BILL ANALYSIS Ó
AB 621
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Date of Hearing: April 8, 2015
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Roger Hernández, Chair
AB 621
(Roger Hernández) - As Introduced February 24, 2015
SUBJECT: Drayage truck operators
SUMMARY: Enacts a limited amnesty program with respect to the
misclassification of port drivers. Specifically, this bill:
1)Provides that, notwithstanding any law, a motor carrier
performing drayage services at one or more ports in this state
shall be relieved of liability for statutory or civil
penalties associated with misclassification of commercial
drivers as independent contractors if the motor carrier enters
into a consent decree with the Labor Commissioner whereby the
motor carrier agrees to convert all of its commercial drivers
to employees.
2)Provides that a consent decree entered into pursuant this bill
shall contain all of the following:
a) An agreement by the motor carrier to pay all wages,
benefits, and taxes owed, if any, to or in relation to all
of its converted commercial drivers covering the period of
time from the first date of misclassification to the date
the consent decree is entered into, but not exceeding the
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applicable statute of limitations.
b) An agreement by the motor carrier to maintain any
converted commercial driver positions as employee
positions.
c) An agreement by the motor carrier that any future
commercial drivers hired to perform the same or similar
duties shall be presumed to have employee status and that
the motor carrier shall have the burden to prove by clear
and convincing evidence that they are not employees in any
administrative or judicial proceeding in which their
employment status is an issue.
d) Any other provisions the Labor Commissioner deems
necessary to carry out the intent of this section or to
enforce the provisions of the consent decree.
3)Provides that this bill does not apply to a motor carrier that
has a pending civil lawsuit against it in state or federal
court alleging misclassification of commercial drivers where
the lawsuit was filed prior to January 1, 2015.
4)Provides that this bill shall apply only to consent decrees
entered into by the Labor Commissioner prior to January 1,
2017.
FISCAL EFFECT: Unknown
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COMMENTS: The issue of misclassification of port truck drivers
as independent contractors (rather than employees) has been a
significant issue before this Committee over the last decade.
On four separate occasions over the last 12 years, this
Committee has conducted oversight hearings to explore this
problem in greater detail. The most recent oversight hearing
was held in June 2014.
Much of the background information in this analysis comes from
the most recent oversight hearing.
General Background
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
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
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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.
As discussed above, over the past decade, this Committee 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. The most recent hearing was held in June 2014.
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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
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
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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:
1) Whether the person performing services is engaged in an
occupation or business distinct from that of the principal;
2) Whether or not the work is part of the regular business of
the principal;
3) Whether the principal or the worker supplies the
instrumentalities, tools, and the place for the person doing
the work;
4) The alleged employee's investment in the equipment or
materials required by the task;
5) The skill required in the particular occupation;
6) The kind of occupation, with reference to whether, in the
locality, the work is usually done under the direction of the
principal or by a specialist without supervision;
7) The alleged employee's opportunity for profit or loss
depending on his or her managerial skill;
8) The length of time for which the services are to be
performed;
9) The degree of permanence of the working relationship;
10)The method of payment, whether by time or by the job;
11)Whether or not the parties believe they are creating an
employer-employee relationship
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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
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deregulation of the transportation industry generally that
occurred beginning in the 1970s.
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,
---------------------------
<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).
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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
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
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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
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
-------------------------
<2> Engel, Cynthia. "Competition Drives The Industry." Bureau
of Labor Statistics, Office of Employment and Unemployment
Statitstics (April 1998).
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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
days they choose and ultimately control their working
environment. Studies show high levels of job satisfaction
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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
-------------------------
<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).
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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
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
---------------------------
<4> Bensam, David. "Port Trucking Down the Low Road: A Sad
Story of Deregulation." Dmos (2009).
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survey of Port of Oakland drivers found that drivers on average
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
---------------------------
---------------------------
<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.
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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>.
A 2011 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
-----------------------
<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.
<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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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
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
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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."
Recent 2014 Report on Port Truck Drivers and Misclassification
In February 2014, the National Employment Law Project (NELP) and
others issued a report<12> which revisited the issues of port
driver working conditions and the reported widespread
misclassification of drivers. Among other findings, the report
estimated that 49,000 of the nation's 75,000 port truck drivers
are misclassified as independent contractors.
This report placed a particular emphasis on the costs to workers
and the state and federal governments as a result of
misclassification:
The report estimated that port trucking companies in
California are annually liable for wage and hour violations
of between $787 and $998 million.
--------------------------
<12> Smith, Rebecca, et al. "The Big Rig Overhaul: Restoring
Middle Class Jobs at America's Ports Through Labor Law
Enforcement." National Employment Law Project, Change to Win
Strategic Organizing Center, and the Los Angeles Alliance for a
New Economy (February 2014).
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The report estimated that industry's total federal and
state liability for unemployment insurance fund
contributions, workers' compensation premiums, and income
tax payments at approximately $563 million annually.
The report estimated that total quantifiable costs of
misclassification nationally (tax losses plus wage and hour
violations) are $1.4 billion annually.
The report also noted that port drivers have filed approximately
400 complaints in recent years with the Division of Labor
Standards Enforcement (DLSE) for wage and hour violations
related to misclassification. The report found that penalties
in the 19 cases already adjudicated have averaged $66,240 per
driver (or approximately $4,266 per driver per month).
The report made a number of recommendations, including the
following:
State and federal labor and tax law enforcement agencies
should prioritize investigations in those industries, like
port trucking, in which widespread violations have the
greatest impact on workers and law-abiding employers.
Enforcement agencies should coordinate their efforts to
fight misclassification in the trucking industry, with each
taking the most advantage of their particular capacities.
Enforcement agencies should be adequately funded and
field enough well-trained staff to ensure investigations
are accurate, consistent, and sufficient in scope.
States should use legal tests of employee status that
account for the lack of independence among port drivers.
State laws should ensure that employer-mandated deductions
for truck and other business-related expenses are illegal.
Anti-retaliation measures for workers reporting
violations of employment, tax, and safety laws should be
strengthened.
Recent Port "Clean Trucks" Proposals and Subsequent Litigation
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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
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
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the drivers directly.
As part of the Clean Truck Program development process, the Port
retained various consultants.
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
drivers to be directly employed by the motor carriers<13>.
On July 28, 2008, the American Trucking Association (ATA) filed
lawsuits challenging both the Los Angeles and Long Beach<14>
clean truck concession programs (or portions thereof).
After several years of litigation, in 2011 the Ninth Circuit
Court of Appeals found that the employee-driver requirement of
the program was preempted by federal law because it did not fall
within a specified "market participant" exception since the
requirement was "tantamount to regulation." Specifically, the
court stated:
"We conclude that?the employee driver provision seeks to
impact third party behavior unrelated to the performance of
the concessionaire's obligations to the Port. One of the
Port's primary motives in adopting the employee driver
provision was to increase stability in Port drayage by
ensuring that drivers were paid higher wages. As a
-------------------------
<13> 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.
<14> The ATA settled their lawsuit with the Port of Long Beach
out of court on October 19, 2010.
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facilities provider, the Port has an interest in continued
provision of drayage services, but it may not obtain that
stability by unilaterally inserting itself into the
contractual relationship between motor carriers and
drivers."<15>
Previous Legislative Proposals
In recent 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
--------------------------
<15> American Trucking Associations, Inc. v. City of Los
Angeles, 660 F3d. 384 (September 26, 2011).
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problems. 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.
In 2011, Speaker John A. Pérez introduced Assembly Bill 950,
which would have deemed drayage truck operators to be "statutory
employees" for employment purposes, as specified. However, AB
950 was moved to the Inactive File on the Assembly Floor and was
never taken up for a vote.
Senate Bill 459 (Corbett), which was enacted in 2011,
established specific civil penalties for the willful
misclassification of an individual as an independent contractor.
These penalties range from $5,000 to $15,000 for each violation
to $10,000 to $25,000 per violation for a pattern or practice of
violations.
Moreover, there have been numerous bills in recent years to
address port issues generally, some of which may directly or
indirectly impact the working conditions of port drivers.
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Recent Enforcement Actions
When this Committee last conducted oversight of this issue (last
June), it noted that port drivers had recently filed over 500
complaints with the Division of Labor Standards Enforcement
(DLSE) for wage theft violations related to misclassification.
At the time, DLSE had issued over 30 decisions, all but one if
favor of the drivers and finding that they had been
misclassified as independent contractors.
According to updated information provided by DLSE to the
Committee in January 2015, there were 471 claims filed, of which
418 had been referred to hearings. The Labor Commissioner had
issued 113 orders, decisions or awards (ODAs) totaling almost $5
million. Of these, 46 ODAs had been appealed by the employer
(representing $3.9 million in awards).
Other drivers have brought actions in civil court. Recently
(January 2015), the San Diego County Superior Court awarded
seven drivers a judgment of over $2 million against their
employer for not properly classifying them as employees
The Legislative Solution Proposed by This Bill
According to the author and sponsor, this bill represents an
important opportunity to revolutionize and modernize the port
drayage industry to the benefit of drivers, drayage companies,
the ports, and our local communities. They contend that the
bill represents a common-sense compromise in allowing the
parties to come together, rectify the situation, and move
forward in a productive manner.
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Under this bill, port drayage companies will be provided an
opportunity to voluntarily come forward to participate in a
limited amnesty program by entering into a consent decree with
the Labor Commissioner. Under the terms of the consent decree,
the motor carrier must agree to pay all wages and benefits owed
to previously misclassified independent contractors, and all
taxes owed to the state as a result of such misclassification.
In addition, the company must agree to classify any present or
future commercial drivers as employees. In exchange, a motor
carrier that enters into such a consent decree will be relieved
of liability for statutory or civil penalties based on previous
misclassification of drivers.
Under the bill, consent decrees would need to be entered into by
December 21, 2016. The bill would not impact current civil
litigation, specifying that it would not apply to a motor
carrier that has a pending lawsuit against it if the lawsuit was
filed prior to January 1, 2015.
ARGUMENTS IN SUPPORT
This bill is sponsored by the California Teamsters Public
Affairs Council, who argues that nearly all of the so-called
"owner-operator" truck drivers that haul intermodal freight to
and from the ports of California have been misclassified. In
hundreds of recent cases and class action lawsuits, the drivers
have been determined to be employees. When a driver has been
misclassified, the employer is liable for back wages, taxes,
social security contributions, and potentially massive
penalties.
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This bill creates a voluntary program (to be administered by the
Labor Commissioner) which would allow motor carriers who wish to
reclassify their drivers as employees and have the penalties
associated with their past unlawful conduct waived. The sponsor
argues that this bill is a way for port drayage motor carriers
to "come in from the cold" in a way that will save them from
paying financially crippling penalties.
This bill is also supported by Total Transportation Services,
Inc. (TTSI), who states that it will provide welcome relief to
port drayage companies, like it, who wish to reclassify their
drivers from independent contractor to employee status but face
substantial penalties if they do so. They state further: "We
understand that some companies may not wish to avail themselves
of this amnesty program and we respect their decision not to do
so. However, we need this program and appreciate your
willingness to introduce this legislation."
ARGUMENTS IN OPPOSITION
The California Trucking Association (CTA) writes that while it
is willing to work with the author to address the issues raised
by this bill, it nevertheless opposes the bill because it does
not address the "key issue" leading to drayage motor carriers
facing this situation in the first place - "misuse" of the
DLSE's administrative hearing process.
CTA states that the administrative (or "Berman hearing") process
was designed to provide a speedy, informal and affordable method
for employers and employees to resolve simple wage claims. CTA
argues that claims of misclassification of commercial drivers as
independent contractors are some of the most complex claims
being addressed by DLSE, and therefore should not be addressed
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via this procedure. Additionally, CTA asserts that it has been
the longstanding policy of multiple Labor Commissioners prior to
the current administration to defer such complex, high-wage
claims to the court system.
Therefore, CTA recommends two reforms related to the use of the
Berman hearing procedures. First, in order to reduce the
subjectivity involved with these reviews, they suggest that
existing law should be amended to clearly define that these
complex matters are "better addressed and eventually adjudicated
in the courts." Second, CTA recommends that the law should be
amended to statutorily memorialize the DLSE's previous policy
(which they claim was utilized up until 2008) that the Labor
Commissioner decline the use of the Berman hearing procedure for
all claims of $30,000 or more where employment status is at
issue. They state that average award against motor carriers is
$87,000, but some have reached beyond $200,000.
CTA concludes that, in "concert with any discussion about
partial relief of liability for penalties associated with wage
claims where a dispute of employment status exists, we should
first examine the mechanism generating this liability."
The California Retailers Association opposes this measure,
arguing that it fails to address the greater underlying issues
of misclassifying commercial drivers as independent contractors
and should seek to find a solution within existing enforcement
mechanisms.
REGISTERED SUPPORT / OPPOSITION:
Support
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California Labor Federation, AFL-CIO
California Teamsters Public Affairs Council (Sponsor)
Total Transportation Services, Inc.
Opposition
California Retailers Association
California Trucking Association
Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091