BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 950
                                                                  Page A
          Date of Hearing:   May 4, 2011

                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
                                Sandre Swanson, Chair
            AB 950 (John A. Pérez and Swanson) - As Introduced:  February 
                                      18, 2011
           
          SUBJECT  :   Employment: drayage truck operators.

           SUMMARY  :   Deems drayage truck operators to be statutory 
          employees for employment purposes, as specified.  Specifically, 
           this bill  :  

          1)Provides that for purposes of state employment law (including 
            workers' compensation, occupational safety and health, and 
            retaliation or discrimination) a drayage truck operator is an 
            employee of the entity or person who arranges for or engages 
            the services of the operator.

          2)Defines "drayage truck operator" as the driver of any vehicle 
            with a specified gross vehicle weight rating operating or 
            transgressing through port or intermodal rail yard property 
            for the purpose of loading, unloading, or transporting cargo.

          3)Specifies that these provisions shall not be construed to deem 
            a public agency the employer of a drayage truck operator 
            without the consent of the public agency.

          4)Makes related legislative findings and declarations.

           FISCAL EFFECT  :   Unknown

           COMMENTS  :  California is home to some of the largest and most 
          complex port operations in the world.  Together, the Ports of 
          Los Angeles and Long Beach are the third largest port operation 
          in the world and the busiest seaport in America.  They handle 
          approximately 43 percent of America's imports, including 62 
          percent of all shipments to West Coast ports from Asian 
          exporters.  In addition, the Port of Oakland is the fourth 
          busiest port in the United States and handles more than 99 
          percent of the containerized goods moving through Northern 
          California.

          In many respects, the backbone of the complex intermodal 
          transportation system is port trucking or drayage, which 









                                                                  AB 950
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          generally involves the movement of shipping containers by truck 
          via public roadway to or from the port.  Port drayage is an 
          important part of the local trucking industry that specializes 
          in hauling container freights between port terminals and 
          warehouses, retail establishments, manufacturers or rail lines.  
          Port drivers are the individuals who pick up a container from a 
          port terminal operation and haul it by truck from the port to 
          the rail yard, warehouse or local delivery destination.

          By some estimates, there are approximately 20,000 port drivers 
          in California, including 16,000 at the Ports of Los Angeles and 
          Long Beach, 2,500 at the Port of Oakland, and 1,500 at the 
          smaller Ports of San Diego, San Francisco, and Stockton.



          Over the years, concern has been expressed about the working 
          conditions facing these port truck drivers.  By many accounts, 
          conditions facing port drivers began to change dramatically in 
          the early 1980s.  Prior to this time, port truck drivers had 
          generally been recognized as employees, and many were unionized 
          with union wages and benefits.  However, following deregulation 
          the industry began to shift and more of a reliance was placed on 
          the use of independent contractors or "owner operators."  There 
          has been much debate over the years about whether this 
          classification of drivers as independent contractors is lawful 
          or instead represents a legal fiction.  This particular question 
          is not unique to the port drayage context, as concern about 
          misclassification of workers as independent contractors has 
          spread to many other industries.  

          Over the past decade, the Assembly Committee on Labor and 
          Employment has held a number of hearings on this topic in order 
          to hear from port drivers directly about their working 
          conditions, as well as to explore potential solutions with 
          interested stakeholders in the process.

           Independent Contractor vs. Employee Status Generally
           
          As much of the debate about the working conditions affecting 
          port drivers centers on legal issues related to their 
          classification as employees or independent contractors, it is 
          useful to examine these issues is some detail.

          Under California law, employment generally occurs when an 









                                                                  AB 950
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          employer engages in the services of an employee for pay.  The 
          Industrial Welfare Commission Wage Orders define an "employer" 
          as any person who directly or indirectly, or through an agent or 
          any other person, employs or exercises control over the wages, 
          hours or working conditions of any person.  A common law 
          employee is an individual who is hired by an employer to perform 
          services where the employer has the right to exercise control 
          over the manner and means by which the individual performs his 
          or her services.

          In contrast, California common law generally defines an 
          independent contractor as any person who renders service for a 
          specified recompense for a specified result, under the control 
          of a principal as to the result of his or her work only and not 
          as to the means by which such result is accomplished.

          The party seeking to avoid liability as an employer has the 
          burden of proving that persons whose services he or she has 
          retained are independent contractors rather than employees.  In 
          other words, there is a presumption of employment.  S.G. Borello 
          & Sons, Inc. v. Dept. of Industrial Relations, (1989) 48 Cal. 3d 
          341; Labor Code Section 3357.

          In determining whether an individual providing service to 
          another is an independent contractor or an employee, there is no 
          single determinative factor.  Rather, it is necessary to closely 
          examine the facts of each service relationship and to then apply 
          a multi-factor or "economic realities" test.  Borello at 351.  
          An important, but not necessarily determinative, factor involves 
          the independent contractor's right to control the manner and 
          means of accomplishing the desired result.  Other factors 
          considered in this determination, as set forth by the Borello 
          court, include the following:

                 Whether the person performing services is engaged in an 
               occupation or business distinct from that of the principal.
                 Whether or not the work is part of the regular business 
               of the principal.
                 Whether the principal or the worker supplies the 
               instrumentalities, tools, and the place for the person 
               doing the work.
                 The alleged employee's investment in the equipment or 
               materials required by the task.
                 The skill required in the particular occupation.
                 The kind of occupation, with reference to whether, in 









                                                                  AB 950
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               the locality, the work is usually done under the direction 
               of the principal or by a specialist without supervision.
                 The alleged employee's opportunity for profit or loss 
               depending on his or her managerial skill.
                 The length of time for which the services are to be 
               performed.
                 The degree of permanence of the working relationship.
                 The method of payment, whether by time or by the job.
                 Whether or not the parties believe they are creating an 
               employer-employee relationship

          These "individual factors cannot be applied mechanically as 
          separate tests; they are intertwined and their weight depends 
          often on particular combinations."  Id.  As discussed above, 
          although no single factor is decisive, the right to control the 
          manner and means used is generally the most important factor.  
          In addition, some administrative agencies have broadened the 
          test to include other factors.

           Why Is The Distinction Important?
           
          The determination of whether a worker is an employee or 
          independent contractor is important for a number of reasons, 
          including what rights and remedies the worker is afforded under 
          state and federal law, federal and state tax consequences for 
          the employer, and the level of tax revenues for the state and 
          federal government.

          In general, independent contractors need not be covered by 
          workers' compensation, do not have employment taxes deducted 
          from their earnings, are not covered by many state and federal 
          anti-discrimination laws, are not included under Cal-OSHA and 
          federal OSHA in an employer's duty to provide a safe and healthy 
          work environment, are not covered by state and federal wage and 
          hour laws, are not entitled to unemployment insurance benefits 
          from an employer's account, and are excluded from coverage under 
          the National Labor Relations Act (NLRA).

           History of Federal Deregulation of the Trucking Industry

           The past three decades have witnessed a dramatic transformation 
          in the trucking industry, in large part brought about by federal 
          deregulation of the transportation industry generally that 
          occurred beginning in the 1970s.










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          Beginning in the late 1800s, the federal government began 
          regulating transportation companies to prevent railroads from 
          charging unfair freight rates.  It was also argued that 
          regulation helped to protect transportation companies from 
          unfair competition.  Specifically, with the creation of the 
          Interstate Commerce Commission (ICC) in 1887, the federal 
          government began regulating rail carriers.

          This reach was extended to the trucking industry during the New 
          Deal.  The Motor Carrier Act of 1935 gave the ICC the authority 
          to regulate the motor carriers and drivers involved in 
          interstate commerce by granting operating permits, approving 
          trucking routes, and setting tariff rates.
          As one commentator has noted in explaining the rationale for 
          regulation, "At the time, the federal government felt the need 
          to control predatory pricing and what it perceived as 
          unscrupulous business practices.  New motor carriers popped up 
          every day.  One person who owned a truck could become a motor 
          carrier simply by hauling one load for a local goods producer.  
          A flood of able drivers and able equipment plummeted rates and 
          owner-operators struggled to last.  Having seen something like 
          this before in the railroad industry, the federal government 
          looked to the Interstate Commerce Commission to act<1>."

          However, beginning in the 1970s, opponents of regulation argued 
          for market (rather than a government) regulation of the 
          industry.  Deregulation advocates argued that consumers would 
          see lower prices as a result of deregulation.  As a result, 
          Congress and the White House began the process of deregulation 
          in the late 1970s, culminating in the Motor Carrier Act of 1980 
          which partially deregulated the trucking industry.  When 
          President Carter signed the Act he stated,   "I am also 
          particularly pleased that the bill will improve truck service to 
          small communities and enhance business opportunities for 
          independent truckers."  

          This process was essentially completed by 1996 with the 
          abolishment of the ICC.

          Deregulation of the trucking industry also occurred at the state 
          level.  Deregulation of "intrastate" trucking first began in 
          Florida in 1980, followed in Maine and Arizona in 1982, and 

          ---------------------------
          <1> Grawe, Douglas C.  "Have Truck, Will Drive: The Trucking 
          Industry and the Use of Independent Owner-Operators Over Time."  
          Transportation Law Journal, Vol. 35:2 (2008).








                                                                  AB 950
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          later in five other states.  Finally, in 1995, the Trucking 
          Industry Regulatory Reform Act (TIRRA) prohibited all states 
          from regulating carriers' routes, rates, or services.  However, 
          states were still allowed to regulate such areas as safety, 
          financial fitness, hazardous material movement, and vehicle size 
          and weight.

           Deregulation: The Good, The Bad and The Ugly  

          As one can imagine the debate over whether deregulation of the 
          trucking industry was good public policy or not is one which is 
          fiercely contested.

          Noting the benefits of deregulation, one commentator has stated 
          the following:

               "In response to deregulation and the intense competition 
               that followed, the trucking industry has changed the 
               quality and types of services it renders.  By most 
               accounts, the resulting reductions in cost have been passed 
               on to consumers. Today, trucking services are more 
               responsive to our increasingly dynamic and complex economic 
               environment, incorporating improvements in technology that 
               have pervaded all industries.

               Competition has resulted in increasing capital intensity in 
               the industry, as firms strive to reduce average variable 
               costs per load.  Firms often are coupling with other 
               transportation sectors to minimize the cost for specific 
               delivery requirements by combining the efficiencies of 
               different modes of transport<2>."

          Much of the debate about deregulation has focused on the shift 
          that has occurred from employee drivers to independent 
          contractors or owner-operators.  Proponents of deregulation 
          contend that this has been a positive development:

               "Owner-operators have long been an important component of 
               virtually every segment of the trucking industry.  They are 
               used in most, if not all, sectors of the trucking industry, 
               including but not limited to long-haul trucking, household 
               goods moving, home delivery and intermodal operations.  The 

               -------------------------
          <2> Engel, Cynthia.  "Competition Drives The Industry."  Bureau 
          of Labor Statistics, Office of Employment and Unemployment 
          Statitstics  (April 1998).








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               reasons that independent contracting is attractive to both 
               motor carriers and owner-operators are clear.

               For motor carriers, owner-operators provide a number of 
               advantages.  Owner-operators quite often are seasoned 
               business persons with truck driving experience who are 
               highly skilled and motivated.  The availability of such 
               owner-operators and their equipment (through leases of 
               equipment and driver services to motor carriers with 
               operating authority) enables motor carriers to save on 
               equipment and capital costs and provides flexibility to 
               meet fluctuations in demand for trucking services.  In 
               addition, owner-operators, like other independent 
               contractor business vendors, typically share the motor 
               carriers' interests in meeting customer demand and 
               increasing revenues and profits.  In short, many motor 
               carriers believe owner operator/independent contractors to 
               be more productive, dedicated, and safety conscious than 
               employee drivers.

               "For owner-operators, independent contracting provides 
               numerous advantages. The
               trucking industry offers a unique opportunity for 
               individuals to begin their own businesses.  Start-up costs 
               in the trucking industry are within reason and reach of 
               many small business entrepreneurs, consisting principally 
               of the cost of a power unit and various licensing and 
               insurance fees.  Thus, while not inexpensive, an initial 
               investment of $50,000 to $75,000 can place such a small 
               business person in some segments of the trucking industry 
               in a position to earn annual revenue of three times that 
               amount. Motivated individuals can establish their 
               businesses rather expediently while working with motor 
               carriers to negotiate terms to the business contract 
               commonly referred to as the lease.  Owner-operators can 
               eventually purchase additional trucks and trailers and 
               employ drivers and other staff to assist in carrying out 
               their business.  While most will not have the success-or 
               ambition-of J.B. Hunt, who started with five trucks and 
               seven trailers in 1969 and took his company public in 1983, 
               independent contracting in the trucking industry allows 
               owner-operators to live out their own version of the 
               American dream.  Owner-operators feel strongly about their 
               independent status.  It allows them to run their own 
               businesses, control their own finances, work the hours and 









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               days they choose and ultimately control their working 
               environment.  Studies show high levels of job satisfaction 
               among independent contractors<3>."
           




           However, other commentators have a much different view of the 
          effects of deregulation in general, and in particular on the 
          impact this has had on individual drivers as they transitioned 
          from employees to independent contractors or "owner operators":
           
                "Port trucking, the segment of the freight movement 
               industry that carries 80 percent of shipping containers 
               between ports and warehouses or distribution centers, is an 
               essential cog in the global trade system, but it suffers 
               from excessive, destructive competition.

               As a result of deregulation, the general public is placed 
               at risk when sharing the road with increasingly dangerous 
               and unsafe trucks and chassis, sometimes carrying 
               overweight loads that have led to dangerous and deadly 
               highway accidents.  Unregulated trucks driven by so-called 
               independent contractors have also added to a growing 
               environmental crisis because of the inability of individual 
               drivers to afford clean truck technology.

               Low-paid drivers' financial inability to invest in clean 
               trucks has led to a growing environmental crisis that pumps 
               tons of dangerous toxins into the air residents near the 
               port and along freight routes.  The health impacts of 
               diesel particulate matter in the air is negatively 
               impacting human health and plaguing our health care system 
               with otherwise preventable diseases like childhood asthma.

               In addition to concerns over public safety, environmental 
               impacts and the costs to public health systems, the quality 
               of port trucking jobs has eroded significantly, forcing 
               tens of thousands of working families into poverty.  
               Drivers are misclassified as independent contractors by 
               their companies in order to strip them of state and 

               -------------------------
          <3> "Use of Owner-Operators in the Trucking Industry."  Prepared 
          by Gregory M. Feary, Esq. on behalf of the American Trucking 
          Association (December 5, 2008).








                                                                  AB 950
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               national labor and employment law protections, and to avoid 
               financial liability for vehicle operations.  As independent 
               contractors, drivers are paid by the load and are 
               responsible for all costs associated with truck ownership 
               and maintenance.  Without employment law protections, they 
               lack the ability to raise rates when expenses rise, 
               negatively impacting not only their own working conditions, 
               but the well-being of their families, residents of 
               communities located along freight routes, and the public at 
               large.

               Lack of incentives for licensed motor carriers to address 
               the many negative impacts of trucking deregulation has also 
               led to an increasingly inefficient drayage system that has 
               failed to invest in improved communications systems and 
               goods movement operations<4>."
           












          Prior Research on Classification Issues and Impact on Port 
          Drivers Generally
           
          As discussed above, since the early 1980s the port drayage 
          industry has experienced a shift from an employment-based model 
          to an independent contractor or "owner operator" model.  

          As independent contractors, drivers are responsible for many of 
          the costs associated with port trucking, including fuel, 
          insurance, truck payments, repairs, maintenance, and other 
          licenses, tolls, parking and tickets.  Several years ago, a 
          survey of Port of Oakland drivers found that drivers on average 




          ---------------------------
          <4> Bensam, David.  "Port Trucking Down the Low Road: A Sad 
          Story of Deregulation."  Dmos (2009).










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          received $66,187 in gross annual earnings<5>.  Truck expenses 
          reduced their earnings by an average of $36,117 resulting in an 
          average net income of $30,490.

          This same report found that 62 percent of surveyed drivers 
          reported receiving no health insurance of any kind, 17 percent 
          receive health insurance through their spouse, 15 percent 
          purchase insurance privately, and five percent are covered 
          through a government-sponsored plan<6>.  Thirty percent of the 
          surveyed drivers reported taking themselves or a family member 
          to the emergency room to receive medical care in the last year.

          With respect to Southern California, one recent report estimated 
          that in the Ports of Los Angeles and Long Beach, 88 percent of 
          drivers were classified as independent contractors, with 
          employee drivers accounting for 12 percent<7>.

          Another study, prepared for the Gateway Cities Council of 
          Governments found that the median driver's gross income of 
          $75,000 per year drops 61 percent to $29,000 after accounting 
          for these expenses<8>.  This same study concluded that the 
          average independent contractor earner $11.59 per hour, compared 
          with the mean employee driver's earning of $16.30 per hour (or a 
          40.6 percent difference)<9>.

          A 2005 study reported that only 10 percent of drivers had any 
          health insurance and only five percent had any pension 
          benefits<10>.




          ---------------------------
          <5> "Taking the Low Road: How Independent Contracting at the 
          Port of Oakland Endangers Public Health, Truck Drivers & 
          Economic Growth."  East Bay Alliance for a Sustainable Economy 
          (September 2007). 
          <6> Id.
          <7> "The Road to Shared Prosperity: The Economic Benefits of the 
                                                   San Pedro Bay Ports' Clean Trucks Program."  Los Angeles 
          Alliance for a New Economy (August 2007).
          <8> "A Survey of Drayage Drivers Serving the San Pedro Bay 
          Ports,"  CGR Management Consultants, LLC, prepared for the 
          Gateway Council of Governments, March 26, 2007.
          <9> Id.
          <10> Kristen Monaco and Lisa Grobar, "Study of Drayage at the 
          Ports of Los Angeles and Long Beach," Department of Economics, 
          California State University Long Beach, April 2005.








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           More Recent Research Findings

           A very recent research report<11> by the National Employment 
          Law Project, Change to Win and others made numerous findings 
          about the intermodal port drayage system in the United States.  
          Specifically the report made the following research findings:

                 "The typical port truck driver is misclassified as an 
               independent contractor:
                  o         Port drivers are subject to strict behavioral 
                    controls.  Trucking companies determine how, when, 
                    where, and in what sequence drivers work.  They impose 
                    truck inspections, drug tests, and stringent reporting 
                    requirements.  Drivers' behavior is regularly 
                    monitored, evaluated, and disciplined.
                  o         Port drivers are financially dependent on 
                    trucking companies that unilaterally control the rates 
                    that drivers are paid.  Drivers work for one trucking 
                    company at a time, do not offer services to the 
                    general public, and are entirely dependent on that 
                    company for work.  Like other low-wage employees, 
                    drivers' only means for increasing their earnings is 
                    to work longer hours.
                  o         Port drivers and their companies are tightly 
                    tied to each other.  Drivers perform the essential 
                    (and most often sole) services of the trucking 
                    companies they work for.  Drivers work for years for 
                    the same company; use company signs and permits; 
                    represent themselves to others as being from the 
                    company; and rarely offer their work independently of 
                    the company.
                 Classification of drivers as independent contractors 
               drives the economics of the port trucking industry:
                  o         Based on surveys of 2,183 drivers in seven 
                    major ports, it is estimated that 82 percent of the 
                    nation's 110,000 port truck drivers are treated as 

                  -----------------------
          <11> Smith, Rebecca, Dr. David Bensman and Paul Alexander Marvy. 
           "The Big Rig: Poverty, Pollution and the Misclassification of 
          Truck Drivers at America's Ports" (2011).  








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                    independent contractors.  Industry analysts identify 
                    independent contracting as the industry's dominant 
                    business model which sets standards for all port 
                    drivers.  Few other industries rely on anywhere near 
                    this proportion of independent contractors.
                  o         Through independent contracting agreements, 
                    leases, and other employment arrangements, trucking 
                    companies make drivers responsible for all 
                    truck-related expenses including purchase, fuel, 
                    taxes, insurance, maintenance, and repair costs.
                  o         Port truck drivers work long hours for 
                    poverty-level wages.  Among surveyed drivers, the 
                    average work week was 59 hours.  Average net earnings 
                    before FICA, income, and other taxes was $28,783 per 
                    year for contractors and $35,000 per year for 
                    employees.  Minimum wage violations appear to be 
                    widespread.
                  o         In driver surveys, independent contractors 
                    reported average net incomes 18 percent lower than 
                    employee drivers did.  Independent contractors were 
                    two-and-a-half times less likely than employee drivers 
                    to have health insurance and almost three times less 
                    likely to have retirement benefits.
                 The misclassification of drivers in port trucking can be 
               directly linked to safety violations and the environmental 
               and public health crises at the nation's ports:
                  o         The literature on the industry describes how 
                    economic pressures encourage widespread evasion of 
                    safety regulations.  Drivers commonly use dangerous 
                    and illegal equipment.  Safety limits on working hours 
                    and vehicle weights are routinely ignored.
                  o         Industry observers have concluded that 
                    low-wage independent contractors bear the industry's 
                    capital expenses by owning and operating the only 
                    equipment they can afford - the oldest diesel trucks 
                    on the road.  The environmental and public health 
                    crises surrounding the nation's ports are a direct 
                    result of the industry's adoption of misclassification 
                    as a business model."
           
          Previous Legislative Oversight
           
          The Assembly Committee on Labor and Employment conducted several 
          informational hearings on working conditions affecting port 
          truck drivers in recent years.  At those hearings, testimony was 









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          received from drivers, representatives of the trucking, shipping 
          and terminal operator industries, local elected officials and 
          members of the public.

          The background material for the previous informational hearings 
          included the following summary of the working conditions facing 
          port truck drivers at the time:

               "A vital component of this industry is port trucking or 
               drayage, part of the local trucking industry that 
               specializes in hauling container freights between port 
               terminals and warehouses, retail establishments, 
               manufacturers or rail lines.  It is the first leg of 
               transport after arrival at the ports.
           
               There are an estimated 11,000 class A short-haul truck 
               drivers in the L.A. basin, alone.  The vast majority are 
               newly arrived immigrants and 87% are owner-operators, 
               considered to be independent contractors.  They own their 
               own trucks and pay the costs of fuel, maintenance of 
               equipment, insurance, road taxes, license/permits and other 
               fees and expenses of the job.  They are also responsible 
               for their own federal and state taxes, social security, 
               disability, unemployment, workers' compensation and health 
               insurance.
           
               These truck drivers are paid "piece rate", that is, by the 
               haul (load) rather than by the hour.  They cannot access 
               loads directly but are instead "deployed" by small trucking 
               companies (more than 300 in the L. A. basin) licensed to do 
               business in California as drayage companies.  The trucking 
               companies, either directly or through brokers, contract 
               with steamship lines or shipping carriers to provide them 
               independent truck drivers (owner operators/ independent 
               contractors).  This is done through the use of lease 
               agreements between the trucking company and drivers.
           
               Under the lease agreements, a company provided truck is 
               signed over in title to a truck driver who then authorizes 
               the company to deduct payments for the truck and vehicle 
               insurance from his/her weekly compensation. Initially, most 
               of these truck drivers cannot afford a down payment on a 
               commercial vehicle, vehicle insurance, the cost of a motor 
               vehicle permit, a Nextel cell phone or initial fuel credit. 
                The authorization for deductions in weekly pay is the 









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               means used to repay the start-up debt.
           
               The driver must go through the trucking company dispatcher 
               to receive any loads and compensation is based on how much 
               is transported, not the amount of time worked.  The truck 
               driver earns nothing during waiting periods or while at the 
               port terminal waiting to pick up or drop off cargo 
               containers.
           
               Generally, truck drivers start their day at 5:00 a.m. to 
               insure a place in line by the 7:00 a.m. or 8:00 a.m. port 
               terminal gate openings.  They hopefully finish with a last 
               load by the 5:00 p.m. gate closures.  On average, this 
               produces three moves or loads per day.  The truck drivers' 
               average work day is 11.6 hours and 50% or more of that time 
               is "waiting time".  Unpaid time waiting to pick up cargo 
               cuts the number of runs truck drivers can make by half and 
               limits their ability to make a living. After deductions for 
               truck payments, vehicle insurance and the costs for fuel, 
               equipment upkeep, road taxes and other expenses of the job, 
               the net profit for many port truck drivers is as little as 
               $20,000 to $25,000 a year, making them among the lowest 
               paid truck drivers in the country.
           
               Current business practices at the terminals result in 
               trucks idling inside the port gates in excess of two hours 
               and sometimes up to seven or eight hours during peak time.  
               Existing law limits idling outside the gate to 30 minutes, 
               but terminal operators skirt this law by simply moving the 
               gates.  The idling or queuing trucks emit smog, pollute the 
               air and waste expensive diesel fuel.  Drivers, port workers 
               and local communities are being unnecessarily exposed to 
               pollution due to the long hours of idling.
           
               Moving the long lines at terminal gates inside the 
               terminals has created other hazardous working conditions 
               for drivers.  The area inside the terminal is chaotic, with 
               heavy equipment loading and unloading trucks.  To avoid 
               disrupting this work or risk of injury, drivers must wait 
               hours in their trucks without restroom or lunch breaks.  
               Oftentimes they are required to perform uncompensated tasks 
               (work that is supposed to be assigned to longshoremen) 
               while waiting for their load.  Terminal operators require 
               them to move containers between terminals without 
               compensation, refusing to provide them their load if they 









                                                                  AB 950
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               don't comply. 

               Truckers must often wait long hours inside the ports in 
               order to obtain safe chassis and other equipment from the 
               shipping companies and the shipping companies often fail to 
               reimburse drivers for safety repairs incurred while in 
               highway transit.
           
               In addition, truckers are charged late fees for the return 
               of empty containers, even when terminals are closed or when 
               returned containers are refused due to congestion in the 
               terminal.  They are charged parking fees inside the 
               terminal when their assigned space is unavailable, and are 
               fined if they refuse to move containers to off docks and 
               other locations.
           
               Invoices are generated without any back-up information and 
               completely at the discretion of the marine terminal.  
               Marine terminals can "shut out" or prohibit trucking 
               companies, owner operators, and drivers from operating if 
               any bill is outstanding, regardless if the bill is disputed 
               or not.  Truckers must sign adhesive contracts with the 
               foreign shipping companies if they want to work at the 
               ports and they have no recourse to a neutral, third party 
               for the resolution of disputes.
           
               As a result of these and related conditions at the ports, 
               many independent truck drivers are taking their services 
               elsewhere.  Many are abandoning the business altogether, 
               bringing in less-skilled, often undocumented immigrant 
               drivers with old rigs that are less reliable and more 
               polluting.  The turnover rate among port truck drivers is 
               said to exceed 150 percent per year as they cycle in and 
               out of the industry."  

          The California Air Resources Board Statewide Drayage Truck 
          Regulation  

          In December 2007, the California Air Resources Board (CARB) 
          approved a new regulation to reduce emissions from drayage 
          trucks at California's ports and intermodal rail yards.  CARB 
          staff subsequently proposed, and the board approved, changes to 
          the regulation at the CARB's December 17th, 2010 hearing.  These 
          changes will become law upon Office of Administrative Law 
          approval.









                                                                  AB 950
                                                                  Page P

          The regulation establishes requirements for drayage truck 
          drivers, drayage truck owners, motor carriers that dispatch 
          drayage trucks, port and marine terminals, intermodal rail 
          yards, and port and rail authorities.

          In general, the regulation requires emission reductions from 
          drayage trucks as well as recordkeeping and reporting to help 
          monitor compliance and enforcement efforts.  The basic 
          responsibilities for each stakeholder are as follows: truck 
          drivers must provide motor carrier contact information, load 
          destination, and origin to enforcement officers, if requested; 
          truck owners are required to register their trucks in the State 
          administered Drayage Truck Registry (DTR), ensure their trucks 
          meet emission standards by the appropriate deadline dates (see 
          table below), and ensure that emission control technologies are 
          functioning properly; motor carriers must ensure that dispatched 
          trucks are compliant with the regulation, provide a copy of the 
          regulation to truck owners, and keep dispatch records for five 
          years; and terminals are required to collect information from 
          each noncompliant truck entering their facility and report it to 
          their respective port or rail authority, who then reports this 
          information to the CARB.

          The regulation applies to all on-road class-7 and class 8 (gross 
          vehicle weight rating > 26,000 lbs) diesel-fueled vehicles that 
          visit California's ports and intermodal rail yards regardless of 
          the state or country of origin or visit frequency.  The 
          regulation requires truck owners to register their trucks in the 
          State run DTR prior to port or railyard entry.  Truck owners are 
          also required to meet emission standards according to a 
          specified compliance schedule.  After December 31, 2013, all 
          drayage trucks must be equipped with a 1994 or newer model year 
          engine that meets or exceeds 2007 model year California or 
          federal emission standards.  

          Recent Port "Clean Trucks" Proposals and Subsequent Litigation

           In recent years, there have been efforts to persuade California 
          ports (and others across the nation) to take matters in to their 
          own hands with respect to some of these issues.  The most 
          significant of these port proposals involved the Ports of Los 
          Angeles and Long Beach.

          In late 2006, the San Pedro Bay Ports of Los Angeles and Long 









                                                                  AB 950
                                                                  Page Q
          Beach adopted an aggressive, comprehensive strategy to reduce 
          port-related emissions by at least 45 percent over five years, a 
          plan known as the Clean Air Action Plan (CAAP).  One of the 
          first major proposed initiatives under the Plan was the Clean 
          Trucks Program (CTP), announced in April 2007.  The articulated 
          goal of the CTP was to cut air pollution from port trucks by 
          more than 80 percent within 5 years.  Under the proposal, 
          drayage truck owners would scrap and replace the oldest of 
          approximately 16,000 trucks and retrofit others, with the 
          assistance of a port-sponsored grant subsidy.

          Under the proposal, beginning in 2008 the ports would use their 
          tariff authority to allow only concessionaires operating "clean" 
          trucks to enter port terminals without having to pay a new truck 
          impact fee at the gate.  The concession companies would be 
          required to use only trucks that meet the CAAP standard, which 
          was defined as EPA-standard 2007 or newer trucks, retrofitted 
          trucks manufactured in 1994 or after, or trucks that have been 
          replaced through the Gateway Cities Truck Modernization Program. 
           Year by year, the oldest trucks will be barred from the ports 
          until finally only those that meet the CAAP standard will be 
          permitted to work in the ports.

          In addition under the proposal, licensed motor carriers would be 
          required to pay a license fee to obtain a concession to operate 
          in the ports, and after a transition period would be required to 
          directly own, operate and maintain their truck fleet and employ 
          the drivers directly.

          As part of the Clean Truck Program development process, the Port 
          retained various consultants.
          Primarily, the Port retained John E. Husing to conduct an 
          economic analysis of the proposed Clean Truck Program.  Mr. 
          Husing prepared a presentation dated September 5, 2007, and a 
          report dated September 7, 2007, known as the "Husing Report."  
          The Husing Report concluded that:

               "At its core, the Clean Truck Program is designed to reduce 
               air emissions in a timely fashion yielding an economic 
               benefit to the community of $4.7 to $5.9 billion due to a 
               reduction in premature deaths, loss of work and fewer 
               medical problems. Some 95% of this benefit will come from 
               230-1,450 people not dying.  With the program in place, the 
               ports will be in a position to get their infrastructure 
               plans approved.  This will allow them to expand to their 









                                                                  AB 950
                                                                  Page R
               42.5 million TEU capacity by the period 2020-2030.  The 
               result will be the ability of the ports to support 300,000 
               to 600,000 new jobs that would be lost if that 
               infrastructure cannot be built.  Unfortunately, there is a 
               cost of attaining these goals.  That will be the closure of 
               some İlicensed motor carriers] and the loss of some of the 
               non-driving jobs and small businesses involved with them, 
               as well as the closing off of port drayage as a route to 
               upward mobility for some workers.  It is the type of choice 
               that has led to the expression, 'there is no such thing as 
               a free lunch.'"

          In addition, the Husing Report concluded that the cost of using 
          employee drivers would "be 167% higher than the cost of using 
          today's İindependent owner-operators]."  In aggregate, the 
          report concluded that drayage services prices would need to 
          increase by 80 percent to cover cost increases, including the 
          cost of higher driver costs, truck purchases, and off-street 
          parking.

          The Port also retained the Boston Consulting Group ("BCG") to 
          prepare an analysis of various options for implementation of the 
          Clean Truck Program.  BCG prepared a report that was released in 
          March 2008, known as the "BCG Report."  The BCG Report 
          considered various options and determined that the proposed 
          Concession Agreement, including the employee driver requirement, 
          was the most likely to provide sustainable environmental, safety 
          and security, and operational gains.  The BCG Report stated that 
          its Clean Truck Program Option III, which included the 
          requirement for employee drivers, would add a $500 million 
          annual operating cost to the cost of Port drayage, compared to 
          an option without such a requirement.  BCG also set out an 
          Option II, "Enhanced Model with Market Incentives," under which 
          the Port would adopt incentives and funding priorities "that 
          should create market conditions to encourage the evolution" of 
          the drayage market to meet port objectives, but without an 
          employee driver provision.  However, BCG concluded that the 
          benefits from Option II would not be as great as from Option 
          III.


          On February 19, 2008, the Port of Long Beach adopted a clean 
          truck program, but without an employee driver requirement.  The 
          Port of Los Angeles adopted their program on March 20, 2008.  
          Most significantly, the Port of Los Angeles program required 









                                                                  AB 950
                                                                  Page S
          drivers to be directly employed by the motor carriers<12>.

          On July 28, 2008, the American Trucking Association (ATA) filed 
          lawsuits challenging both the Los Angeles and Long Beach<13> 
          clean truck concession programs (or portions thereof).  On July 
          30, 2008, ATA moved for a preliminary injunction restraining 
          implementation of the mandatory concession agreements.

          On September 9, 2008, the District Court denied the ATA motion 
          for preliminary injunction.  However, this decision was appealed 
          to the Ninth Circuit Court of Appeals, which reversed the lower 
          court and remanded the case for further proceedings.

          On April 28, 2009, United States District Court Judge Christina 
          A.  Snyder granted a preliminary injunction against those parts 
          of the Los Angeles and Long Beach plans that were not directly 
          tied to safety (as determined by the court).  The ruling put a 
          temporary end to the Port of Los Angeles' requirement that all 
          trucking companies doing business at the port hire their drivers 
          as employees.

          On February 24, 2010, the Ninth Circuit affirmed the lower 
          court's preliminary injunction, with one limited exception 
          (related to a requirement that trucks display certain placards).

          The trial on the merits was held before the District Court in 
          April 2010.  On August 26, 2010, the District Court made its 
          determination.  The specific preemption doctrines at issue in 
          the litigation and the basis for the Court's decision are 
          discussed in more detail below.  However, essentially the 
          District Court held that the employee driver requirement escaped 
          federal preemption under a specified "market participant" 
          exception.

          Following the District Court ruling, the ATA requested an order 
          that the preliminary injunction with respect to the employee 
          driver requirement remain in place, which the Court granted.  
          The ATA has appealed the District Court ruling to the Ninth 
          Circuit Court of Appeals, where the case is currently pending.  
              ---------------------------
          <12> The Port of Oakland adopted a clean truck program on June 
          16, 2009, but without an employee requirement.  Allegations were 
          made that the threat of litigation influenced the decision by 
          the Port not to include the employee requirement.
          <13> The ATA settled their lawsuit with the Port of Long Beach 
          out of court on October 19, 2010.








                                                                  AB 950
                                                                  Page T
          Oral argument in the case has been set for June 10, 2011.












           A Brief Primer on Federal Preemption  

          The federal preemption arguments regarding the Port plan are 
          complex, but important in understanding this issue properly.  
          Moreover, opponents of this bill argue that it would be 
          preempted by federal law on the same grounds as (they contend) 
          the Port plan is preempted.  Therefore, in considering this 
          legislation it is useful to understand these preemption 
          doctrines in some detail, and the arguments the respective 
          parties have made about the issue.
           
                  (1)       Federal Preemption Under the Federal Aviation 
                    Administration Authorization Act  

          The primary (although not the only) preemption argument raised 
          against the Port plan was that it was preempted by the Federal 
          Aviation Administration Authorization Act of 1994 (FAAA Act).

          Congress enacted the FAAA Act to achieve deregulation of the 
          motor carrier industry, and therefore, included a broad 
          preemption statute.  The statute provides that, with regard to 
          motor carriers, "a State, political subdivision of a State, or 
          political authority of two or more States may not enact or 
          enforce a law, regulation, or other provision having the force 
          and effect of law related to a price, route, or service of any 
          motor carrier." 49 U.S.C. § 14501(c)(1).  Therefore, for a state 
          regulation to be preempted under the FAAA Act, the regulation 
          must be "related to the price, route, or service of a motor 
          carrier that transports property." Toucher v. City of Santa Ana, 
          219 F.3d 1040, 1047 (9th Cir. 2000), 219 F.3d at 1047.  Relation 
          to price, route, or service is found where "the regulation has 
          more than an indirect, remote, or tenuous effect on the motor 









                                                                  AB 950
                                                                  Page U
          carrier's prices, routes, or services."  Id.

                   (2)       The "Safety Exception" to Preemption Under the 
                    FAAA Act  

          The provision of the FAAA preempting state regulation "related 
          to the price, route, or service of a motor carrier that 
          transports property," contains an express safety exception to 
          preemption. See 49 U.S.C. § 145019(c).  Specifically, this 
          section provides that the preemption provision "shall not 
          restrict the safety regulatory authority of a State with respect 
          to motor vehicles, the authority of a State to impose highway 
          route controls or limitations based on the size or weight of the 
          motor vehicle or the hazardous nature of the cargo, or the 
          authority of a State to regulate motor carriers with regard to 
          minimum amounts of financial responsibility relating to 
          insurance requirements and self-insurance authorization." 49 
          U.S.C. § 14501(c)(2)(A).

          The United States Supreme Court has held that, in order to fall 
          within the safety exception, a statute, regulation, or provision 
          must be "genuinely responsive to safety concerns."  City of 
          Columbus v. Ours Garage and Wrecker Service, Inc., 536 U.S. 424, 
          442, 122 S.Ct. 2226, 153 L.Ed.2d 430 (2002).  In other words, a 
          regulation does not fall under the safety exception if it is an 
          economic regulation under the guise of a safety regulation. Id.

          The Supreme Court has also held that the "narrowest possible 
          construction of the exception" is "surely resistible," because 
          the FAAA Act's preemption rule and the safety exception "do not 
          necessarily conflict." Ours Garage, 536 U.S. at 441.  Instead, 
          the safety exception "seeks to save from preemption state power 
          'in a field which the States have traditionally occupied.' " Id.
           



                  (3)       The "Market Participant" Exception  

          A provision of state or local law that is preempted under the 
          FAAA Act and does not fall under the "safety exception" 
          discussed above may nevertheless escape preemption under an 
          additional ground: the "market participant" exception.

          The market participant doctrine distinguishes between the role 









                                                                  AB 950
                                                                  Page V
          of the state or local government as a regulator and its role as 
          a market participant.  Engine Mfrs. Ass'n v. South Coast Air 
          Quality Management Dist., 498 F.3d 1031, 1040-41 (9th Cir.2007) 
          ("Not all actions by state or local government entities ... 
          constitute regulation, for such an entity, like a private 
          person, may buy and sell or own and manage property in the 
          marketplace.").  In cases of statutory preemption, "the market 
          participant doctrine is based on the proposition that 
          'pre-emption doctrines apply only to state regulation.' " Id. at 
          1040 (emphasis added).  Therefore, if state action is 
          proprietary, rather than regulatory, such action is not 
          generally subject to statutory preemption. Id. 

          The Ninth Circuit has held that state action qualifies as 
          proprietary in either of two circumstances.  "First, state 
          action is proprietary if it 'essentially reflectİs] the 
          İgovernmental] entity's own interest in its efficient 
          procurement of needed goods and services, as measured by 
          comparison with the typical behavior of private parties in 
          similar circumstances.' " Engine
          Mfrs., 498 F.3d at 1041.  Second, "state action is proprietary 
          if 'the narrow scope of the challenged action defeatİs] an 
          inference that its primary goal was to encourage a general 
          policy rather than address a specific proprietary problem.' "Id. 

           
          How The Court Has Applied The Preemption Doctrines to This Case 
          Thus Far:    
           
           As discussed above, on August 26, 2010, the District Court 
          issued a decision on the merits of the preemption challenge to 
          the Port plan (specifically the employee driver requirement).  A 
          brief analysis of the Court's rationale is as follows:

                (1)    The Port Plan Falls Within the FAAA Act Preemption 
                 Clause  

          The District Court concluded that the employee driver 
          requirements are "related to İmotor carriers'] price, route, or 
          service," and thus fall under the preemption provision of the 
          FAAA Act.  Specifically, the Court stated the following:

               "The evidence shows that the employee driver provision 
               would affect motor carrier's routes or services, by 
               prohibiting trucks driven by independent owner-operators 









                                                                  AB 950
                                                                  Page W
               from providing drayage services to and from marine 
               terminals at İthe Port]?Furthermore, the record 
               demonstrates that the employee driver provision would 
               significantly affect costs of drayage services.  Therefore, 
               the evidence shows that at least some of the increased 
               costs of drayage services caused by the employee driver 
               provision will impact drayage pricing, causing it to 
               increase.  Accordingly, the Court finds that İthe FAAA Act] 
               preempts the employee driver provision, unless İthe Port] 
               demonstrates that an exception to preemption applies."
           



               (2)    The Employee Driver Requirement Does Not Fall Under 
                 the "Safety Exception"

          As discussed above, federal preemption under the FAAA Act 
          contains an express exception for "the safety regulatory 
          authority of a state with respect to motor vehicles."

          However, the District Court held that the Port's employee driver 
          requirement did not fall under this safety exception.  Citing 
          earlier language from the Ninth Circuit decision on the merits 
          of the ATA's preliminary injunction, the Court stated:

               "The Port of Los Angeles Concession agreement mandates the 
               phasing out of thousands of independent contractors (many 
               or most of them small businessmen who own their own 
               trucks). In an attempt to justify this, the Port argues 
               that there are 'İs]erious and longstanding safety problems' 
               because of 'unsafe, negligent or reckless driving' that has 
               subjected the Port to 'a risk of financial liability and 
               moral culpability for failure to act to control actions by 
               third parties.'  Those concerns would allegedly be 
               ameliorated because requiring employee drivers will provide 
               'control İto] the concessionaires as employers of their 
               employee drivers to a degree not possible with casual or 
               independent drivers.'  We see little safety-related merit 
               in those threadpaper arguments, which denigrate small 
               businesses and insist that individuals should work for 
               large employers or not at all. As it is, the record 
               demonstrates that the Ports' primary concern was increasing 
               efficiency and regulating the drayage market."










                                                                  AB 950
                                                                  Page X
                (3)    The Employee Driver Requirement Nevertheless Escapes 
                 Preemption Under the "Market Participant" Exception
           
          Despite finding that the Port's employee driver requirement was 
          preempted by the FAAA Act and did not fall within the "safety 
          exception," the District Court nevertheless held that the 
          requirement escaped preemption under the "market participant" 
          exception (discussed above.)

          In relevant part, the Court stated the following:

               "The Port's adoption of the Concession Agreement as a whole 
               is an 'essentially proprietary' action under the market 
               participant doctrine, because the Port took the action in 
               order to sustain and promote Port operations.  The 
               Concession Agreement helps the Port manage its property and 
               facilities as any private landlord and facilities operator 
               would?

               ?While the Port had not previously required drayage 
               services providers to contract with it to access Port 
               property, it made an economically driven decision to do so 
               via the Concession Agreement in its capacity as a landlord 
               and facilities operator?

               ?As recognized by the Ninth Circuit, the employee driver 
               provision was designed to transfer the financial burden of 
               administration and record-keeping onto the trucking 
               companies instead of the Port.  This is clearly an 
               economically motivated action, and one that a private 
               company with substantial market power-such as the oligopoly 
               power of the Port-would take when possible in pursuit of 
               maximizing profit. The provision was also designed to help 
               protect the Port's investment in retrofitted trucks?

               ?Consequently, the weight of evidence demonstrates that the 
               employee provision was adopted to conserve administrative 
               costs of the Clean Truck Program and protect the Port's 
               investment in clean trucks."

           Opponents' Comment on the Current Appeal  

          Opponents to this bill have stated that the ATA filed an appeal 
          to the District Court's decision (which is currently pending).  
          However, they note that the Port did not appeal the District 









                                                                  AB 950
                                                                  Page Y
          Court's finding that the employee driver requirement did not 
          fall under the "safety exception" to federal preemption.  
          Therefore, they contend that that issue has not been challenged 
          and therefore the only primary issue on appeal is whether the 
          District's Court's determination regarding the "market 
          participant" exception was correctly decided. 
           
          "Statutory Employees" Under the Federal Motor Carrier Act  

          Under traditional tort liability, an employer is generally not 
          liable for physical harm and damage caused by an independent 
          contractor.  In the trucking industry, this raises obvious 
          public safety concerns.  Prior to the 1950s, it is reported that 
          many motor carriers attempted to shield themselves from 
          liability for the negligent act of drivers they utilized as 
          independent contractors under lease agreements.

          As a result, in 1956 federal law and regulations were amended to 
          protect the general driving public.  Language was added to the 
          federal motor carrier safety regulations as follows:

               "Employee means any individual, other than an employer, who 
               is employed by an employer and who in the course of his or 
               her employment directly affects commercial motor vehicle 
               safety.  Such term includes a driver of a commercial motor 
               vehicle (including an independent contractor while in the 
               course of operating a commercial motor vehicle), a 
               mechanic, and a freight handler.  Such term does not 
               include an employee of the United States, any State, any 
               political subdivision of a State, or any agency established 
               under a compact between States and approved by the Congress 
               of the United States who is acting within the course of 
               such employment."  (49 C.F.R. § 390.5)

          Thus, the individuals driving the trucks under a lease agreement 
          are essentially deemed "statutory employees" of the motor 
          carrier for purposes of the safety regulations protecting the 
          public.

          In addition, with respect to the written lease agreements, the 
          federal regulations require the motor carrier shall have 
          "exclusive possession, control and use of the equipment" for the 
          duration of the lease and shall "assume complete responsibility 
          for the operation of the equipment" for the duration of the 
          lease.  (49 C.F.R. § 376.12(c)(1))









                                                                  AB 950
                                                                  Page Z

          However, it is important to note that the regulations go on to 
          state that, "İn]othing in İthese provisions] is intended to 
          affect whether the lessor or driver provided by the lessor is an 
          independent contractor or an employee of the authorized carrier 
          lessee.  An independent contractor relationship may exist when a 
          carrier lessee complies with İthese requirements]"  (49 C.F.R. § 
          376.12(c)(4))
           

          Is The Establishment of "Statutory" Employment Protection 
          Unprecedented Under State Law?
           
          Under current law, there are already a number of circumstances 
          where state law deems an individual to be an employee for 
          specified employment purposes.  This is referred to as 
          designation as a "statutory employee."  A "statutory employee" 
          is defined as an employee by law under a specific statute, 
          whereas most individuals are determined to be an employee under 
          the common law test described above.

          According to EDD<14>, certain groups of workers have been 
          specifically covered by state law for Unemployment Insurance, 
          Employment Training Tax, and State Disability Insurance 
          purposes.

          Under California law, "statutory employees" include workers 
          performing services for an individual or entity in a continuing 
          relationship as:

                 An agent-driver or commission-driver engaged in 
               distributing meat, vegetable, fruit, or bakery products, 
               beverages (other than milk), or laundry or dry-cleaning 
               services for his/her principal.
                 A traveling or city salesperson, other than an 
               agent-driver or commission-driver, working full time on 
               behalf of their principal (except for sideline activities 
               on behalf of some other person), taking orders from 
               wholesalers, retailers, contractors, or operators of 
               hotels, restaurants, or other similar establishments for 
               merchandise for resale or supplies to be used in their own 
               business operations.
                 A homeworker performing work, according to 
               specifications furnished by the person for whom the 



             --------------------------
          <14> See EDD Information Sheet DE 231SE








                                                                  AB 950
                                                                  Page A
               services are performed, on materials or goods furnished by 
               that person which are required to be returned to that 
               person or a person designated by him/her.

          "Statutory employees" also include certain unlicensed 
          individuals working in the construction industry, certain 
          authors or artists in the motion picture, radio or television 
          industry, and certain authors of commissioned or specifically 
          ordered work.

          Therefore, supporters of this bill argue that it is not 
          unprecedented for certain types of individuals to be treated as 
          employees for specified employment purposes by statute.  

           Prior Legislative Proposals
           
          In prior years, there have been several legislative proposals 
          aimed directly at port drivers and their classification as 
          employees or independent contractors.

          In 2005, the California Teamsters Public Affairs Council 
          sponsored Senate Bill 848 (Dunn).  Senate Bill 848 would have 
          utilized the "state action doctrine" of federal antitrust law to 
          authorize port owner-operator drivers to organize collectively 
          to better their economic conditions through joint negotiations 
          with port motor carrier concerning their compensation, benefits, 
          and terms and conditions of engagement.



          Governor Schwarzenegger vetoed Senate Bill 848 on September 29, 
          2005 and stated the following in his veto message:

               "While this bill is meant to improve the economic clout of 
          port owner-
               operator drivers, its provisions could violate federal 
          antitrust law and
               result in many unintended consequences.  This legally 
          doubtful attempt
               at an antitrust exemption, or untried expansion of state 
          regulation, is
               sure to become a legal battleground.

               California ports face heavy congestion and air quality 
          problems.









                                                                  AB 950
                                                                  Page B
               Motor carriers, drivers, port operators and shippers have 
          worked
               cooperatively to address these issues in recent months.  I 
          recently
               signed Senate Bill 45, which was cooperatively negotiated 
          between
               both the trucking companies and drivers, protects drivers 
          from being
               assessed fees for circumstances that are out of their 
          control, including
               locked gates, employee lockouts and traffic congestion.

               The litigious firestorm this bill would assuredly ignite is 
          counter-
               productive to the cooperative work that must be 
          accomplished to
               capture the economic potential afforded by the growth in 
          international
               trade."

          In 2006, State Senator Dunn introduced a nearly identical bill, 
          Senate Bill 1213, that was similarly vetoed by Governor 
          Schwarzenegger. 

          Moreover, there have been numerous bills in recent years to 
          address port issues generally, some of which would have directly 
          or indirectly impacted the working conditions of port drivers.

           ARGUMENTS IN SUPPORT  :

          Writing in support of this measure, the California Teamsters 
          Public Affairs Council states the following:

               "These drivers - mostly vulnerable Spanish-speaking 
               immigrants unaware of their legal rights - have no choice 
               but to go along with being misclassified as an "independent 
               contractors."  Port trucking companies misclassify drivers 
               not only to evade legal mandates such as minimum wage laws, 
               employment tax payment and workers' comp coverage, but also 
               in order to thrust onto drivers virtually the entire cost 
               of doing business by requiring drivers to supply their own 
               trucks and deducting from their pay numerous operational 
               costs, including maintenance, repairs, fuel and insurance - 
               costs that the Labor Code prohibits imposing on employees.










                                                                  AB 950
                                                                  Page C
               These workers bear no resemblance to bona fide "independent 
               contractors."  They plainly lack decision-making control of 
               an entrepreneurial nature.  Unless a driver possesses his 
               own "operating authority" from the U.S. Dept. of 
               Transportation, he isn't allowed even to advertise himself 
               to shippers as being in the truck delivery business let 
               alone permitted to haul their freight.  Nor do port drivers 
               have true entrepreneurial opportunity to profit by selling 
               driving services to multiple trucking companies.  Most of 
               these drivers no longer even own their own trucks.  A port 
               driver isn't in a position to negotiate his rates, as he 
               can't influence the rates paid by shippers to a trucking 
               company.  Port drivers also lack power to decide whether or 
               in what manner to divide work among two or more companies; 
               instead, drivers are at the mercy of their employer's power 
               to terminate without cause, and also are constrained by, 
               among other things, contractual restrictions, maximum hours 
               regulations, and frequent limits on their productivity due 
               to chronic port gridlock.

               The indisputable reality is that port drivers misclassified 
               as "independent contractors" do exactly the same work as 
               the much smaller group of port drivers who some trucking 
               companies have hired as "employees."  Both groups carry out 
               the employer's core business: carrying goods to and from 
               the ports.  Single-truck port drivers are simply a lower 
               cost alternative to using employee drivers.  They do not 
               compete with other trucking companies; they compete with 
               other minimum wage workers in the lowest level of the labor 
               market.  They are nothing less than sharecroppers on 
               wheels.

               The price for the abuse of these workers has been paid not 
               only by the drivers themselves but also by Californians 
               living near the ports.  Meager earnings have limited 
               drivers to buying very old used trucks, the toxic diesel 
               fumes from which poison the air around the ports where 
               drivers are forced to wait in lines for hours at a time, 
               engines idling all the while.  The ensuing public health 
               crisis has necessitated a drastic measure: the California 
               Air Resources Board's ban of old diesel trucks at the 
                                                                     ports.

               The CARB diesel truck ban has created the need for new 
               "clean" trucks - vehicles with six-figure price tags.  The 









                                                                  AB 950
                                                                 Page D
               Port of Los Angeles devised a plan that included generous 
               subsidies for the purchase of "clean" trucks in conjunction 
               with a requirement that port trucking companies gradually 
               classify all drivers as "employees."  This was deemed 
               necessary to, among other things, ensure that trucking 
               companies, not drivers, would bear the high cost of the 
               maintenance regimen essential to keeping the trucks 
               "clean."  Trucking companies had no problem reclassifying 
               the requisite Trucking Association got a court injunction 
               against the employee-reclassification requirement, halting 
               this part of the plan pending resolution of ATA's lawsuit 
               against the ports.  Trucking companies immediately 
               converted the newly reclassified "employee" drivers back 
               into "independent contractors."

               The Los Angeles Port Plan was upheld by a federal court, 
               but the driver reclassification mandate has been placed on 
               hold pending the outcome of an appeal. Meanwhile, the 
               remainder of the original plan has been carried out with 
               perverse results. Several generous government grants 
               subsidizing the purchase of "clean" trucks were doled out 
               to trucking companies, each in exchange for a drivers' old 
               truck being scrapped.  Incredibly, the trucking companies 
               have not only continued to make drivers pay for fuel, 
               maintenance, repair and insurance, they are now forcing 
               drivers to pay exorbitant truck rental fees or to accede to 
               unconscionable "lease-to-buy" deals.

               For example, one Southern California trucking company 
               received several grants from the LA Port each in the 
               approximate amount of $182,000, with which the company 
               purchased "clean" trucks.  The company's own cost per 
               truck, including tax on in-kind income, was $60,000.  Each 
               grant was conditioned on a driver's old truck being 
               scrapped.  Drivers, now lacking trucks of their own, were 
               subjected by the company to unconscionable lease-to-buy 
               deals; at least one such contract charged the driver $2000 
               per month for 84 months-or $168,000-for one of the 
               subsidized trucks!  Moreover, the drivers cannot use the 
               truck for anything but port drayage, leaving them mired in 
               debt servitude and unable to use the truck in more 
               profitable sectors of trucking.

               Historically, trucking industry lease-to-buy deals are 
               notorious for being unfairly stacked against drivers; 









                                                                  AB 950
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               rarely if ever have drivers been able to continue the 
               payments long enough to buy the truck.  The even more 
               unconscionable terms of the "clean truck" lease-to-buy 
               deals have wiped out port drivers' financial resources in 
               record time.  Many port drivers have lost their homes 
               and/or been forced into bankruptcy.  Driver turnover is 
               rampant.  And each time a driver is forced to quit, the 
               trucking company gets to lease the same truck to a new 
               driver.

               This situation is outrageous.  The flagrant, longstanding, 
               industry-wide violation of employee rights has now reached 
               true emergency levels.  The port-trucking industry's 
               unlawful "business model" is ruinous to port drivers.  The 
               unconscionable terms under which they're forced to work not 
               only destroys their families' lives, it gravely risks road 
               safety.  For one thing, they simply can't afford truck 
               maintenance and repairs essential to safe operation.  And 
               the fact that they're paid not by the hour but per trip 
               forces them to drive excessive hours regardless of fatigue 
               or federally mandated limits on hours of service.  Saddling 
               drivers with truck maintenance costs they can't afford also 
               undermines the "clean truck" program and thereby threatens 
               the quality of the air we breathe.  This misclassification 
               scheme also cheats California's coffers of tax monies.  And 
               it inflicts unfair economic injury on competitor trucking 
               companies that obey law by correctly treating their 
               employees as such.

               In the absence of a clear rule treating port drivers as 
               "employees,"                                           
               individual drivers have been burdened with having to 
               legally contest their misclassification, case by case, 
               subjecting driver-claimants to retaliation and evoking 
               scorched-earth legal response from the trucking industry, 
               whose aggressive litigation tactics and endless appeals 
               delay rulings and exhaust drivers' resources.  Ultimately, 
               none of the many cases in which a port driver has prevailed 
               has convinced the industry to clean up its act.

               Policymakers frequently have designated certain workers as 
               "statutory employees" via statute or regulation either to 
               curtail, as in this situation, rampant misclassification or 
               for other policy reasons.  See, e.g., Labor Code § 2750.5 
               (providing that an unlicensed subcontractor is a statutory 









                                                                  AB 950
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               employee of the general contractor, not an independent 
               contractor); "EDD Information Sheet: Statutory Employees" 
               (DE 231SE Rev. 6 (1-11) (setting forth EDD's treatment as 
               "statutory employees" certain commission drivers, traveling 
               salespersons, construction workers, home          workers, 
               artists and authors); 49 CFR § 390.5 (providing that, for 
               purposes                                     of trucking 
               safety regulations, the term "employee" includes 
               independent                                  contractor 
               drivers).

               Enactment of Labor Code 2750.5 was targeted at the 
               construction sector of what the legislature at that time 
               referred to as the "subterranean economy," in which 
               employers evaded California law by paying workers in cash 
               or                                      misclassifying them 
               as independent contractors.  (Assm. Com. on Labor, 
               Employment & Consumer Affairs, Analysis of AB 3249 
               (1977-1978 Reg. Sess.) p. 1)

               Legislative action targeted at the port-trucking sector of 
               the underground economy is urgently needed.  İThis bill] 
               provides the only effective solution to the problem at 
               hand: a codified bright-line designation of port drivers as 
               "statutory employees" - a rule that affords no loopholes, 
               no ambiguities, and no other excuse for these companies to 
               continue acting as though they are above the law."

           ARGUMENTS IN OPPOSITION  :

          The California Trucking Association (CTA) opposes this measure 
          and states the following:

               "The practical effect of this bill is to ban independent 
               contractors, also known as owner-operators, from California 
               ports and negatively impact economic activity.
          
               Today, thousands of independent owner-operators provide 
               critical goods movement services at each of California's 
               ports.  Container movement would grind to a halt without 
               the services of the owner-operators that currently haul as 
               much as 90 percent of containers passing through California 
               ports.  Also, container activity at the ports vary daily by 
               as much as 30 percent and annually such activity is closely 
               tied to the overall condition of state, national, and 









                                                                  AB 950
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               international economies.  Owner-operators provide necessary 
               capacity and flexibility to meet the varying demands of 
               drayage and keep goods moving efficiently.

               Under İthis bill], owner-operators would be left with the 
               choice of finding work outside the port or become an 
               employee of a company, if a job is available.  These 
               owner-operators have chosen not to be an employee for their 
               own economic reasons and İthis bill] goes against their 
               free will to choose where they work.  Choosing when to work 
               or spend time with their families gives owner-operators 
               flexibility that employee drivers lack.  The opportunity to 
               work for another company that pays a better rate or whose 
               route keeps the driver closer to home are also important 
               personal considerations.
          
               "Additionally, no practical public or driver safety 
               argument has been made for outright banning owner-operators 
               from California ports.  In fact, California leads the 
               nation in safety with less than one fatality per 100 
               million miles, more than 20 percent below the national 
               average.  Currently, commercial drivers undergo stringent 
               state and federal inspections of their trucks and oversight 
               driving records.  Companies cannot afford to contract with 
               or employ unsafe drivers due to liability and profitability 
               concerns.

               Mandating employee drivers will not eliminate the need for 
               trucks to haul cargo out of the ports to railheads or 
               distribution centers, nor does it affect the routes used by 
               drivers to accomplish their deliveries.  Existing law 
               provides the Department of Transportation and local 
               municipalities with the authority to set certain 
               restrictions on routes for various reasons.  İThis bill] 
               proves unnecessary under both driver and public safety 
               arguments.
          
               If the main concern is misclassification, as the proponents 
               of İthis bill] claim, then California should focus on 
               existing and established enforcement mechanisms.  Rather 
               than address potential misclassification, this bill reaches 
               too far in eliminating a class of drivers and small 
               businesses that represent the dominate model for the 
               drayage industry.  Clear and uniform criteria for 
               classifying independent contractors serves the interests of 









                                                                  AB 950
                                                                  Page H
               all parties. Conversely, elimination is a one-size-fits-all 
               approach in a highly variable industry that fails to 
               address critical issues.
          
               "An anticipated drayage truck shortage in the coming years 
               will be exacerbated by mandates like İthis bill] that force 
               a specific business model that results in higher, 
               uncompetitive costs.  According to a report by Dr. John 
               Husing on the employee mandate in the San Pedro Bay ports, 
               the cost of drayage would increase 167 percent over the 
               current use of owner-operators.  A second report by the 
               Boston Consulting Group on the same mandate stated that 
               annual drayage costs would rise by at least $500 million.  
               Increased California costs and easier access to 
               out-of-state ports will draw cargo from California ports 
               resulting in lost jobs and tax revenue.  
          
               The fact of the matter is that an employee driver mandate 
               proposed in İthis bill] is preempted by federal law.  
               Federal law prohibits states from taking actions that 
               impact the rates, routes, or services of trucking companies 
               absent qualification under a specified "safety exception."  
               In August 2010, the U.S. District Court for the Central 
               District of California reaffirmed its earlier finding in a 
               case regarding the Port of Los Angeles Clean Trucks Program 
               that the employee mandate provision does not meet the 
               safety exception and is preempted by federal law:

                    '. . . this Court enjoined the provision, finding 
                    that  . . . provisions of the POLA Concession 
                    Agreement dealing with the independent operator 
                    phase-out are preempted under the FAAA Act, and 
                    do not fall within the scope of the safety 
                    exception.'  . . . For the same reasons, the 
                    Court again finds that the provision does not 
                    fall within the safety exception.

               The same facts that led the District and Ninth Circuit 
               Courts to reject that employee driver mandate would apply 
               to the employee driver mandate İin this bill]."

          In addition, numerous individuals oppose this bill, stating (in 
          part), "As an independent owner-operator, I enjoy the freedom of 
          controlling my schedule and determining which companies I 
          contract with for services rather than work for one company on 









                                                                  AB 950
                                                                  Page I
          their schedule and at their pay.  My family and I chose this 
          life and want to keep it."

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Alameda Labor Council, AFL-CIO
          Amalgamated Transit Union  
          American Federation of Teachers
          BlueGreen Alliance
          California Labor Federation, AFL-CIO
          California Teamsters Public Affairs Council
          Center for Environmental Health
          Center on Policy Initiatives
          Change to Win
          Clergy and Laity United for Economic Justice-Los Angeles
          Coalition for Clean & Safe Ports
          Communications Workers of America
          East Bay Alliance for a Sustainable Economy
          East Yard Communities for Environmental Justice
          Interfaith Committee for Worker Justice
          Laborers' International Union of North America
          Los Angeles County Federation of Labor
          Ms. Shirley Burnell
          National Wildlife Federation
          Natural Resources Defense Council
          San Pedro Democratic Club
          Service Employees International Union
          Sheet Metal Workers' International Association 
          Sierra Club
          South Asian Americans Leading Together
          Teamsters Joint Council 7
          Teamsters Local 70
          Union of Concerned Scientists
          United Auto Workers
          United Food and Commercial Workers International Union
          United Steelworkers
          Utility Workers Union of America  
          Working Partnerships USA

           Opposition 
           
          Agriculture Transportation Coalition
          American Association of Exporters and Importers









                                                                  AB 950
                                                                  Page J
          American Import Shippers Association
          California Business Properties Association
          California Chamber of Commerce
          California Farm Bureau Federation
          California Retailers Association
          California Trade Coalition
          California Trucking Association
          Customs Brokers and Forwarders Association of Northern 
          California
          Express Association of America
          Harbor Trucking Association
          Health & Personal Care Logistics Conference
          International Warehouse & Logistics Association
          Long Beach Area Chamber of Commerce
          National Federation of Independent Business
          National Retail Federation
          National Shippers Strategic Transportation Council
          Numerous individuals 
          Pacific Merchant Shipping Association
          Retail Industry Leaders Association
          The Waterfront Coalition
          Travel Goods Association
          West State Alliance

           
          Analysis Prepared by  :    Ben Ebbink / L. & E. / (916) 319-2091