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  








          AB 621 (Roger Hernández)
          Page 2 of ? 

          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  







          AB 621 (Roger Hernández)
          Page 3 of ? 

          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,  







          AB 621 (Roger Hernández)
          Page 4 of ? 

          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  







          AB 621 (Roger Hernández)
          Page 5 of ? 

            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.)







          AB 621 (Roger Hernández)
          Page 6 of ? 


           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







          AB 621 (Roger Hernández)
          Page 7 of ? 

           "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  







          AB 621 (Roger Hernández)
          Page 8 of ? 

            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,  







          AB 621 (Roger Hernández)
          Page 9 of ? 

            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. . . . 










          AB 621 (Roger Hernández)
          Page 10 of ? 

            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  







          AB 621 (Roger Hernández)
          Page 11 of ? 

          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  







          AB 621 (Roger Hernández)
          Page 12 of ? 

          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  







          AB 621 (Roger Hernández)
          Page 13 of ? 

          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)

                                   **************