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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