contractors. Our dedicated freight service offering provides truckload motor carrier services to specific customers for movement of freight over particular routes at specified times. USAT Logistics provides freight brokerage, logistics, and intermodal rail service to its customers by utilizing third party capacity. Each of these service offerings match customer shipments with available equipment of authorized third-party motor carriers and other service providers. The Company provides these services to many existing Trucking customers, many of whom prefer to rely on a single service provider, or a small group of service providers, to provide all their transportation solutions.

The use of independent contractors in the trucking industry has been challenged by tax and other regulatory authorities and has been the subject of class action lawsuits brought by current and former independent contractors who work, or have worked, in the industry. In general, the regulatory efforts and litigation center around the view that independent contractor drivers in the trucking industry are employees rather than independent contractors. In some cases the targeted companies have used a lease-purchase independent contractor agreement, which may make a company more susceptible to the claims. The regulatory efforts have occurred on the state and in some cases on a federal level. The factors that determine independent contractor versus employee status vary depending on the jurisdiction and the particular statute or law involved. The regulatory effort and litigation include efforts to treat the independent contractors of trucking companies, such as ours, as employees for purposes of workers’ compensation, unemployment compensation, income taxes, minimum wage and overtime claims, expense reimbursement, meal and rest periods, employee benefits (health care, retirement, and other benefits), and other employment-related claims. This issue may also arise in some tort cases. In some cases, claimants have been successful in securing large settlements or have prevailed in their claims that the independent contractors are employees.

In September 2019, California enacted A.B. 5 (“AB5”), a new law that changed the landscape of the state’s treatment of employees and independent contractors. The test is referred to as the “ABC” test, and was originally handed down by the California Supreme Court inDynamex Operations v. Superior Courtin 2018. Under the ABC test, workers performing services for a hiring entity are considered employees unless the hiring entity can demonstrate three things: the worker (A) is free from the hiring entity’s control, (B) performs work that is outside the usual course of the hiring entity’s business, and (C) customarily engages in the independent trade, work or type of business performed for the hiring entity. While it was set to go into effect in January 2020, a federal judge in California issued a preliminary injunction barring the enforcement of AB5 on the trucking industry while the California Trucking Association (“CTA”) moves forward with its suit seeking to invalidate AB5. While this preliminary injunction provides temporary relief to the enforcement of AB5, it remains unclear how long such relief will last, and whether the CTA will ultimately be successful in invalidating the law. As the Company does not utilize a large population of owner-operators in California, if AB5 is upheld, the impact is expected to be insignificant; however, capacity and rates throughout the industry could be widely impacted. It is also possible AB5 will spur similar legislation in states other than California, which could adversely affect our results of operations and profitability. Despite this, opinions issued by the U.S. Department of Labor’s Wage and Hour Division and the National Labor Relations Board (“NLRB”) are consistent with the Company’s current treatment of its workforce.

Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers of qualified drivers, which includes the engagement of independent contractors. The truckload industry is subject to a shortage of qualified drivers. Such shortage is exacerbated during periods of economic expansion, in which alternative employment opportunities, such as those in the construction and manufacturing industries, are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment or for students who seek financial aid for driving school. Regulatory requirements, including those related to safety ratings, ELDs and HOS changes, and an improved economy could further reduce the number of eligible drivers or force us to increase driver compensation to attract and retain drivers. We have seen evidence that stricter HOS regulations adopted by the DOT in the past have tightened and, to the extent new regulations are enacted, may continue to tighten, the market for eligible drivers. We believe the required enforcement of ELDs may further tighten such market. The lack of adequate tractor parking along some highways and congestion caused by inadequate highway funding may make it more difficult for drivers to comply with HOS regulations and cause added stress for drivers, further reducing the pool of eligible drivers. We believe the shortage of qualified drivers and intense competition for drivers from other trucking companies will create difficulties in maintaining or increasing the number of our drivers and may restrain our ability to engage a sufficient number of drivers and independent contractors, and our inability to do so could negatively impact our operations. Further, the compensation we offer our drivers and independent contractor expenses is subject to market conditions, and we may find it necessary to increase driver compensation and/or independent contractor rates in future periods.

In addition, we and many other truckload carriers suffer from a high turnover rate of drivers and independent contractors. This high turnover rate requires us to continually recruit a substantial number of drivers and independent contractors and to focus on alternative recruitment methods in order to operate existing revenue equipment. If we are unable to continue to attract and retain a sufficient number of drivers and independent contractors, we could be forced to, among other things, adjust our compensation packages, operate with fewer tractors, or increase the number of tractors without drivers and face difficulty meeting shipper demands, any of which could have a materially adverse effect on our results of operations.

Our independent contractor agreements are governed by the federal leasing regulations, which impose specific requirements on us and the independent contractors. If more stringent federal leasing regulations are adopted, independent contractors could be deterred from becoming independent contractor drivers, which could materially adversely affect our goal of growing our number of independent contractors.

Trucking. Trucking is comprised of truckload and dedicated freight service offerings. Truckload service offerings provide motor carrier services as a medium-haul common and contract carrier, utilizing equipment owned or leased by the Company or independent contractors. Dedicated freight service offerings provide truckload motor carrier services to specific customers for movement of freight over particular routes at specified times.

EquipmentThe Company believes it has the largest trucking fleet in Canada and a significant presence in the U.S. market. As at June 30, 2020, the Company had 7,477 tractors, 24,867 trailers and 10,460 independent contractors. This compares to 7,841 tractors, 25,197 trailers and 8,278 independent contractors as at June 30, 2019.

3.2Employees and Independent Contractors. For as long as she is performing services on behalf of the Companies and for a period of twelve (12) months thereafter, Executive shall not hire any employees or individual independent contractors of the Companies or their affiliates, or initiate contact or communicate, directly or indirectly, with any such persons in an effort to induce such persons to terminate their relationship with the Companies or their affiliates; provided, that (i) the foregoing shall not apply with respect to employees and independent contractors who respond to general advertisements regarding hiring of employees or engagement of independent contractors or respond to inquiries by independent recruiting firms not resulting from direction to such firms to include employees or independent contractors of the Companies in such solicitation activities, and (ii) in the event Executive's employment with the Companies is terminated by Executive for Good Reason or by the Company without Cause (as such terms are defined in the Employment Agreement), the foregoing restrictions shall not apply with respect to the individuals listed on Schedule 3.2.

3.2Employees and Independent Contractors. For as long as he is performing services on behalf of the Company and for a period of twelve (12) months thereafter, Executive shall not hire any employees or individual independent contractors of the Company or its affiliates, or initiate contact or communicate, directly or indirectly, with any such persons in an effort to induce such persons to terminate their relationship with the Company or its affiliates; provided, that the foregoing shall not apply with respect to employees and independent contractors who respond to general advertisements regarding hiring of employees or engagement of independent contractors or respond to inquiries by independent recruiting firms not resulting from direction to such firms to include employees or independent contractors of the Company in such solicitation activities.

Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers of qualified drivers, which includes the engagement of independent contractors. The truckload industry is subject to a shortage of qualified drivers. Such shortage is exacerbated during periods of economic expansion, in which alternative employment opportunities are more plentiful and freight demand increases, or during periods of economic downturns, in which unemployment benefits might be extended and financing is limited for independent contractors who seek to purchase equipment or for students who seek financial aid for driving school. Regulatory requirements, including those related to safety ratings, ELDs and hours of service (“HOS”) changes, and an improved economy could further reduce the number of eligible drivers or force us to increase driver compensation to attract and retain drivers. We have seen evidence that stricter HOS regulations adopted by the DOT in the past have tightened and, to the extent new regulations are enacted, may continue to tighten, the market for eligible drivers. We believe the required implementation of ELDs in December 2017 has, and enforcement of related rules in April 2018 may further, tighten such market. We believe the shortage of qualified drivers and intense competition for drivers from other trucking companies will create difficulties in maintaining or increasing the number of our drivers and may restrain our ability to engage a sufficient number of drivers and independent contractors, and our inability to do so could negatively impact our operations. Further, the compensation we offer our drivers and independent contractor expenses are subject to market conditions, and we may find it necessary to increase driver compensation and/or become subject to higher independent contractor expenses in future periods.