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 ----------------------------------------------------------------- |Author: |Roger Hernández | |-----------+-----------------------------------------------------| |Version: |June 1, 2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Deanna Ping | | | | ----------------------------------------------------------------- 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" AB 621 (Roger Hernández) Page 2 of ? 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 AB 621 (Roger Hernández) Page 3 of ? 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. AB 621 (Roger Hernández) Page 4 of ? 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 AB 621 (Roger Hernández) Page 5 of ? "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 AB 621 (Roger Hernández) Page 6 of ? 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 AB 621 (Roger Hernández) Page 7 of ? 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 AB 621 (Roger Hernández) Page 8 of ? 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 AB 621 (Roger Hernández) Page 9 of ? 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 -- AB 621 (Roger Hernández) Page 10 of ?