One Size Does Not Fit All, Or Did You “Borrow” the Right Contract?

A client asked me to review a contract and tell him if he should make any changes. I knew immediately that he had not written the contract and he admitted that he “borrowed” it from his previous employer. “Borrowing” or “stealing” contract forms is not unique to the transportation field where many written contracts such as leases, broker agreements, and independent contractor agreements are required and the terms of these agreements are often heavily regulated, but it is a very common practice. The client often wonders why they need something new when they are holding an agreement that, in their mind, is just fine. In addition, the client will always ask why they should pay to have an agreement prepared when they can have one for free? From my point of view, I am concerned that the “borrowed” agreement may not describe the basic terms properly and it may not protect my client in the event of litigation, government audits, or other similar problems.

While the “borrowed” agreement concept makes sense to the client because it is less expensive than hiring an attorney, consider the following. There is no “one size fits all” agreement. Normally, there is language in the “borrowed” form that will not fit the client’s needs, or worse yet, will work against the client. Under the best of circumstances, the agreement was written to meet the needs of another company, not my client. Also, the person my client took it from may have “borrowed” it from someone else. In other words, how does my client know who wrote the agreement and should he trust the agreement if he does not really know where it came from? From the different formatting and writing styles, I suspect that the agreement I described above may have been borrowed, re-borrowed and modified several times. However it started, by now it is just not a very good agreement. My client assumed the agreement is just fine because he trusts the person he “borrowed” it from. What if my client borrowed a really poor agreement in the first place, but did not see me first? I suspect that he could have bought himself some serious problems by getting something for free.

To some people, the problem I see with the “borrowed document” concept is difficult to understand. They see a lot of pages and a lot of words talking about different matters. They assume the agreement must be fine because someone else is using it and in addition, they can get it for free. For the same reason, clients frequently want a “standard contract”, because once again, they see all those words and think all these agreements must be the same. In 38 years of law practice, I have heard this over and over, involving everything including buying or selling a house, lease agreements, wills, living wills, employment documents, bills of sale, business agreements and many other situations, as well. Some of the transportation related agreements I mentioned truly are long documents and if you just look at the paragraph titles, they cover the same issues. They may all appear to be the same, but they are not, and it is impossible to tell if they help or hurt without reading the entire agreement. Even if these agreements were all the same, one agreement just cannot address the different needs of every client.

Two examples illustrate the dilemma. Clients and potential clients frequently ask why they need an attorney to review a real estate purchase agreement, because they assume the forms are all the same. I know these agreements are not the same since I have dozens or of different real estate purchase agreements in my office alone. I also have publications and seminar materials with different purchase agreements labeled “Pro Buyer” or Pro Seller”. They look the same on the surface, but they are definitely different. The other example involves an association in the transportation field that publishes different contracts for its members to use. These forms not only come with many alternate provisions to select from, they also come with a separate set of instructions for how to use the forms. The association gives their members different choices because everyone does not have the same needs.

The agreement I described at the beginning verifies my concerns. Aside from being very long (which is not necessarily bad but in this instance it is longer than necessary), there were many problems. It did not comply with the motor carrier leasing regulations. Using the agreement would cause the client to violate the law in Michigan governing workers compensation and independent contractors. It included an agreement to use a service company my client would never use. The names of some parties were switched so that the obligations of the parties were reversed. It was very poorly written. I suspect that this agreement was not even good for the company my client borrowed it from. More significantly, my client had no idea what most of the agreement said or whether the agreement was good or bad for his particular business. While I could make the agreement useful, it is never going to be as good as an agreement tailored to meet the needs of my client.

Now, what is the difference to the client between “borrowing” an agreement, or hiring an attorney to write a new one, aside from the fact that one is free and the other is not? First, if the client hires an attorney, the attorney is responsible to make sure the agreement is properly written. Second, the client will get an agreement that meets the needs of that client, not what someone else needs. Third, the client will get an agreement he can understand and in some instances, use again in the future. Last, the client will then get professional advice, not just a document. The lack of advice is the same problem that concerns me about using an agreement taken out of a form book. Some of the forms available for purchase or at the library are very good and some are not, but even the good forms need to be the correct “good” forms for the specific situation. The attorney you hire will know which forms to use and be capable of writing additional language that does not come out of the book, the language the client needs to make the agreement work for himself or his business.

If I write an agreement and I use the wrong language, I am responsible for the problems with the agreement and any bad advice I have given the client. If there is a problem, the client will look to me to make things right. If a client uses a “borrowed” form (and remember, he will never know the real source of that document), he is doing so at his own risk. In that case, I hope he takes it from the right person. The last one did not.

New HHG Carrier Regulations

The Federal Motor Carrier Safety Administration has proposed a new rule requiring interstate household goods carriers to submit reports on a quarterly basis summarizing a list of information concerning claims and claim inquiries filed with the carrier. The general public, including yourself, has until April 21, 2008 to file comments or objections to the proposed rule. For the reasons stated in this post, you may wish to file comments or objections.

Under the proposal, any carrier holding interstate authority to transport household goods will be required to file a report on a quarterly basis. The report may be filed in paper or on the web. That part is fine.

The report will require each carrier to provide a list of information about the company itself and then a summary of complaint information for the quarter, such as number of shipments handled, number of oral complaints, number of written complaints, rates or charges, a description of the services, how claims are handled, number of claims for loss or damage in excess of $500, number of claims for loss or damage in excess of $500 settled during the reporting period, number of claims in excess of $500 declined and the number of claims in excess of $500 still pending.

Under this rule, carriers are subject to a minimum penalty of $650 for each violation and for each day the violation continues. There is also a maximum penalty of $6,500 for failing to file a report or failing to file a report within thirty days from the due date, failing to make the report in the manner required, falsifying a report, making a false or incomplete entry, or failing to preserve records as required in the rule.

I have several concerns. I suggest you consider the following:

A. There is no minimum volume of interstate shipments required. Any carrier authorized to transport household goods in interstate commerce will be required to file quarterly. Therefore, if a carrier holds interstate authority but transports no shipments in a quarter, it is still required to file.

B. The rule itself is not clear. I would expect a rule of this nature to read that these claim statistics apply only to interstate shipments. However, under the proposal, the reporting requirements extend to both interstate and intrastate shipments. Therefore a carrier will be required to report each and every shipment and each and every claim, whether interstate or intrastate.

C. The potential fines are significant. The proposed penalties for failing to file start at a minimum of $650 for each violation and go up to a maximum penalty of $6,500. There are so many requirements under the certification a carrier will need to make each quarter, that even minor errors may result in violations and significant penalties.

It appears to me that this rule is ill conceived. It also appears to me that the purpose for enacting the rule is to target carriers who have claims filed. Finally, it appears to me that the true purpose of this rule is to raise revenues for the Federal Motor Carrier Safety Administration. I feel the rule is so poorly written that a carrier trying to comply is going to be subject to jeopardy on a quarterly basis, for any reporting error.

I suggest that anyone involved considers a response or objection. Please keep in mind that the response must be filed so that it is received by April 21, 2008.

More On Transportation Related Taxes

Last week, I wrote about the impact of the new Michigan Service Tax on transportation companies, the exemption for those providing freight transportation and the taxes on warehouse and courier services. Well, even though there is talk about repealing the tax (the political battle continues), the law is the law until or unless it is repealed. Under the law as it now stands, here is one more item to consider.

Every business that has added the words "logistics" to its name, or provides transportation consulting of any nature, will also need to examine this new law. Consulting Services as described in NAICS industry code 5416 are taxable services. Do you know what that covers? You would not without checking the definition section 5416.

The section 5416 definitions include: logistics management; inventory planning and control; freight rate consulting and auditing; efficiency management; customs consulting: and consulting for each of these categories. This is a summary, not a complete list.

Once again, the new regulations have not been written interpreting this law or telling us how the tax will be enforced. As with my comments on warehousing, it will be important to carefully define the services your business provides and for the description of these services to be carefully written in contracts and purchase orders. The descriptions you use may determine whether your activities are subject to this new tax, or not.

Businesses that may be taxed need to consider how to change their billing processes, and to look at their purchase orders, bill descriptions and contracts now, in order to determine what needs to be changed or amended before the December 1 effective date.

New Tax on All Warehousing and Some Transportation

On October 1, 2007, a series of new tax laws were passed in Michigan, including a new "Tax on Services". Assuming that all of the bills passed by the Michigan Legislature are signed into law, warehousing, courier, messenger and limousine services will be taxed, but trucking services will be excluded (House Bill No 5198).

Effective December 1, it will be necessary to account for this service tax on any of the "taxable" activities in Michigan, whether you are providing it or paying for it. From the wording of the bill, freight transportation including charges for stops in transit should be exempt from the tax.

Since new regulations have not yet been written defining or interpreting these new laws, it will be important to carefully define the services a business provides, or pays for, and for the description of these services to be carefully written in contracts and purchase orders. The descriptions you use may determine whether your activities are subject to this new tax, or not.

Return of the SSR

The transportation industry thought the Single State Registration System (SSR) was dead and gone. We are now viewing a resurrection.

Effective January 1, 2007, the federal government “killed” the SSR system under which motor carriers were required to register their vehicles and insurance in the 37 participating states. At the same time, the Feds created the Unified Carrier Registration System (UCRS). However, the UCRS regulators never got it running. As the result of this failure, the 37 participating states lost all the revenues they expected to receive from some registration system and those of you in the motor carrier industry saved the registration fees and the time needed to comply. Intellectually, I think we all knew the good times would end.

Congress sent President Bush a bill on August 2, which he is expected to sign immediately, reinstating the SSR effective and retroactive to January 1, 2007 if the UCRS system is not running by October 1. The UCR Board does not feel it is possible to get ready by this time. The only question remaining is how long the states will give their regulated interstate carriers to register and get the proper identification in and on their vehicles. The states are desperate to replace the lost income. Therefore, it is reasonable to believe this will happen very quickly.

It is also reasonable to believe that this registration process will create some chaos, since the state regulators are not set up for handling these registrations. For example, carriers based in Michigan will need to register with the Michigan Public Service Commission. The commission cut back staff this year and is struggling to handle the work it expected without these resurrected filings.

Whatever happens on October 1, all regulated carriers should be prepared to pay the fees and file some type of registration forms early this fall for the year 2007, and then again later this year for the year 2008. Right now, there are no forms available for either registration system. If you are a client of my office and you want to prepare in advance, I can send you the SSR forms for 2006, which will allow you to comply when the formal announcement is made.

Commercial Vehicle Safety Alliance Roadcheck

Following up on the posting earlier this week regarding increased attention at the Michigan/Ontario border, here is another alert for transportation companies - even more inspections are on the way:

The annual Commercial Vehicle Safety Alliance International Roadcheck will occur from June 5-7 throughout Canada, Mexico and the United States. About 10,000 CVSA inspectors will be deployed along major highways with roving patrols on other roadways. This year's enforcement and educational event will focus on Level I inspections (driver and vehicle) and also highlight the importance of safety belts and motor coach safety. A level one inspection is described as:

An inspection that includes examination of driver's license; medical examiner's certificate and Skill Performance Evaluation (SPE) Certificate (if applicable); alcohol and drugs; driver's record of duty status as required; hours of service; seat belt; vehicle inspection report (if applicable); brake systems; coupling devices; exhaust systems; frame; fuel systems; lighting devices (turn signals, brake lamps, tail lamps, head lamps and lamps/flags on projecting loads); safe loading; steering mechanism; suspension; tires; van and open-top trailer bodies; wheels and rims; windshield wipers; emergency exits for buses; HM requirements as applicable. HM required inspection items will be inspected by certified HM inspectors.

Common sense says that your HR and Safety Departments, as well as you drivers, should be alerted. There is no reason to be caught unaware and subject to unnecessary citations. Further, your dispatch staff and possibly your customers should be aware that possible added delays could occur on those dates.

All Eyes On The Ontario Border

A hole was created in the Michigan state budget when the federal government discontinued the Single State Registration Program on January 1, 2007. In order to fill that hole, a safety enforcement program was created and funded. The State is taking advantage of that funding.

A story in Today's Trucking Online referring to a press release originating in Toronto, states that from now until October 1, the Michigan State Police will be giving increased attention to Ontario-Michigan commercial border crossings as well as the corridors leading to those crossings. Through the funding provided for the enforcement program and the fines generated by the tickets, the state will recover some of the lost revenues. Cross-border carriers beware.

By the way, on October 1, 2007, the UCRA (which replaces the Single State Registration) and the fees for the UCRA program, become effective. At that time, everyone in the transportation industry should pay attention.