Deciphering the Driver Agreement
As the gig economy continues to grow, more and more companies are turning to independent contractors to perform a wide variety of work, from app-based technology services to delivery. While a myriad of factors will determine the relationship, in many instances, a Driver Agreement will govern the relationship.
A Driver Agreement is an agreement between the driver and the vehicle owner. In its initial form, this document was the work of a cab or livery service. Once signed, the document would outline the terms of the fee-for-service arrangement that existed between the two parties.
The general terms of this agreement would include: a list of the service provided by the cab/livery service; the specific fare for the service (for example, the fare per mile); additional fees and how they would be calculated (i.e. waiting more than five minutes beyond the specified time in the agreement would result in a 25% increase); and the payment method accepted (cash, major credit cards, pre-paid debit cards).
Over the past ten years, we have seen the growth of several companies who have moved away from these traditional players in favor of technology-based services. These companies, often referred to as Transportation Network Companies ("TNCs"), offer their own software applications to counterparties to allow them to arrange third-party transportation services via the internet. In each of these TNCs, the company acts as facilitator between the customers and drivers. The customer uses the company’s application/service to find a driver, the application provides the customer with the driver’s background, and the cost of the service . At the same time that the company is bringing driver and customer together, it is capturing a commission on the transaction. It is this last component that allows a TNC to grow quickly.
However, in order to grow, TNCs need a sufficient pool of drivers, each willing to accept the fare offered through the TNC. From the driver’s perspective, the TNC must be able to offer compensation in exchange for the work performed. In other words, what does the driver receive in exchange for providing his or her personal vehicle and personal time? What happens if the driver signs up to work and is not contacted by a customer for one, two, three weeks?
Furthermore, if the TNC wishes to grow by expanding its base, disruptive issues must be addressed. For instance, as customers book rides, the TNC must contend with our schedules. Important events (i.e. weddings, business meetings, doctor’s appointments) require that we arrive at our destination on-time. What happens when a customer needs an immediate pickup (within minutes) and the TNC does not respond quickly enough to connect the two?
From the driver’s perspective, the best solution to each of these issues is a Driver Agreement. This agreement will outline the parties’ relationship and address what happens if the work does not come as quickly as the driver hoped. Further still, this will allow the TNC to develop an active driver base (as each participating driver’s issues and hoped-for solutions have been candidly discussed and documented).
The Core Elements of the Agreement
Any agreement that is entered into between the driver and vehicle owner should include the following terms:
- Responsibilities of the driver.
- Compensation terms and method of payment.
- Expenses that will be guaranteed by the owner or driver and how they are handled if not paid in full by the other party.
- Liability if a third party makes a claim against the owner or driver.
- Restrictions on drivers or passengers being permitted to use the vehicle.
- In the case where the owner is an automobile dealership, the amount of time the driver must keep the car serviced and the extent of the service that must be performed.
Legal Matters
When drafting a driver contract agreement, there are various legal considerations that must be taken into account. The most obvious is compliance with the local laws of the country in which the operator intends to carry on its business. In the UK, for instance, this means compliance with the Road Traffic Act 1988 and its subsequent amendments. This also includes having appropriate insurance in place to cover any vehicular risks the operator may face in carrying on its business, as well as having a driver’s license and ensuring the driver holds appropriate valid driving qualifications (where the vehicle requires them) to drive the vehicle. It may be necessary to make some changes to a driver contract agreement to comply with local law. A local legal practice, such as our partner firm Eminent Chambers, may be able to advise on whether local practice / law requires such changes to be made to a driver contract agreement. Another important consideration is whether the driver contract agreement contains provisions relating to dispute resolution. As noted above, it is possible to contract out of the regulations concerning employee status, provided it is clear that the intention of both the operator and the driver is not to create an employer-employee relationship. However, once it is established that an employment relationship exists, it is likely to be considered a statutory contract. This means that various statutory rights apply, including the right to bring a claim to an employment tribunal. In light of this, it may be preferable to include an alternative dispute resolution ("ADR") clause in the driver contract agreement for disputes other than his employment status. Many owner drivers and freight transport operators tend to prefer their disputes to be resolved by way of ADR rather than by the courts, and there are various different forms of ADR that operators may wish to consider.
Personalizing the Contract for Unique Circumstances
Depending on individual circumstances, it may be necessary to customize the contract for specific needs. For instance, the contract may need to specify when the vehicle owner or driver can have access to the vehicle and under what circumstances. Some contracts also create additional restrictions on use such as prohibiting the driver from using the vehicle for work-related matters. Similarly, the agreement may require the vehicle owner to maintain the car in a pristine condition at all times.
Still other areas where customization can benefit both the driver and the vehicle owner are in regard to performance metrics for the use and upkeep of the vehicle. It can be critical to require the driver to report issues promptly to the owner, particularly if the driver is required to cover repairs.
Pitfalls to Avoid
Mistakes made with driver contract agreements often don’t involve interpretation by a driver after-the-fact, but with the actual drafting. One common mistake is to leave out vital information. If the driver will be a W-2 employee, then the document should specify provisions concerning the responsibility for withholding taxes, social security, and applicable insurances. Likewise, if the driver will be treated as an independent contractor, there should be provisions addressing payment of income or self-employment taxes and workers’ compensation coverage. It is important to be clear on an essential aspect of the scope of the driver’s duties. Do not just define his or her duties as "such other duties as may from time to time be ordered or directed . " This could become a very strained relationship when the driver begins to complain he has been asked to do unreasonable tasks. In many cases, the owner will want to limit the liability of the company to compensate any injury the driver sustains. Workers’ compensation laws are generally the sole remedy for workers injured on the job. Would your company still want to go to the expense of securing workers’ compensation coverage on behalf of the driver? Finally, there should be a mutually agreed upon process for amending the document. It should allow for the document to be streamlined, but should also protect against the driver being coerced into signing new documents unfavorable to the driver’s continued employment.
How to Complete the Agreement
Once you and the other party have agreed on the terms of the contract, each of you should sign the document and exchange signed copies. It is a good idea to have the signatures notarized, as this step adds another layer of certainty regarding the identity of the parties and the legitimacy of the contract, but it is not essential. After signing, the owner should provide the driver with at least one complete copy of the contract. The driver may also want to receive a copy of the owner’s vehicle title and proof of registration, at least at the time of the original agreement. It would also be wise for the driver to take a photograph or multiple photographs of the vehicle to have a record of its starting condition. Both parties should retain their own signed copy of the contract in a secure location, as well as these additional document copies. Even though the agreement will reflect the starting condition of the car or truck, it is possible that the parties will later find it necessary to amend the document. If so, it should be done in writing and contain the signatures of both parties above a notice stating that it amends the original agreement. In addition to the above-named documents and the amendment to the contract, copies of any other relevant paperwork should be retained by both parties for future reference.
Maintaining and Modifying the Agreement
The business relationship between the vehicle owner and the driver or hire company may change over time. The needs of the driver or vehicle owner may change as their area of business occupancy changes, new employees or drivers of the vehicle are hired or there are diverse requirements in relation to the provision of transport in organisations which may require changes to the agreement to develop additional flexibility. It is vital that the agreement is reviewed regularly to ensure that it continues to meet the needs of both parties and that it is updated where necessary to ensure that the terms of the agreement remain current. Where variations are required , such variation should be evidenced in writing as a variation of the original agreement with a reference to the date and the details of the original agreement so as to identify the subject matter of the variation. Where a system exists for the reporting and quick resolution of issues as they arise, these should also form part of the record of the change to assist in the identification of issues, problems or trends which may arise over time.