BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 621 (Roger Hernández)
Version: June 25, 2015
Hearing Date: July 7, 2015
Fiscal: Yes
Urgency: No
TMW
SUBJECT
Drayage truck operators
DESCRIPTION
This bill would relieve a motor carrier performing drayage
services at one or more ports in California from liability for
statutory or civil penalties associated with misclassification
of commercial drivers as independent contractors if the motor
carrier enters into a settlement agreement before January 1,
2017, with the Labor Commissioner whereby the motor carrier
agrees to convert all of its commercial drivers to employees.
BACKGROUND
Drayage services involve transporting goods a short distance via
ground freight or the charge for such a transport. In freight
forwarding, drayage is typically used to describe the trucking
service from an ocean port to a rail ramp, warehouse, or other
destination. A recent study performed by the National
Employment Law Project (NELP) noted that the Los Angeles port is
the largest container port in the United States, Long Beach the
second largest, and Oakland the fifth largest container port.
(R. Smith, P. A. Marvy, J. Zerolnick, The Big Rig Overhaul -
Restoring Middle-Class Jobs at America's Ports Through Labor Law
Enforcement (Feb. 2014) NELP
[as of June 23, 2015] p. 14.) California's port
truck drivers provide critical drayage services, which enables
stores to stock their shelves with consumer goods all over
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California, with additional freight moving across the United
States.
Since the 1970s, labor practices in the port truck industry have
changed dramatically, leading to the development of an industry
characterized by "fierce competition, ever-increasing service
requirements, a contingent workforce, poverty level wages, no
health care coverage, rampant safety violations, and ineffective
or illusory enforcement." (Id., p. 3.) The NELP study found
that dire working conditions of port truck drivers have flowed
from the practice of treating employees as if they were
independent contractors, rather than employees. (Id.) Using
the employment status test of the Internal Revenue Service, the
study found that the typical port driver is misclassified as an
independent contractor because: (1) trucking companies impose
strict controls on port drivers, determining how, when, where,
and in what sequence drivers work; (2) port drivers are
financially dependent on trucking companies, which unilaterally
control the rates the drivers are paid; and (3) port drivers and
their companies are tightly tied to each other because the
drivers not only perform a function integral to the companies
they serve, but the drivers' function is the business of the
companies. (Id., p. 10.)
The NELP study estimated that 49,000 of the nation's 75,000 port
truck drivers are misclassified as independent contractors, and
the total quantifiable costs of misclassification nationally
runs $1.4 billion annually. (Id., p. 4.) In California, there
are 25,000 port drivers, and 16,400 of them are misclassified as
independent contractors. (Id., p. 29.) NELP estimates that
there are approximately 400 port driver-related wage and hour
complaints currently pending with the California Department of
Labor Standards Enforcement. (Id.)
In 2010, then-California Attorney General Brown prosecuted and
prevailed in multiple employee misclassification cases. (See
Brown Wins Fifth Suit Against Port Trucking Companies that
Violated Workers' Rights (Feb. 4, 2010)
[as of June
23, 2015].) These cases primarily held that trucking businesses
were misclassifying their workers to avoid paying state payroll
taxes. More recently, California Labor Commissioner Julie A. Su
won an action involving Port of Long Beach truck drivers working
for Seacon Logix, Inc. who were ruled employees and not
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independent contractors. In that case, drivers had signed
agreements labeling them independent contractors but the Court
found that the company exerted sufficient control over the
drivers such that the drivers were employees of the company and
entitled to all basic labor law protections. (Cal. Dept. of
Industrial Relations, IR #2013-11, California Labor Commissioner
prevails in misclassification case against port trucking company
(March 1, 2014)
[as of June
23, 2015].)
This year, "[s]even Los Angeles-area truckers [] won a $2
million claim against an international shipping company accused
of stealing their wages by improperly classifying them as
independent contractors and charging them to lease its trucks to
drive. In a decision with implications for hundreds of
companies and thousands of truckers in Southern California
alone, a San Diego County Superior Court judge held that the
seven plaintiffs should have been defined as employees of Pacer
Cartage under California's labor law, not as independent
owner-operators." (S. Gorman, California Truckers Win $2
Million in Wage Theft Suit (Jan. 30, 2015) Reuters
[as of June 23, 2015].)
This bill seeks to address truck driver misclassification by
providing a program administered by the State Labor Commissioner
that would relieve motor carriers from statutory or civil
penalties associated with the misclassification of commercial
drivers as independent contractors if the motor carrier enters
into a settlement agreement with the Labor Commissioner and
converts all of its commercial drivers into employees. This
bill would apply to settlement agreements entered into by the
Labor Commissioner prior to January 1, 2017.
This bill was heard by the Senate Labor and Industrial Relations
Committee on June 24, 2015, and was approved by a vote of 4-1.
CHANGES TO EXISTING LAW
Existing law makes it unlawful for any person or employer to
engage in the willful misclassification of an individual as an
independent contractor or charging an individual who has been
willfully misclassified as an independent contractor a fee, or
making any deductions from compensation, for any purpose,
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including for goods, materials, space rental, services,
government licenses, repairs, equipment maintenance, or fines
arising from the individual's employment where any of these acts
would have violated the law if the individual had not been
misclassified. (Lab. Code Sec. 226.8(a).)
Existing law provides that if the Labor and Workforce
Development Agency or a court issues a determination that a
person or employer has engaged in any of the enumerated
misclassification violations above, the person or employer is
subject to a civil penalty of not less than $5,000 and not more
than $15,000 for each violation, in addition to any other
penalties or fines permitted by law. (Lab. Code Sec. 226.8(b).)
Existing law provides that if the Labor and Workforce
Development Agency or a court issues a determination that a
person or employer has engaged in any of the enumerated
misclassification violations above and the person or employer
has engaged in or is engaging in a pattern or practice of these
violations, the person or employer is subject to a civil penalty
of not less than $10,000 and not more than $25,000 for each
violation, in addition to any other penalties or fines permitted
by law. (Lab. Code Sec. 226.8(c).)
Existing law provides that if the Labor and Workforce
Development Agency or a court issues a determination that a
person or employer has misclassified an individual, the agency
or court, in addition to any other remedy that has been ordered,
is required to order the person or employer to display
prominently on its Internet Web site, in an area which is
accessible to all employees and the general public, or, if the
person or employer does not have an Internet Web site, to
display prominently in an area that is accessible to all
employees and the general public at each location where the
violation occurred, a notice that sets forth all of the
following:
that the Labor and Workforce Development Agency or a court, as
applicable, has found that the person or employer has
committed a serious violation of the law by engaging in the
willful misclassification of employees;
that the person or employer has changed its business practices
in order to avoid committing further violations of this
section;
that any employee who believes that he or she is being
misclassified as an independent contractor may contact the
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Labor and Workforce Development Agency; the notice shall
include the mailing address, e-mail address, and telephone
number of the agency; and
that the notice is being posted pursuant to a state order.
(Lab. Code Sec. 226.8(e).)
Existing law requires that notice to be signed by an officer of
the employer and be posted for one year commencing with the date
of the final decision and order. (Lab. Code Sec. 226.8(f).)
Existing law authorizes the Labor Commissioner to issue a
determination that a person or employer has misclassified an
individual, and, if upon inspection or investigation, the Labor
Commissioner determines that a person or employer has
misclassified an individual, the Labor Commissioner is
authorized to issue a citation to assess damages, as specified,
in addition to any other penalties or damages that are otherwise
available at law, and the Labor Commissioner may enforce the
violation administratively or in a civil suit. (Lab. Code Sec.
226.8(g).)
Existing law provides that a person who, for money or other
valuable consideration, knowingly advises an employer to treat
an individual as an independent contractor to avoid employee
status for that individual shall be jointly and severally liable
with the employer if the individual is found not to be an
independent contractor. (Lab. Code Sec. 2753(a).) This
provision is not applicable to a person who provides advice to
his or her employer or an attorney authorized to practice law in
California or another United States jurisdiction who provides
legal advice in the course of the practice of law. (Lab. Code
Sec. 2753(b).)
Existing law , unless otherwise excluded as specified, defines
"employee" to mean 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, including aliens and minors, all elected
and appointed paid public officers, and officers and members of
boards of directors of quasi-public or private corporations, as
specified. (Lab. Code Sec. 3351.)
Existing law excludes volunteers, student athletes, and law
enforcement officers, as specified, from being considered
employees. (Lab. Code Sec. 3352.)
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Existing law defines "independent contractor" to mean 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. (Lab. Code Sec. 3353.)
This bill , notwithstanding any law, would relieve a motor
carrier performing drayage services at one or more ports in this
state from liability for statutory or civil penalties associated
with misclassification of commercial drivers as independent
contractors if the motor carrier enters into a settlement
agreement with the Labor Commissioner whereby the motor carrier
agrees to convert all of its commercial drivers to employees.
This bill would require the settlement agreement to contain all
of the following:
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 settlement
agreement is entered into, but not exceeding the applicable
statute of limitations;
an agreement by the motor carrier to maintain any converted
commercial driver positions as employee positions;
an agreement by the motor carrier that any future commercial
drivers hired to perform the same or similar duties as those
employees converted are presumed to have employee status and
that the motor carrier has 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; and
any other provisions the Labor Commissioner deems necessary to
carry out the intent of this section or to enforce the
settlement agreement.
This bill would provide the following definitions:
"commercial driver" means a person who holds a valid
commercial driver's license hired or contracted with to
provide port drayage services;
"motor carrier" means a registered owner, lessee, licensee, or
bailee of a commercial motor vehicle, as specified, who
operates or directs the operation of any such vehicle on a
for-hire or not-for-hire basis to perform port drayage
services; and
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"port" means any sea or river port in this state.
This bill would authorize the settlement agreement to contain a
provision authorizing the Labor Commissioner to recover from the
motor carrier an amount necessary to cover the Labor
Commissioner's reasonable costs associated with the review,
approval, and compliance with the settlement agreement.
This bill would 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.
This bill would only apply to settlement agreements entered into
by the Labor Commissioner prior to January 1, 2017.
COMMENT
1. Stated need for the bill
The author writes:
AB 621 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 California Teamsters Public Affairs Council, sponsor,
writes:
It is without a doubt that nearly all the so-called
"owner-operators" truck drivers that haul intermodal freight
to and from the ports of California have been misclassified.
In hundreds of recent cases and class actions, 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.
This bill creates a voluntary program to be administered by
the State 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.
This is a way for port drayage motor carriers to "come in from
the cold" in a way that will save them from paying financially
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crippling penalties.
2. Providing limited amnesty from statutory and civil penalties
This bill would provide motor carriers who enter into a
settlement agreement with the Labor Commissioner before January
1, 2017, relief from liability for statutory or civil penalties
associated with the misclassification of commercial drivers as
independent contractors. Under the settlement agreement, the
motor carrier would agree to pay all wages, benefits, and taxes
owed, if any, to all of its converted commercial drivers, and
agree to maintain any converted commercial drivers positions as
employee positions. The settlement agreement would also provide
that any future commercial drivers hired to perform the jobs of
converted employees are presumed to have employee status, as
specified.
The California Labor Federation, AFL-CIO, in support, contends
that "[n]umerous 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.
Worker misclassification is really workplace fraud. It is a way
to deny workers all rights and benefits of employee status, from
minimum wage to overtime, unemployment to workers' compensation.
At the ports, this practice has become so commonplace, it is
the rare driver who is not misclassified and is properly
considered an employee. In fact, violations of this nature are
so widespread that they have overwhelmed state enforcement
resources. Meanwhile[,] drivers are trapped in what some have
called 'sweatshops on wheels,' unable to even band together and
try to improve their conditions."
Indeed, an article discussing the Los Angeles and Long Beach
ports truck driver strikes provided insight into one driver's
quest for better working conditions:
Before dawn breaks, Domingo Avalos is already off to work.
The 50-year-old truck driver leaves at 2 a.m. before his
family wakes and returns home long after his [girlfriend] and
4-year-old son are in bed for the night. On his way to the
ports of Long Beach and Los Angeles, he sits in a metal truck
cab for hours with a pillow tucked behind his aching back,
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waiting behind a line of trucks to pick up a cargo container
he will haul to make ends meet.
He like other truckers will wait six to eight hours without a
bathroom or meal break. With no rest stops near the terminals
to leave their trucks, the drivers pack food and use an empty
container to urinate. "Sometimes we don't get enough to pay
the rent," said the soft-spoken man who came to the United
States from Mexico 15 years ago.
Avalos is among the more than 13,000 short-haul truck drivers
registered in Southern California who work or contract for
1,000 trucking companies in Southern California, according to
the National Employment Law Project. About 80 percent of
truckers are independent contractors who own and operate their
own trucks and the remainder work as employees.
An estimated $300 billion of goods annually come through the
Los Angeles and Long Beach ports, according to Art Wong,
spokesman for the Port of Long Beach. These goods are carried
by haulers like Avalos, who are increasingly being viewed as
workers earning too little compensation for the work they
perform.
At a March conference at Cal State Long Beach, Federal
Maritime Commission Chairman Mario Cordero described
short-haulers as "the stepchild of the industry," meaning they
don't get the same attention as dockworkers, which results in
poor working conditions and dwindling compensation. Because
the International Longshore and Warehouse Union represents
dockworkers all along the West Coast, the union was able to
nearly shut down the twin ports of Los Angeles and Long Beach
after rancorous contract talks that were finally resolved in
late February. . . .
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Avalos and his girlfriend have been picketing with other
drivers and the Teamsters in front of his workplace, Pacer
Cartage's office in Commerce, not far from where the couple
lives. Avalos said he and other drivers have been wrongly
classified as independent contractors and should instead be
classified as employees, which they argue would entitle him to
healthcare, benefits and vacation pay.
Avalos said he can't afford to be sick. Every day he doesn't
work is a day he can't buy food or pay the rent on his small
one-bedroom apartment, set on a busy street where cargo-toting
trucks constantly rumble outside his door.
His apartment, where he lives with his girlfriend, Olivia
Flores, a fast-food worker, and 4-year-old son, Anthony, fits
only a sofa, a loveseat, a lamp and television. By the end of
the week, a paycheck of $3,000 for 70 hours of work dwindles
to $600 after his company deducts his truck payment,
maintenance, fuel and other costs. (K. R. Meeks, Los
Angeles, Long Beach Port Truck Drivers Move Nations Goods (May
16, 2015) Long Beach Press Telegram
[as of June 23, 2015].)
This bill would create a one-year (January 1, 2016, to January
1, 2017) amnesty opportunity for motor carriers to reclassify
their truck drivers as employees and avoid statutory and civil
penalties. In this way, this bill creates an opportunity for
motor carriers to avoid protracted litigation with the Labor
Commissioner given the recent court rulings that have held truck
drivers have been unlawfully mischaracterized as independent
contractors. Total Transportation Services, Inc., one such
motor carrier currently involved in a labor dispute over
misclassified truck drivers (see Total Transportation Services,
Inc., et al. v. Julie Su, Labor Commissioner of California,
Dept. of Industrial Relations, United States Distr. Ct., Central
Distr., Case No. CV12-08949 MMM (AJWx)), supports this bill and
states "[t]his bill would provide welcome relief to port drayage
companies, like ours, who wish to reclassify their drivers from
independent contractors to employee status but face substantial
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penalties if they do so. 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. . . ."
Additionally, by allowing these motor carriers to enter into
settlement agreements with the Labor Commissioner, the bill
would alleviate the large burden of cases currently consuming
the Labor Commissioner and the Department of Industrial
Relations. Truck drivers would also benefit by this bill since
it would require the motor carriers to pay all wages, benefits,
and taxes owed from the first date of misclassification to the
date the settlement agreement is entered into.
3. Oppositions' concerns
The California Business Properties Association and California
Retailers Association expressed opposition to a prior version of
this bill because they believed the bill does not address key
issues related to classification of drivers and is unnecessary
because a solution can be found within existing regulatory and
enforcement proceedings. Further, they express concern that the
bill will interfere with port operations by eliminating the
flexibility that independent contractors offer to meet the
constantly changing demands of drayage, which could staunch the
flow of goods in and out for the state and dampen economic
growth.
The California Trucking Association (CTA), in opposition to a
prior version, argues that the Berman hearing procedure under
the Labor Code was designed to provide a speedy, informal, and
affordable method for employers and employees to resolve simple
wage claims, yet claims of misclassification of commercial
drivers as independent contractors are complex and should not be
resolved through the Berman hearing procedure; rather, those
claims should be deferred to the court system. CTA offers two
immediate reforms to the use of Berman hearing procedures.
First, to reduce subjectivity involved with misclassification
reviews, CTA recommends amending Labor Code Section 98 to
clearly define that these complex matters are better addressed
and eventually adjudicating in the courts. Second, CTA
recommends amending that code section to statutorily memorialize
the Division of Labor Standards Enforcement's previous policy,
utilized up until 2008, under which the Commissioner would
decline the use of the Berman hearing procedure for all claims
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of $30,000 or more in both wages and penalties where employment
status is at dispute.
Support : California Labor Federation, AFL-CIO; Total
Transportation Services, Inc.
Opposition : California Business Properties Association;
California Retailers Association; California Trucking
Association
HISTORY
Source : California Teamsters Public Affairs Council
Related Pending Legislation : None Known
Prior Legislation :
AB 950 (Pérez, Swanson, 2011) would have deemed a drayage truck
operator an employee of the entity or person who arranges for or
engages the services of the operator for purposes of all of the
provisions of state law that govern employment, as specified.
AB 950 died on the Assembly Inactive File.
SB 459 (Corbett, Chapter 706, Statutes of 2011) prohibited any
person or employer from engaging in willful misclassification of
an employee as an independent contractor and provided for civil
penalties.
SB 1583 (Corbett, 2008) would have provided employment
consultant liability for advising unlawful conduct through
employee misclassification but was vetoed by Governor
Schwarzenegger who argued that the liability created under the
bill would discourage consultants from giving employment advice.
Section 5 of SB 459 was substantially similar to SB 1583.
SB 1490 (Padilla, 2008) would have required the Employment
Development Department (EDD) to create a form, including factors
used by EDD in determining independent contractor status, to be
distributed by employers to workers. SB 1490 was held in the
Senate Committee on Appropriations. Sections 2 through 4 and 6
through 7 of SB 459 were substantially similar to SB 1490.
SB 622 (Padilla, 2007) would have made it unlawful for employers
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to willfully misclassify an employee as an independent
contractor. Section 1 of SB 459 was substantially similar to SB
622, which was vetoed by Governor Schwarzenegger because he
believed sufficient remedies for employer misconduct already
existed and the bill could cause businesses to avoid using
independent contractors even where appropriately utilized.
SB 1213 (Dunn, 2006) would have provided port owner-operator
drivers the right to organize collectively to better their
economic conditions through joint negotiations with port motor
carriers concerning their compensation, benefits, and terms and
conditions of engagement. SB 1213 was vetoed by Governor
Schwarzenegger, who believed the provisions of the bill offered
a legally doubtful attempt at an antitrust exemption, expanding
state regulation in a manner never tried before that would
undoubtedly set off legal battles that will take years to
resolve. Governor Schwarzenegger further stated the litigation
that would result from this bill is counter-productive to the
cooperative work necessary to capture the economic potential
afforded by the growth of California's ports.
SB 848 (Dunn, 2005) was similar to SB 1213 and was vetoed by
Governor Schwarzenegger who believed the bill would create a
litigious firestorm that would be counterproductive to the
cooperative work that must be accomplished to capture the
economic potential afforded by the growth in international
trade.
Prior Vote :
Senate Labor and Industrial Relations Committee (Ayes 4, Noes 1)
Assembly Floor (Ayes 47, Noes 29)
Assembly Appropriations Committee (Ayes 12, Noes 5)
Assembly Labor and Employment Committee (Ayes 5, Noes 2)
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