BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: AB 621 Hearing Date: June 24,
2015
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|Author: |Roger Hernández |
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|Version: |June 1, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Deanna Ping |
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Subject: Drayage truck operators.
KEY ISSUE
Should the Legislature create a limited amnesty program for port
drayage companies that voluntarily enter into a consent decree
with the Labor Commissioner due to misclassification of
employees?
ANALYSIS
Existing law provides numerous comprehensive requirements,
rights, and remedies relating to the employer-employee
relationship, including, but not limited to, wages and other
compensation, hours, workers' compensation, labor code violation
actions, employment contracts, and standards for working
conditions. Under existing law, the Employment Development
Department has the powers and duties necessary to administer the
reporting, collection, refunding to the employer, and
enforcement of taxes required to be withheld by employers.
Existing California common law theory of joint employment
requires a determination as to whether the entity in question
has the right to direct and control the manner and means by
which the work is performed, known as the "right of control"
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test. (S. G. Borello & Sons, Inc. v Dept. of Industrial
Relations (1989) 48 Cal.3d 341. and Martinez v. Combs (2010) 49
Cal.4th 35)
Existing law establishes the following definitions:
"Employee" means every person in the service of an
employer under any appointment or contract of hire or
apprenticeship, express or implied, oral or written,
whether lawfully or unlawfully employed, as specified.
(Labor Code §3351) But excludes specified individuals such
as someone who is employed by his or her parent, spouse or
child. (Labor Code §3352)
"Independent contractor" means any person who renders
service for a specified recompense for a specified result,
under the control of his principal as to the result of his
work only and not as to the means by which such result is
accomplished.
(Labor code §3353)
The contract of employment is a contract by which one,
who is called the employer, engages another, who is called
the employee, to do something for the benefit of the
employer or a third person. (Labor Code §2750)
This Bill 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
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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
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.
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5)Provides the following definitions:
a) "Commercial driver" means a person who holds a valid
commercial driver's license hired or contracted with to
provide port drayage services.
b) "Motor carrier" means a registered owner, lessee,
licensee, or bailee of a commercial motor vehicle as set
forth in Section 34500 of the Vehicle Code, who operates or
directs the operation of any such vehicle on a for-hire or
not-for-hire basis to perform port drayage services.
c) "Port" means any sea or river port in this state.
COMMENTS
1. 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. By some
estimates, there are approximately 20,000 port drivers in
California. An important part of the 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 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.
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
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"owner operators." There has been much debate over the years
about whether this classification of drivers as independent
contractors is lawful.
Over the past decade the Assembly Labor and Employment
Committee has held four separate 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 where 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 in favor of the drivers and
finding that they had been misclassified as independent
contractors.
2. Independent Contractor vs. Employee Status Generally
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,
among others, whether the person performing services is
engaged in an occupation or business distinct from that of the
principal; whether the principal or the worker supplies the
instrumentalities, tools, and the place for the person doing
the work; and the alleged employee's opportunity for profit or
loss depending on his or her managerial skill.
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 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
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employer's duty to provide a safe and healthy work
environment, among other things.
3. Need for this bill?
In February 2014, the National Employment Law Project (NELP)
and others issued a report which revisited the issues of port
driver working conditions and 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.
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.
According to the author, 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. The author contends 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.
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
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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. According to the author,
AB 621 will transform and modernize port drayage operations by
providing a limited opportunity for amnesty for motor carriers
that come forward and correctly classify their drivers as
employees rather than independent contractors.
4. Double Referral:
This bill has been double referred to the Senate Judiciary
Committee.
5. Proponent Arguments :
Proponents note that numerous studies, reports, enforcement
actions, and court decisions have confirmed that nearly all
the so-called "owner-operator" truck drivers that haul
intermodal freight to and from the ports of California have
been misclassified. Proponents also note that in hundreds of
recent cases and class action lawsuits, the drivers have been
determined to be employees and when a driver has been
misclassified, the employer is liable for back wages, taxes,
social security contributions, and potentially massive
penalties.
Proponents contend that at the ports this practice has become
so commonplace, it is the rare driver who is not misclassified
and is properly considered an employee and note that
violations of this nature are so widespread that they have
overwhelmed state enforcement resources.
According to proponents, 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. They argue that this bill is a way
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for port drayage motor carriers to be a part of the cleaning
up of this industry and will save them from paying financially
crippling penalties.
Proponents also state that AB 621 will provide welcome relief
to port drayage companies who wish to reclassify their drivers
from independent contractor to employee status but face
substantial penalties if they do so.
6. Opponent Arguments :
Opponents argue that AB 621 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. Opponents note
specifically that the bill does not address the Division of
Labor Standards Enforcement's misuse of the Berman Hearing
process to address DLSE claims of misclassification of
commercial drivers as independent contractors.
Opponents state 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. They argue 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 via
this procedure. Additionally, opponents assert 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, opponents recommend two reforms related to the use
of the Berman hearing procedures. First, they assert that in
order to reduce the subjectivity involved with these reviews,
existing law should be amended to clearly define that these
complex matters are "better addressed and eventually
adjudicated in the courts." Second, opponents recommend 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
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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.
7. Prior Legislation :
SB 848 (Dunn) of 2015, 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. This bill was vetoed by
the Governor.
SB 1213 (Dunn) of 2006, was nearly identical to SB 848. This
bill was similarly vetoed by Governor Schwarzenegger.
AB 950 (Perez) of 2011, would have deemed drayage truck
operators to be "statutory employees" for employment purposes,
as specified. AB 950 was moved to the Inactive File on the
Assembly Floor.
SB 459 (Corbett), Chapter 706, Statues of 2011 - established
specific civil penalties for the willful misclassification of
an individual as an independent contractor with penalties
ranging from $5,000 to $15,000.
SUPPORT
California Labor Federation, AFL-CIO
California Teamsters Public Affairs Council
Total Transportation Services
OPPOSITION
California Business Properties Association
California Retailers Association
California Trucking Association
-- END --
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