What Is An Owner Operator Lease Termination Agreement?
An owner operator lease termination agreement is a legally binding document that dissolves the contractual relationship between an owner operator and a carrier or trucking company. In the context of the trucking industry, an owner/operator is a driver who owns his truck and enters into a lease agreement with a trucking company. The owner/operator provides the vehicle to the trucking company and then drives for them, usually as an independent contractor.
The primary purpose of an owner operator lease termination agreement is to officially end the legal arrangement between the parties whereas an owner operator might have previously worked under an independent contractor agreement or lease purchase agreement. The significance of this agreement arises when the carrier and owner operator enter a contract of adhesion that is substantively and procedurally unconscionable. Because an owner operator might have been ensnared in an unfair contract , a termination agreement will detach them from any future liability that might arise.
Terminology after executing an owner operator lease termination agreement is either "you are free to go" or "we are no longer under contract." After an owner operator receives one of these two terms, it is safe for the owner operator to re-enter the general population as a non-subcontractor of that carrier.
Trucking partners of other companies are beginning to embrace owner operator lease termination agreements. The reason why foreign carriers would be interested is because they are allowed to expand. In these cases, it simply allows the foreign carrier increased plasticity to expand their geographical and market area.
It is important for owner operators who feel as if they were denied fairness in the preparatory stages of a contract to consider that an owner operator lease termination agreement might be something they want to pursue. If an owner/operator has signed a contract that was not fair to them or fulfilled the requirements of notification, this agreement can help ensure that unfair treatment is protected against.
Core Elements Of A Lease Termination Agreement
The key components of a Lease Termination Agreement include the date, any conditions that are required to be fulfilled, and the obligations of each of the parties. For example, will there be a payment that is required prior to the lease termination? Is any return of property required?
The transfer of any property should be addressed in detail. For example, will you redeposit cargo that you have in your possession? Will you be required to reload any particular trailer with cargo? Will you be required to return the cargo to the correct type of trailer? If you are required to deliver cargo to a particular location, what time frame applies for your delivery? Are you required to verify cargo on the trailer/vehicle? There are various issues to consider with returned property, both trucks and cargo, and all issues should be specifically addressed in a Lease Termination Agreement.
With any lease termination, a settlement for payment may be required. Specifically, if the owner operator has a settlement amount due and there is an agreement between the owner operator and the motor carrier as to that settlement, that amount will be specifically detailed in the lease termination agreement. You should also consider signing a tax liability waiver prior to termination. When signing that agreement, keep in mind that it often is from the taxing authorities to the controlling entity. So, keep an eye on that because you may be personally included in that liability.
The signing of the Lease Termination Agreement. When signing the lease termination agreement, everyone should sign the same document. Any copies signed in anticipation of that agreement should be considered drafts. The Lease Termination Agreement should be signed in counterpart. That means that the parties can sign separate copies of the lease termination agreement, but that should be stated in the signature section.
The Legal Aspects Of Lease Termination
The termination of a lease agreement is necessarily governed by the terms of the lease. It is best to determine the process for early termination in the lease agreement itself rather than by the parties’ execution of an additional agreement to terminate the lease. This is especially true if the lease does not contemplates the parties’ ability to terminate a lease early and make it all but impossible to draft a separate agreement to so terminate the lease.
However, there will be occasions where the parties do not or cannot make prior arrangements for early termination. On such occasions, one must look to the lease to determine if it includes the right to terminate early and what process the parties will use to terminate the lease. Most leases are silent as to early termination, eliminating the option to early terminate without exposing either party to liability for contract damages. If the right to terminate is not specified in the lease, this does not preclude either party from agreeing to terminate the lease early. The Vehicle Leasing Agreement (the "Lease Agreement") is such a contract. A person or entity ("Owner Operator") leases a vehicle from a company (the "Leasing Office" or "Company") to drive for a certain period of time. The Lease Agreement specifies the terms of the lease period and how much the Owner Operator will be charged per mile. The parties can choose to include deductible amounts for unreturned equipment and damages to the automobile, but they are not required to do so. After a certain period, the Owner Operator will typically have the option of renewing the Lease Agreement for another period or buying the doors and leasing the automobile at a specified per mile rate. The Owner Operator always has the option to return the automobile to the Leasing Office.
The legally complex nature of the parties’ respective rights to terminate the lease early is illustrated in Gyumatco, Inc. v. Watson, 2008 WL 5431020 (W.D.Pa. 2008). In that case, the court held that a termination agreement that did not specify the amount owed precluded a breach of contract allegation, except to the extent of the payment specified in the agreement. The court held that the balance owed would be considered paid. We understand that some Owner Operators have signed termination agreements that released the Leasing Company from all further liability. We have objected to such termination agreements and entered lawsuits seeking an accounting under 49 U.S.C. § 14704(a), which defines the Owner Operator’s right to audit the Leasing Company’s accounts. Without the Owner Operator’s right to terminate the lease, the Owner Operator can lose the ability to seek relief due to expiration of any applicable statute of limitations. In our experience, it is best to execute such termination agreements in conjunction with a comprehensive audit of all money owed to the Owner Operator. This will provide the Owner Operator with documentation of the total amount of his claim.
How To Successfully End A Lease Agreement
A comprehensive, step-by-step approach to terminating an owner operator lease agreement, while remaining in compliance with all applicable laws, is the best way to protect your business against an expensive lawsuit. A comprehensive approach, however, is a terrible substitute for preparation and prevention; therefore, in an ideal world you will have already covered all the bases on your end so that, when the day comes to terminate the relationship, there will be no animosity and no surprises. But how does one do that?
- – Make Sure the Agreement is Compliant with all Applicable Laws. As discussed earlier, even if the agreement contains the right steps to terminate the arrangement, if it doesn’t comply properly with applicable laws, a simple termination could turn into a civil lawsuit alleging that the agreement is invalid, and you owe the individual at least one year’s worth of pay. Suffice it to say that this is Step 1 because, without this, there is no Step 2.
- – Review the Contract. Once you are ready to go, review the agreement thoroughly . The review should address: It is here that a work hierarchy becomes useful. You should review the obligation, determine the absolute, bare minimum you have to do to terminate the contract, and stick to that as closely as possible. However, if from the review of the termination terms you determine that you will lose money, or the process will be more expensive than it will be worth, you should prepare to meet that obligation anyway.
- – Notify the Individual of the Termination. Unless the agreement says otherwise, you can deliver notice via any means reasonably calculated to get the individual the notice – e.g., through the mail is probably a good idea, but no one has won a lawsuit over not receiving a notice. Don’t get too cute, sending the termination via horse and buggy, for example, or having someone dressed as the Grim Reaper deliver the termination notice during a birthday party – and don’t spend a ton of effort ensuring the individual gets the notice. You don’t want to have to pay any more than you have to to terminate the agreement.
The Common Slip-Ups And How To Prevent Them
A common pitfall facing Owner Operators regarding termination of an Independent Contractor Lease is the failure to provide time for the Owner Operator to remove its property from the vehicle (including aftertreatment components and EGR assembly), even if the Lease Agreement is terminated for cause. There is no definitive answer on how much time is required, but generally, the longer the notice, the better. Several drivers have contacted us after a termination for cause, who were provided as little as half an hour by the motor carrier, which made it impossible to pursue another job. Where there is a need for expedited action, I have recommended that the driver leave his or her personal property in the vehicle until a replacement vehicle could be obtained. In these situations, I have also obtained as much time as possible for the driver to remove the aftertreatment system and EGR assembly, but only where we have had advance notice of termination.
Another common pitfall is the failure to provide the Owner Operator with a detailed explanation of the company’s reasons for terminating the relationship. Respect should be shown both because the relationship is so important to an Independent Contractor’s ability to make a living and because in the event of a legal dispute, it may become necessary to evaluate whether or not sufficient grounds for termination exist. Disputes are common where the owner-operator only learns about the alleged failures from the termination letter. In many cases, all that is needed is a single format correction notice that has been returned "unresolved" by the driver. Similar problems can happen with service failures, where the motor carrier has written up numerous violations on the driver’s vehicle, none of which it shared with the driver prior to termination. This was the case where a driver was terminated for mismanagement of a truck that had been idle for several months due to service issues, rising in the midst of several hundred dollars of charges against the driver.
The Use Of Mediation and Legal Counsel
A mediation can be beneficial when owner operators have questions or confusion over the requirements for lease termination. An experienced mediator is familiar with state and federal regulations as well as internal company policies that may impact the termination process. Mediation provides a cost-effective and expedient way to address these issues by bringing the parties together in a structured environment where they can discuss their concerns with a neutral federal motor carrier safety administrator (FMCSA)-trained facilitator.
Mediators can encourage the open exchange of information that can help clarify expectations. The attempt to resolve disputes through mediation may avert costly litigation that might be required to pursue other remedies, depending on the allegations. Mediation often keeps ongoing relationships intact, which can reduce business interruptions during the transition process and lay the foundation for better relations in the future.
Owner operators who have little training in contract formation and termination may benefit from legal advice. A knowledgeable legal advisor can help carefully evaluate the termination process and provide guidance on improving or streamlining it. The advice of a lawyer experienced with state and federal transportation laws can help owner operators avoid violation of federal laws or other company policies.
When considering whether owner operators should seek legal advice or mediation , consider the following: Owner operators should generally avoid self-representation when important legal rights, such as injury or personal property damage, are at stake. When litigation is ultimately pursued, having a record that shows the owner operator’s willingness to communicate and compromise can be invaluable. Subsequent events—the termination of a lease and the resulting disputes—can create an adverse environment in which to conduct meaningful settlement talks. Getting assistance with or participating in voluntary mediation may be a sound early step toward dispute resolution.
The goal of owner operator lease termination agreements and mediations should be to foster a smooth transition. Owner operators who appreciate and understand the process are more likely to comply with termination terms. This benefits the responsible party as well, since the former owner operator can avoid termination lawsuits and leverage of safety ratings by competing companies.