Burton Wolfe's Internet Rag
All the news and other stuff
the New York Times sees unfit to print
September 2007 No. 67
The nationwide taxicab 'lease' racket - part 3
The lawyer who wrecked the taxicab industry
In parts 1 and 2, I explained how and why the taxicab companies began classifying their hired drivers as "independent contractors" or "self-employed persons" and "lessees"; I provided facts about the organization which has succeeded through lobbying efforts to facilitate this illegal, destructive, nationwide racket; and I summarized the resulting massive damage to cab drivers, the public, the taxpayers, the city-state-federal governments, and even the taxicab industry itself. You will need those two parts for full understanding of this series. If you missed them, request them in an email to bhwolfe(at)msn.com, and I will send them to you. - BHW
It is not often that one individual can wreck an entire industry; but there is one lawyer who has accomplished that extraordinary feat: Arthur L. Herold, senior partner of the Washington, D.C. law firm Webster, Chamberlain & Bean. It is not in that capacity, however, that Herold has wrecked the taxicab industry of the U.S. That accomplishment of his has been effected in his role as chief staff counsel for the Taxicab, Limousine, and Paratransit Association (TLPA). [See Rag Vol. 2, No. 66, for background facts about and a current description of the TLPA.]
Herold is the author of the standard "lease agreement" that dominates the taxicab industry of the U.S. It is through the "lease agreement" that the major taxicab companies of the U.S. have been able to reconstruct their identification, from taxicab companies in the business of providing transportation for public hire to "leasing companies" in the business of "leasing" vehicles to drivers of those vehicles.
It is through the "lease agreement" that the major taxicab companies of the U.S. have been able to convert their hired drivers to purported status of "self-employed lessees" who are "independent contractors" ineligible for statutory employee benefits, unionization, and protection from the Occupational Safety and Health Administration (OSHA); and it is the lack of protection from OSHA which has become a major factor in statistics from the U.S. Department of Labor showing that the rate of attacks upon and murders of taxicab drivers is higher than the equivalent rate for any other occupation, and that taxicab driving has become the most dangerous occupation in the nation, replacing police officers in that category.
It is through the "lease agreement" that the major taxicab companies of the U.S. have been able to evade billions of dollars in income taxes, health and welfare benefit payments to their employed drivers, and contributions to the Social Security, unemployment, and disability funds - and have also been able to avoid having to pay workers' compensation benefits for drivers injured on the job.
Finally, it is the "lease agreement" authored by Herold that has deprofessionalized and destabilized the major part of the U.S. taxicab industry.
WHERE HEROLD LEARNED HIS TRICKS
Like so many thousands of other lawyers now helping business owners, industrialists, and corporate executives to engage in corrupt practices, break laws, and evade taxes, Herold cut his teeth working in the field of government regulation of illegal business operations. As a young lawyer out of Tulane University's law school, Herold went to work for the Federal Trade Commission (FTC), specializing in detection and regulation of antitrust law violations in the FTC's Bureau of Competition. Having learned the tricks that can be used to violate antitrust laws and get away with it, Herold joined Webster, Chamberlain & Bean to become the law firm's specialist in teaching those tricks to the owners and executives of private clubs, foundations, business enterprises, corporations that are part of trusts and interlocking directorships, lobbyists, political committees, and candidates for and holders of public offices. His writings on the subject are among the most valued by monopolists and tax evaders.
Realizing how valuable Herold could be to their campaign to terminate employee status for their hired drivers, the TLPA hired him several decades ago to be its chief staff counsel and to write the standard "lease agreement" in use in one form or another throughout the taxicab industry.
WHAT THE "LEASE AGREEMENT" STATES
The so-called "lease agreement" which Herold authored, and which has been copied in its basic provisions by lawyers representing taxicab companies across the nation, is not always titled with those two words. It has been titled variously as "Rental Agreement" and "Independent Contractor Agreement" and "Independent Entrepreneur Agreement," among other names. No matter how it is titled, and no matter what differences the "agreement" contains as used by any given taxicab company, the basic provisions are standard. They are as follows:
+ The company is a "leasing" company in business to "lease" vehicles.
+ The individual signing the "agreement" is a "self-employed lessee" who is "leasing" a taxicab from the "leasing company," and therefore there is no master-servant or employer-relationship between the two.
+ Since there is no such relationship, the relationship strictly being between lessor and lessee, the "lessee" of the taxicab will not be entitled to any statutory employee benefits and will not request them.
+ As to the attached appendix assigning work hours and conditions, what was previously a work shift is construed instead as a "lease period."
+ When the driver called "lessee" is terminated - i.e., fired - that is construed as "cancellation of the lease agreement."
WHAT THE "AGREEMENT" HATH WROUGHT
The individual seeking employment from the taxicab company called "leasing company" usually has no choice; he or she must sign the "agreement" as a condition of obtaining work driving one of the company's taxicabs. Where a choice to be on "lessee" or employee status is provided, the individual opting for employee status is advised by the company's manager that whereas he or she will not be compelled to record all trips and to have income tax withheld on "lessee" status, on employee status he or she will be required to record every trip on a waybill (trip sheet) and to have not only fares taxed, but also eight percent of what will be construed as the average tips given to a driver. On top of that, the would-be employee is warned that the lessees will be given first choice of the most lucrative shifts and the newest cabs, since they are providing management with the work arrangement the company wants. Typically, shifts such as graveyard, and crummy cabs that lessen tips from disgruntled passengers, take as much as $200 in earnings out of the driver's pocket per week. Choice? As one driver explained it to me: "You got no choice. They have a gun at your head."
In addition to the specific results from the "lease agreement" already explained several times in this series, there is the deprofessionalization and destabilization of the taxicab industry, and those terms need some explanation.
There was a time when there were just two basic classifications of taxicab drivers: owners of taxicabs and the permits to operate those cabs, and employed drivers who own nothing. The latter always comprised the great majority of cab drivers, and they still do, except that they are now called "lessees." As "self-employed lessees," without protection from either unions or government agencies against the corrupt practices of the bandits who own and operate the taxicab companies, incoming drivers find that they cannot learn how to overcome the handicaps fast enough to make a decent living. After a few months struggling to earn a living, they abandon the considerable freedom involved for salaried employment, even at lower basic earnings, for the sake of work protections and benefits. The result is a huge number of rookies who do not know the area where they work or even what it takes to be a professional cab driver. The days when you could ride in a company's cabs and come across the same drivers for years, because they were making a profession of it and looking forward to a pension some day, are mostly over.
Nevertheless, there is a certain cadre of drivers who have managed to beat the exorbitant gate they are charged and who have stuck it out for many years. More than 90 percent of them have remained out of the tax system, with full knowledge of the Infernal Revenue Service. In time each one winds up evading tens of thousands of dollars in uncollected income taxes and contributions to the Social Security System. Heed the words of a driver who explains why he has no guilt feelings about it: "If the government is not going to provide me with benefits in return for my tax dollars, I am not going to give the government any of my tax dollars."
[Resuming Monday: The government agencies in complicity with the taxicab companies' illegal operations and the all-prevailing tax evasion.]
Burton Wolfe's Internet Rag
All the news and other stuff
the New York Times sees unfit to print
September 2007 No. 68
Internal Revenue Service - The Infernal Revenue Service.
- Lucifer's Dictionary of the American Language*
The nationwide taxicab 'lease' racket - part 4
Government agencies in complicity with the taxicab companies' 'lease' racket
It would be easier for me to tell you which city, state, and federal government agencies are not in complicity with the taxicab companies' "lease" racket than to list all of those that are, since those that are run into the thousands and even include the Federal Bureau of Investigation (FBI), which refused to act after I submitted a list of 7,000 working taxicab drivers who had not been filing income tax returns and I asked, under law, for a percentage of the uncollected tax money following the haul. Had the FBI instituted action for tax law violations, starting with my list and then compiling its own nationwide, the cab companies would have been held responsible and the "lease racket" would have been brought to an end.
I had first found out how all-prevailing the complicity in fraud and law violations are when I broke through the racket by obtaining unemployment compensation benefits for drivers declared to be ineligible for them under the "lease agreement" that dominates the taxicab industry. Unlike the lawyers who botched proceedings before the California Unemployment Insurance Appeals Board, I secured a ruling from an administrative law judge that the "lease agreement" is a subterfuge to disguise the true work status of hired cab drivers, and they are eligible for benefits no matter what is stated to the contrary in the "lease agreement."
Once I obtained the kind of decision that should have been rendered from the start, a tax auditor from the Employment Development Department told me the EDD would have to audit all the taxicab companies because the "lease agreement" is standardized, and if one driver is actually an employee and not a "self-employed lessee" of the "leasing company," as the bandits who run the cab companies assert, then all drivers must be treated as employees. It never happened. Kaye Kiddoo, who was the director of the EDD at the time, told the auditor to back off, keep his mouth shut, and let the Appeals Board handle the cases one by one. I tried to overcome that with a class action which would have produced a court ruling that the "lease agreement" is an illegal fraud; but it had to be handled by lawyers since a layman cannot prosecute such an action, and the team of lawyers sold out the lawsuit for a $1.3 million payoff from the taxicab company bandits. (I will have more about that in a subsequent newsletter.)
THE IRS COULD END THE RACKET - WHY IT IS NOT
As I mentioned in the prior parts of this series, more than 90 percent of the cab drivers are out of the tax system. So, I approached the Infernal Revenue Service with a proposal to nail the cab company bandits with nationwide action holding them responsible for the massive amount of income tax evasion - action encompassing an audit of all cab companies and/or a RICO (racketeering) litigation. I got a long-distance phone call from the man in charge of the IRS's Program Analysis division in Washington, D.C. at the time, Theodore (Ted) Strunk. He had called, he explained, to apologize for the non-action and to exchange information with me.
"We know everything you say is true," Strunk said. "Hell, when I was working in the field I found out the extent to which the hanky-panky is going on. I'm sorry we have left everything to you and haven't provided any help."
"Why not?" I asked. "There was an announcement on the front page of the Wall Street Journal that the IRS is going to crack down on all the fake independent contractor schemes, not just the one in the taxicab industry, because they're costing the government around fifteen billion dollars a year in lost taxes."
"I know," Strunk replied. "We're working on it slowly, but our budget has been cut; so, we're shorthanded."
"Well, how can the President and the Congress announce a crackdown on tax evasion schemes when the budget is cut so that the personnel are not available to do the job?" I wanted to know. "The cuts certainly cannot be to save money, since you and I know that every IRS agent of the most minimal competency brings in a hundred times his or her salary in recovery of evaded taxes and penalties. So, from what you say, I can only conclude that the President and the Congress are shucking the public."
"Draw your own conclusion," Strunk said. "I can't talk about that."
He then went on to exchange information with me as to the number of cab drivers not filing income tax reports, and after I estimated 75 percent he said that my figure was too low. "We know the figure for being off the tax rolls completely is closer to ninety percent."
Once I published that statement in a newsletter of the Homosapiens Educational and Legal Project that I was running, and the head muckamucks of the IRS saw it, Strunk was ordered not to talk to me any more. His telephone number was changed, and he and the entire staff were ordered to make it unavailable. The mail room employees were ordered to reject any mail from me to Strunk and to send me a notice stating "no person of that name employed here." As a checkup, I wrote to the IRS personnel director, Tom Nelson, asking him to find out if anyone by the name of Theodore or Ted Strunk was employed at IRS headquarters. Evidently the personnel director was one IRS employee who had not received the order for non-communication with Burton Wolfe. He returned my letter to me with a notation at the bottom of it: "Theodore Strunk, Program Analyst."
If all of this sounds like something out of some totalitarian state, then be advised that it is merely one aspect of how Sinclair Lewis's famous line "it can't happen here" is being reversed throughout what is advertised to the world as "American democracy."
[Next: How to restructure the destabilized, deprofessionalized taxicab industry.]
