BILL ANALYSIS Ó
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Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
Sandre Swanson, Chair
AB 950 (John A. Pérez and Swanson) - As Introduced: February
18, 2011
SUBJECT : Employment: drayage truck operators.
SUMMARY : Deems drayage truck operators to be statutory
employees for employment purposes, as specified. Specifically,
this bill :
1)Provides that for purposes of state employment law (including
workers' compensation, occupational safety and health, and
retaliation or discrimination) a drayage truck operator is an
employee of the entity or person who arranges for or engages
the services of the operator.
2)Defines "drayage truck operator" as the driver of any vehicle
with a specified gross vehicle weight rating operating or
transgressing through port or intermodal rail yard property
for the purpose of loading, unloading, or transporting cargo.
3)Specifies that these provisions shall not be construed to deem
a public agency the employer of a drayage truck operator
without the consent of the public agency.
4)Makes related legislative findings and declarations.
FISCAL EFFECT : Unknown
COMMENTS : 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. They handle
approximately 43 percent of America's imports, including 62
percent of all shipments to West Coast ports from Asian
exporters. In addition, the Port of Oakland is the fourth
busiest port in the United States and handles more than 99
percent of the containerized goods moving through Northern
California.
In many respects, the backbone of the complex intermodal
transportation system is port trucking or drayage, which
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generally involves the movement of shipping containers by truck
via public roadway to or from the port. Port drayage is an
important part of the local trucking industry that specializes
in hauling container freights between port terminals and
warehouses, retail establishments, manufacturers or rail lines.
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.
By some estimates, there are approximately 20,000 port drivers
in California, including 16,000 at the Ports of Los Angeles and
Long Beach, 2,500 at the Port of Oakland, and 1,500 at the
smaller Ports of San Diego, San Francisco, and Stockton.
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 "owner operators." There
has been much debate over the years about whether this
classification of drivers as independent contractors is lawful
or instead represents a legal fiction. This particular question
is not unique to the port drayage context, as concern about
misclassification of workers as independent contractors has
spread to many other industries.
Over the past decade, the Assembly Committee on Labor and
Employment has held a number of 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.
Independent Contractor vs. Employee Status Generally
As much of the debate about the working conditions affecting
port drivers centers on legal issues related to their
classification as employees or independent contractors, it is
useful to examine these issues is some detail.
Under California law, employment generally occurs when an
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employer engages in the services of an employee for pay. The
Industrial Welfare Commission Wage Orders define an "employer"
as any person who directly or indirectly, or through an agent or
any other person, employs or exercises control over the wages,
hours or working conditions of any person. A common law
employee is an individual who is hired by an employer to perform
services where the employer has the right to exercise control
over the manner and means by which the individual performs his
or her services.
In contrast, California common law generally defines an
independent contractor as any person who renders service for a
specified recompense for a specified result, under the control
of a principal as to the result of his or her work only and not
as to the means by which such result is accomplished.
The party seeking to avoid liability as an employer has the
burden of proving that persons whose services he or she has
retained are independent contractors rather than employees. In
other words, there is a presumption of employment. S.G. Borello
& Sons, Inc. v. Dept. of Industrial Relations, (1989) 48 Cal. 3d
341; Labor Code Section 3357.
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 the following:
Whether the person performing services is engaged in an
occupation or business distinct from that of the principal.
Whether or not the work is part of the regular business
of the principal.
Whether the principal or the worker supplies the
instrumentalities, tools, and the place for the person
doing the work.
The alleged employee's investment in the equipment or
materials required by the task.
The skill required in the particular occupation.
The kind of occupation, with reference to whether, in
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the locality, the work is usually done under the direction
of the principal or by a specialist without supervision.
The alleged employee's opportunity for profit or loss
depending on his or her managerial skill.
The length of time for which the services are to be
performed.
The degree of permanence of the working relationship.
The method of payment, whether by time or by the job.
Whether or not the parties believe they are creating an
employer-employee relationship
These "individual factors cannot be applied mechanically as
separate tests; they are intertwined and their weight depends
often on particular combinations." Id. As discussed above,
although no single factor is decisive, the right to control the
manner and means used is generally the most important factor.
In addition, some administrative agencies have broadened the
test to include other factors.
Why Is The Distinction Important?
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, federal and state tax consequences for
the employer, 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 employer's duty to provide a safe and healthy
work environment, are not covered by state and federal wage and
hour laws, are not entitled to unemployment insurance benefits
from an employer's account, and are excluded from coverage under
the National Labor Relations Act (NLRA).
History of Federal Deregulation of the Trucking Industry
The past three decades have witnessed a dramatic transformation
in the trucking industry, in large part brought about by federal
deregulation of the transportation industry generally that
occurred beginning in the 1970s.
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Beginning in the late 1800s, the federal government began
regulating transportation companies to prevent railroads from
charging unfair freight rates. It was also argued that
regulation helped to protect transportation companies from
unfair competition. Specifically, with the creation of the
Interstate Commerce Commission (ICC) in 1887, the federal
government began regulating rail carriers.
This reach was extended to the trucking industry during the New
Deal. The Motor Carrier Act of 1935 gave the ICC the authority
to regulate the motor carriers and drivers involved in
interstate commerce by granting operating permits, approving
trucking routes, and setting tariff rates.
As one commentator has noted in explaining the rationale for
regulation, "At the time, the federal government felt the need
to control predatory pricing and what it perceived as
unscrupulous business practices. New motor carriers popped up
every day. One person who owned a truck could become a motor
carrier simply by hauling one load for a local goods producer.
A flood of able drivers and able equipment plummeted rates and
owner-operators struggled to last. Having seen something like
this before in the railroad industry, the federal government
looked to the Interstate Commerce Commission to act<1>."
However, beginning in the 1970s, opponents of regulation argued
for market (rather than a government) regulation of the
industry. Deregulation advocates argued that consumers would
see lower prices as a result of deregulation. As a result,
Congress and the White House began the process of deregulation
in the late 1970s, culminating in the Motor Carrier Act of 1980
which partially deregulated the trucking industry. When
President Carter signed the Act he stated, "I am also
particularly pleased that the bill will improve truck service to
small communities and enhance business opportunities for
independent truckers."
This process was essentially completed by 1996 with the
abolishment of the ICC.
Deregulation of the trucking industry also occurred at the state
level. Deregulation of "intrastate" trucking first began in
Florida in 1980, followed in Maine and Arizona in 1982, and
---------------------------
<1> Grawe, Douglas C. "Have Truck, Will Drive: The Trucking
Industry and the Use of Independent Owner-Operators Over Time."
Transportation Law Journal, Vol. 35:2 (2008).
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later in five other states. Finally, in 1995, the Trucking
Industry Regulatory Reform Act (TIRRA) prohibited all states
from regulating carriers' routes, rates, or services. However,
states were still allowed to regulate such areas as safety,
financial fitness, hazardous material movement, and vehicle size
and weight.
Deregulation: The Good, The Bad and The Ugly
As one can imagine the debate over whether deregulation of the
trucking industry was good public policy or not is one which is
fiercely contested.
Noting the benefits of deregulation, one commentator has stated
the following:
"In response to deregulation and the intense competition
that followed, the trucking industry has changed the
quality and types of services it renders. By most
accounts, the resulting reductions in cost have been passed
on to consumers. Today, trucking services are more
responsive to our increasingly dynamic and complex economic
environment, incorporating improvements in technology that
have pervaded all industries.
Competition has resulted in increasing capital intensity in
the industry, as firms strive to reduce average variable
costs per load. Firms often are coupling with other
transportation sectors to minimize the cost for specific
delivery requirements by combining the efficiencies of
different modes of transport<2>."
Much of the debate about deregulation has focused on the shift
that has occurred from employee drivers to independent
contractors or owner-operators. Proponents of deregulation
contend that this has been a positive development:
"Owner-operators have long been an important component of
virtually every segment of the trucking industry. They are
used in most, if not all, sectors of the trucking industry,
including but not limited to long-haul trucking, household
goods moving, home delivery and intermodal operations. The
-------------------------
<2> Engel, Cynthia. "Competition Drives The Industry." Bureau
of Labor Statistics, Office of Employment and Unemployment
Statitstics (April 1998).
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reasons that independent contracting is attractive to both
motor carriers and owner-operators are clear.
For motor carriers, owner-operators provide a number of
advantages. Owner-operators quite often are seasoned
business persons with truck driving experience who are
highly skilled and motivated. The availability of such
owner-operators and their equipment (through leases of
equipment and driver services to motor carriers with
operating authority) enables motor carriers to save on
equipment and capital costs and provides flexibility to
meet fluctuations in demand for trucking services. In
addition, owner-operators, like other independent
contractor business vendors, typically share the motor
carriers' interests in meeting customer demand and
increasing revenues and profits. In short, many motor
carriers believe owner operator/independent contractors to
be more productive, dedicated, and safety conscious than
employee drivers.
"For owner-operators, independent contracting provides
numerous advantages. The
trucking industry offers a unique opportunity for
individuals to begin their own businesses. Start-up costs
in the trucking industry are within reason and reach of
many small business entrepreneurs, consisting principally
of the cost of a power unit and various licensing and
insurance fees. Thus, while not inexpensive, an initial
investment of $50,000 to $75,000 can place such a small
business person in some segments of the trucking industry
in a position to earn annual revenue of three times that
amount. Motivated individuals can establish their
businesses rather expediently while working with motor
carriers to negotiate terms to the business contract
commonly referred to as the lease. Owner-operators can
eventually purchase additional trucks and trailers and
employ drivers and other staff to assist in carrying out
their business. While most will not have the success-or
ambition-of J.B. Hunt, who started with five trucks and
seven trailers in 1969 and took his company public in 1983,
independent contracting in the trucking industry allows
owner-operators to live out their own version of the
American dream. Owner-operators feel strongly about their
independent status. It allows them to run their own
businesses, control their own finances, work the hours and
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days they choose and ultimately control their working
environment. Studies show high levels of job satisfaction
among independent contractors<3>."
However, other commentators have a much different view of the
effects of deregulation in general, and in particular on the
impact this has had on individual drivers as they transitioned
from employees to independent contractors or "owner operators":
"Port trucking, the segment of the freight movement
industry that carries 80 percent of shipping containers
between ports and warehouses or distribution centers, is an
essential cog in the global trade system, but it suffers
from excessive, destructive competition.
As a result of deregulation, the general public is placed
at risk when sharing the road with increasingly dangerous
and unsafe trucks and chassis, sometimes carrying
overweight loads that have led to dangerous and deadly
highway accidents. Unregulated trucks driven by so-called
independent contractors have also added to a growing
environmental crisis because of the inability of individual
drivers to afford clean truck technology.
Low-paid drivers' financial inability to invest in clean
trucks has led to a growing environmental crisis that pumps
tons of dangerous toxins into the air residents near the
port and along freight routes. The health impacts of
diesel particulate matter in the air is negatively
impacting human health and plaguing our health care system
with otherwise preventable diseases like childhood asthma.
In addition to concerns over public safety, environmental
impacts and the costs to public health systems, the quality
of port trucking jobs has eroded significantly, forcing
tens of thousands of working families into poverty.
Drivers are misclassified as independent contractors by
their companies in order to strip them of state and
-------------------------
<3> "Use of Owner-Operators in the Trucking Industry." Prepared
by Gregory M. Feary, Esq. on behalf of the American Trucking
Association (December 5, 2008).
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national labor and employment law protections, and to avoid
financial liability for vehicle operations. As independent
contractors, drivers are paid by the load and are
responsible for all costs associated with truck ownership
and maintenance. Without employment law protections, they
lack the ability to raise rates when expenses rise,
negatively impacting not only their own working conditions,
but the well-being of their families, residents of
communities located along freight routes, and the public at
large.
Lack of incentives for licensed motor carriers to address
the many negative impacts of trucking deregulation has also
led to an increasingly inefficient drayage system that has
failed to invest in improved communications systems and
goods movement operations<4>."
Prior Research on Classification Issues and Impact on Port
Drivers Generally
As discussed above, since the early 1980s the port drayage
industry has experienced a shift from an employment-based model
to an independent contractor or "owner operator" model.
As independent contractors, drivers are responsible for many of
the costs associated with port trucking, including fuel,
insurance, truck payments, repairs, maintenance, and other
licenses, tolls, parking and tickets. Several years ago, a
survey of Port of Oakland drivers found that drivers on average
---------------------------
<4> Bensam, David. "Port Trucking Down the Low Road: A Sad
Story of Deregulation." Dmos (2009).
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received $66,187 in gross annual earnings<5>. Truck expenses
reduced their earnings by an average of $36,117 resulting in an
average net income of $30,490.
This same report found that 62 percent of surveyed drivers
reported receiving no health insurance of any kind, 17 percent
receive health insurance through their spouse, 15 percent
purchase insurance privately, and five percent are covered
through a government-sponsored plan<6>. Thirty percent of the
surveyed drivers reported taking themselves or a family member
to the emergency room to receive medical care in the last year.
With respect to Southern California, one recent report estimated
that in the Ports of Los Angeles and Long Beach, 88 percent of
drivers were classified as independent contractors, with
employee drivers accounting for 12 percent<7>.
Another study, prepared for the Gateway Cities Council of
Governments found that the median driver's gross income of
$75,000 per year drops 61 percent to $29,000 after accounting
for these expenses<8>. This same study concluded that the
average independent contractor earner $11.59 per hour, compared
with the mean employee driver's earning of $16.30 per hour (or a
40.6 percent difference)<9>.
A 2005 study reported that only 10 percent of drivers had any
health insurance and only five percent had any pension
benefits<10>.
---------------------------
<5> "Taking the Low Road: How Independent Contracting at the
Port of Oakland Endangers Public Health, Truck Drivers &
Economic Growth." East Bay Alliance for a Sustainable Economy
(September 2007).
<6> Id.
<7> "The Road to Shared Prosperity: The Economic Benefits of the
San Pedro Bay Ports' Clean Trucks Program." Los Angeles
Alliance for a New Economy (August 2007).
<8> "A Survey of Drayage Drivers Serving the San Pedro Bay
Ports," CGR Management Consultants, LLC, prepared for the
Gateway Council of Governments, March 26, 2007.
<9> Id.
<10> Kristen Monaco and Lisa Grobar, "Study of Drayage at the
Ports of Los Angeles and Long Beach," Department of Economics,
California State University Long Beach, April 2005.
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More Recent Research Findings
A very recent research report<11> by the National Employment
Law Project, Change to Win and others made numerous findings
about the intermodal port drayage system in the United States.
Specifically the report made the following research findings:
"The typical port truck driver is misclassified as an
independent contractor:
o Port drivers are subject to strict behavioral
controls. Trucking companies determine how, when,
where, and in what sequence drivers work. They impose
truck inspections, drug tests, and stringent reporting
requirements. Drivers' behavior is regularly
monitored, evaluated, and disciplined.
o Port drivers are financially dependent on
trucking companies that unilaterally control the rates
that drivers are paid. Drivers work for one trucking
company at a time, do not offer services to the
general public, and are entirely dependent on that
company for work. Like other low-wage employees,
drivers' only means for increasing their earnings is
to work longer hours.
o Port drivers and their companies are tightly
tied to each other. Drivers perform the essential
(and most often sole) services of the trucking
companies they work for. Drivers work for years for
the same company; use company signs and permits;
represent themselves to others as being from the
company; and rarely offer their work independently of
the company.
Classification of drivers as independent contractors
drives the economics of the port trucking industry:
o Based on surveys of 2,183 drivers in seven
major ports, it is estimated that 82 percent of the
nation's 110,000 port truck drivers are treated as
-----------------------
<11> Smith, Rebecca, Dr. David Bensman and Paul Alexander Marvy.
"The Big Rig: Poverty, Pollution and the Misclassification of
Truck Drivers at America's Ports" (2011).
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independent contractors. Industry analysts identify
independent contracting as the industry's dominant
business model which sets standards for all port
drivers. Few other industries rely on anywhere near
this proportion of independent contractors.
o Through independent contracting agreements,
leases, and other employment arrangements, trucking
companies make drivers responsible for all
truck-related expenses including purchase, fuel,
taxes, insurance, maintenance, and repair costs.
o Port truck drivers work long hours for
poverty-level wages. Among surveyed drivers, the
average work week was 59 hours. Average net earnings
before FICA, income, and other taxes was $28,783 per
year for contractors and $35,000 per year for
employees. Minimum wage violations appear to be
widespread.
o In driver surveys, independent contractors
reported average net incomes 18 percent lower than
employee drivers did. Independent contractors were
two-and-a-half times less likely than employee drivers
to have health insurance and almost three times less
likely to have retirement benefits.
The misclassification of drivers in port trucking can be
directly linked to safety violations and the environmental
and public health crises at the nation's ports:
o The literature on the industry describes how
economic pressures encourage widespread evasion of
safety regulations. Drivers commonly use dangerous
and illegal equipment. Safety limits on working hours
and vehicle weights are routinely ignored.
o Industry observers have concluded that
low-wage independent contractors bear the industry's
capital expenses by owning and operating the only
equipment they can afford - the oldest diesel trucks
on the road. The environmental and public health
crises surrounding the nation's ports are a direct
result of the industry's adoption of misclassification
as a business model."
Previous Legislative Oversight
The Assembly Committee on Labor and Employment conducted several
informational hearings on working conditions affecting port
truck drivers in recent years. At those hearings, testimony was
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received from drivers, representatives of the trucking, shipping
and terminal operator industries, local elected officials and
members of the public.
The background material for the previous informational hearings
included the following summary of the working conditions facing
port truck drivers at the time:
"A vital component of this industry is port trucking or
drayage, part of the local trucking industry that
specializes in hauling container freights between port
terminals and warehouses, retail establishments,
manufacturers or rail lines. It is the first leg of
transport after arrival at the ports.
There are an estimated 11,000 class A short-haul truck
drivers in the L.A. basin, alone. The vast majority are
newly arrived immigrants and 87% are owner-operators,
considered to be independent contractors. They own their
own trucks and pay the costs of fuel, maintenance of
equipment, insurance, road taxes, license/permits and other
fees and expenses of the job. They are also responsible
for their own federal and state taxes, social security,
disability, unemployment, workers' compensation and health
insurance.
These truck drivers are paid "piece rate", that is, by the
haul (load) rather than by the hour. They cannot access
loads directly but are instead "deployed" by small trucking
companies (more than 300 in the L. A. basin) licensed to do
business in California as drayage companies. The trucking
companies, either directly or through brokers, contract
with steamship lines or shipping carriers to provide them
independent truck drivers (owner operators/ independent
contractors). This is done through the use of lease
agreements between the trucking company and drivers.
Under the lease agreements, a company provided truck is
signed over in title to a truck driver who then authorizes
the company to deduct payments for the truck and vehicle
insurance from his/her weekly compensation. Initially, most
of these truck drivers cannot afford a down payment on a
commercial vehicle, vehicle insurance, the cost of a motor
vehicle permit, a Nextel cell phone or initial fuel credit.
The authorization for deductions in weekly pay is the
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means used to repay the start-up debt.
The driver must go through the trucking company dispatcher
to receive any loads and compensation is based on how much
is transported, not the amount of time worked. The truck
driver earns nothing during waiting periods or while at the
port terminal waiting to pick up or drop off cargo
containers.
Generally, truck drivers start their day at 5:00 a.m. to
insure a place in line by the 7:00 a.m. or 8:00 a.m. port
terminal gate openings. They hopefully finish with a last
load by the 5:00 p.m. gate closures. On average, this
produces three moves or loads per day. The truck drivers'
average work day is 11.6 hours and 50% or more of that time
is "waiting time". Unpaid time waiting to pick up cargo
cuts the number of runs truck drivers can make by half and
limits their ability to make a living. After deductions for
truck payments, vehicle insurance and the costs for fuel,
equipment upkeep, road taxes and other expenses of the job,
the net profit for many port truck drivers is as little as
$20,000 to $25,000 a year, making them among the lowest
paid truck drivers in the country.
Current business practices at the terminals result in
trucks idling inside the port gates in excess of two hours
and sometimes up to seven or eight hours during peak time.
Existing law limits idling outside the gate to 30 minutes,
but terminal operators skirt this law by simply moving the
gates. The idling or queuing trucks emit smog, pollute the
air and waste expensive diesel fuel. Drivers, port workers
and local communities are being unnecessarily exposed to
pollution due to the long hours of idling.
Moving the long lines at terminal gates inside the
terminals has created other hazardous working conditions
for drivers. The area inside the terminal is chaotic, with
heavy equipment loading and unloading trucks. To avoid
disrupting this work or risk of injury, drivers must wait
hours in their trucks without restroom or lunch breaks.
Oftentimes they are required to perform uncompensated tasks
(work that is supposed to be assigned to longshoremen)
while waiting for their load. Terminal operators require
them to move containers between terminals without
compensation, refusing to provide them their load if they
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don't comply.
Truckers must often wait long hours inside the ports in
order to obtain safe chassis and other equipment from the
shipping companies and the shipping companies often fail to
reimburse drivers for safety repairs incurred while in
highway transit.
In addition, truckers are charged late fees for the return
of empty containers, even when terminals are closed or when
returned containers are refused due to congestion in the
terminal. They are charged parking fees inside the
terminal when their assigned space is unavailable, and are
fined if they refuse to move containers to off docks and
other locations.
Invoices are generated without any back-up information and
completely at the discretion of the marine terminal.
Marine terminals can "shut out" or prohibit trucking
companies, owner operators, and drivers from operating if
any bill is outstanding, regardless if the bill is disputed
or not. Truckers must sign adhesive contracts with the
foreign shipping companies if they want to work at the
ports and they have no recourse to a neutral, third party
for the resolution of disputes.
As a result of these and related conditions at the ports,
many independent truck drivers are taking their services
elsewhere. Many are abandoning the business altogether,
bringing in less-skilled, often undocumented immigrant
drivers with old rigs that are less reliable and more
polluting. The turnover rate among port truck drivers is
said to exceed 150 percent per year as they cycle in and
out of the industry."
The California Air Resources Board Statewide Drayage Truck
Regulation
In December 2007, the California Air Resources Board (CARB)
approved a new regulation to reduce emissions from drayage
trucks at California's ports and intermodal rail yards. CARB
staff subsequently proposed, and the board approved, changes to
the regulation at the CARB's December 17th, 2010 hearing. These
changes will become law upon Office of Administrative Law
approval.
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The regulation establishes requirements for drayage truck
drivers, drayage truck owners, motor carriers that dispatch
drayage trucks, port and marine terminals, intermodal rail
yards, and port and rail authorities.
In general, the regulation requires emission reductions from
drayage trucks as well as recordkeeping and reporting to help
monitor compliance and enforcement efforts. The basic
responsibilities for each stakeholder are as follows: truck
drivers must provide motor carrier contact information, load
destination, and origin to enforcement officers, if requested;
truck owners are required to register their trucks in the State
administered Drayage Truck Registry (DTR), ensure their trucks
meet emission standards by the appropriate deadline dates (see
table below), and ensure that emission control technologies are
functioning properly; motor carriers must ensure that dispatched
trucks are compliant with the regulation, provide a copy of the
regulation to truck owners, and keep dispatch records for five
years; and terminals are required to collect information from
each noncompliant truck entering their facility and report it to
their respective port or rail authority, who then reports this
information to the CARB.
The regulation applies to all on-road class-7 and class 8 (gross
vehicle weight rating > 26,000 lbs) diesel-fueled vehicles that
visit California's ports and intermodal rail yards regardless of
the state or country of origin or visit frequency. The
regulation requires truck owners to register their trucks in the
State run DTR prior to port or railyard entry. Truck owners are
also required to meet emission standards according to a
specified compliance schedule. After December 31, 2013, all
drayage trucks must be equipped with a 1994 or newer model year
engine that meets or exceeds 2007 model year California or
federal emission standards.
Recent Port "Clean Trucks" Proposals and Subsequent Litigation
In recent years, there have been efforts to persuade California
ports (and others across the nation) to take matters in to their
own hands with respect to some of these issues. The most
significant of these port proposals involved the Ports of Los
Angeles and Long Beach.
In late 2006, the San Pedro Bay Ports of Los Angeles and Long
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Beach adopted an aggressive, comprehensive strategy to reduce
port-related emissions by at least 45 percent over five years, a
plan known as the Clean Air Action Plan (CAAP). One of the
first major proposed initiatives under the Plan was the Clean
Trucks Program (CTP), announced in April 2007. The articulated
goal of the CTP was to cut air pollution from port trucks by
more than 80 percent within 5 years. Under the proposal,
drayage truck owners would scrap and replace the oldest of
approximately 16,000 trucks and retrofit others, with the
assistance of a port-sponsored grant subsidy.
Under the proposal, beginning in 2008 the ports would use their
tariff authority to allow only concessionaires operating "clean"
trucks to enter port terminals without having to pay a new truck
impact fee at the gate. The concession companies would be
required to use only trucks that meet the CAAP standard, which
was defined as EPA-standard 2007 or newer trucks, retrofitted
trucks manufactured in 1994 or after, or trucks that have been
replaced through the Gateway Cities Truck Modernization Program.
Year by year, the oldest trucks will be barred from the ports
until finally only those that meet the CAAP standard will be
permitted to work in the ports.
In addition under the proposal, licensed motor carriers would be
required to pay a license fee to obtain a concession to operate
in the ports, and after a transition period would be required to
directly own, operate and maintain their truck fleet and employ
the drivers directly.
As part of the Clean Truck Program development process, the Port
retained various consultants.
Primarily, the Port retained John E. Husing to conduct an
economic analysis of the proposed Clean Truck Program. Mr.
Husing prepared a presentation dated September 5, 2007, and a
report dated September 7, 2007, known as the "Husing Report."
The Husing Report concluded that:
"At its core, the Clean Truck Program is designed to reduce
air emissions in a timely fashion yielding an economic
benefit to the community of $4.7 to $5.9 billion due to a
reduction in premature deaths, loss of work and fewer
medical problems. Some 95% of this benefit will come from
230-1,450 people not dying. With the program in place, the
ports will be in a position to get their infrastructure
plans approved. This will allow them to expand to their
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42.5 million TEU capacity by the period 2020-2030. The
result will be the ability of the ports to support 300,000
to 600,000 new jobs that would be lost if that
infrastructure cannot be built. Unfortunately, there is a
cost of attaining these goals. That will be the closure of
some İlicensed motor carriers] and the loss of some of the
non-driving jobs and small businesses involved with them,
as well as the closing off of port drayage as a route to
upward mobility for some workers. It is the type of choice
that has led to the expression, 'there is no such thing as
a free lunch.'"
In addition, the Husing Report concluded that the cost of using
employee drivers would "be 167% higher than the cost of using
today's İindependent owner-operators]." In aggregate, the
report concluded that drayage services prices would need to
increase by 80 percent to cover cost increases, including the
cost of higher driver costs, truck purchases, and off-street
parking.
The Port also retained the Boston Consulting Group ("BCG") to
prepare an analysis of various options for implementation of the
Clean Truck Program. BCG prepared a report that was released in
March 2008, known as the "BCG Report." The BCG Report
considered various options and determined that the proposed
Concession Agreement, including the employee driver requirement,
was the most likely to provide sustainable environmental, safety
and security, and operational gains. The BCG Report stated that
its Clean Truck Program Option III, which included the
requirement for employee drivers, would add a $500 million
annual operating cost to the cost of Port drayage, compared to
an option without such a requirement. BCG also set out an
Option II, "Enhanced Model with Market Incentives," under which
the Port would adopt incentives and funding priorities "that
should create market conditions to encourage the evolution" of
the drayage market to meet port objectives, but without an
employee driver provision. However, BCG concluded that the
benefits from Option II would not be as great as from Option
III.
On February 19, 2008, the Port of Long Beach adopted a clean
truck program, but without an employee driver requirement. The
Port of Los Angeles adopted their program on March 20, 2008.
Most significantly, the Port of Los Angeles program required
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drivers to be directly employed by the motor carriers<12>.
On July 28, 2008, the American Trucking Association (ATA) filed
lawsuits challenging both the Los Angeles and Long Beach<13>
clean truck concession programs (or portions thereof). On July
30, 2008, ATA moved for a preliminary injunction restraining
implementation of the mandatory concession agreements.
On September 9, 2008, the District Court denied the ATA motion
for preliminary injunction. However, this decision was appealed
to the Ninth Circuit Court of Appeals, which reversed the lower
court and remanded the case for further proceedings.
On April 28, 2009, United States District Court Judge Christina
A. Snyder granted a preliminary injunction against those parts
of the Los Angeles and Long Beach plans that were not directly
tied to safety (as determined by the court). The ruling put a
temporary end to the Port of Los Angeles' requirement that all
trucking companies doing business at the port hire their drivers
as employees.
On February 24, 2010, the Ninth Circuit affirmed the lower
court's preliminary injunction, with one limited exception
(related to a requirement that trucks display certain placards).
The trial on the merits was held before the District Court in
April 2010. On August 26, 2010, the District Court made its
determination. The specific preemption doctrines at issue in
the litigation and the basis for the Court's decision are
discussed in more detail below. However, essentially the
District Court held that the employee driver requirement escaped
federal preemption under a specified "market participant"
exception.
Following the District Court ruling, the ATA requested an order
that the preliminary injunction with respect to the employee
driver requirement remain in place, which the Court granted.
The ATA has appealed the District Court ruling to the Ninth
Circuit Court of Appeals, where the case is currently pending.
---------------------------
<12> The Port of Oakland adopted a clean truck program on June
16, 2009, but without an employee requirement. Allegations were
made that the threat of litigation influenced the decision by
the Port not to include the employee requirement.
<13> The ATA settled their lawsuit with the Port of Long Beach
out of court on October 19, 2010.
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Oral argument in the case has been set for June 10, 2011.
A Brief Primer on Federal Preemption
The federal preemption arguments regarding the Port plan are
complex, but important in understanding this issue properly.
Moreover, opponents of this bill argue that it would be
preempted by federal law on the same grounds as (they contend)
the Port plan is preempted. Therefore, in considering this
legislation it is useful to understand these preemption
doctrines in some detail, and the arguments the respective
parties have made about the issue.
(1) Federal Preemption Under the Federal Aviation
Administration Authorization Act
The primary (although not the only) preemption argument raised
against the Port plan was that it was preempted by the Federal
Aviation Administration Authorization Act of 1994 (FAAA Act).
Congress enacted the FAAA Act to achieve deregulation of the
motor carrier industry, and therefore, included a broad
preemption statute. The statute provides that, with regard to
motor carriers, "a State, political subdivision of a State, or
political authority of two or more States may not enact or
enforce a law, regulation, or other provision having the force
and effect of law related to a price, route, or service of any
motor carrier." 49 U.S.C. § 14501(c)(1). Therefore, for a state
regulation to be preempted under the FAAA Act, the regulation
must be "related to the price, route, or service of a motor
carrier that transports property." Toucher v. City of Santa Ana,
219 F.3d 1040, 1047 (9th Cir. 2000), 219 F.3d at 1047. Relation
to price, route, or service is found where "the regulation has
more than an indirect, remote, or tenuous effect on the motor
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carrier's prices, routes, or services." Id.
(2) The "Safety Exception" to Preemption Under the
FAAA Act
The provision of the FAAA preempting state regulation "related
to the price, route, or service of a motor carrier that
transports property," contains an express safety exception to
preemption. See 49 U.S.C. § 145019(c). Specifically, this
section provides that the preemption provision "shall not
restrict the safety regulatory authority of a State with respect
to motor vehicles, the authority of a State to impose highway
route controls or limitations based on the size or weight of the
motor vehicle or the hazardous nature of the cargo, or the
authority of a State to regulate motor carriers with regard to
minimum amounts of financial responsibility relating to
insurance requirements and self-insurance authorization." 49
U.S.C. § 14501(c)(2)(A).
The United States Supreme Court has held that, in order to fall
within the safety exception, a statute, regulation, or provision
must be "genuinely responsive to safety concerns." City of
Columbus v. Ours Garage and Wrecker Service, Inc., 536 U.S. 424,
442, 122 S.Ct. 2226, 153 L.Ed.2d 430 (2002). In other words, a
regulation does not fall under the safety exception if it is an
economic regulation under the guise of a safety regulation. Id.
The Supreme Court has also held that the "narrowest possible
construction of the exception" is "surely resistible," because
the FAAA Act's preemption rule and the safety exception "do not
necessarily conflict." Ours Garage, 536 U.S. at 441. Instead,
the safety exception "seeks to save from preemption state power
'in a field which the States have traditionally occupied.' " Id.
(3) The "Market Participant" Exception
A provision of state or local law that is preempted under the
FAAA Act and does not fall under the "safety exception"
discussed above may nevertheless escape preemption under an
additional ground: the "market participant" exception.
The market participant doctrine distinguishes between the role
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of the state or local government as a regulator and its role as
a market participant. Engine Mfrs. Ass'n v. South Coast Air
Quality Management Dist., 498 F.3d 1031, 1040-41 (9th Cir.2007)
("Not all actions by state or local government entities ...
constitute regulation, for such an entity, like a private
person, may buy and sell or own and manage property in the
marketplace."). In cases of statutory preemption, "the market
participant doctrine is based on the proposition that
'pre-emption doctrines apply only to state regulation.' " Id. at
1040 (emphasis added). Therefore, if state action is
proprietary, rather than regulatory, such action is not
generally subject to statutory preemption. Id.
The Ninth Circuit has held that state action qualifies as
proprietary in either of two circumstances. "First, state
action is proprietary if it 'essentially reflectİs] the
İgovernmental] entity's own interest in its efficient
procurement of needed goods and services, as measured by
comparison with the typical behavior of private parties in
similar circumstances.' " Engine
Mfrs., 498 F.3d at 1041. Second, "state action is proprietary
if 'the narrow scope of the challenged action defeatİs] an
inference that its primary goal was to encourage a general
policy rather than address a specific proprietary problem.' "Id.
How The Court Has Applied The Preemption Doctrines to This Case
Thus Far:
As discussed above, on August 26, 2010, the District Court
issued a decision on the merits of the preemption challenge to
the Port plan (specifically the employee driver requirement). A
brief analysis of the Court's rationale is as follows:
(1) The Port Plan Falls Within the FAAA Act Preemption
Clause
The District Court concluded that the employee driver
requirements are "related to İmotor carriers'] price, route, or
service," and thus fall under the preemption provision of the
FAAA Act. Specifically, the Court stated the following:
"The evidence shows that the employee driver provision
would affect motor carrier's routes or services, by
prohibiting trucks driven by independent owner-operators
AB 950
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from providing drayage services to and from marine
terminals at İthe Port]?Furthermore, the record
demonstrates that the employee driver provision would
significantly affect costs of drayage services. Therefore,
the evidence shows that at least some of the increased
costs of drayage services caused by the employee driver
provision will impact drayage pricing, causing it to
increase. Accordingly, the Court finds that İthe FAAA Act]
preempts the employee driver provision, unless İthe Port]
demonstrates that an exception to preemption applies."
(2) The Employee Driver Requirement Does Not Fall Under
the "Safety Exception"
As discussed above, federal preemption under the FAAA Act
contains an express exception for "the safety regulatory
authority of a state with respect to motor vehicles."
However, the District Court held that the Port's employee driver
requirement did not fall under this safety exception. Citing
earlier language from the Ninth Circuit decision on the merits
of the ATA's preliminary injunction, the Court stated:
"The Port of Los Angeles Concession agreement mandates the
phasing out of thousands of independent contractors (many
or most of them small businessmen who own their own
trucks). In an attempt to justify this, the Port argues
that there are 'İs]erious and longstanding safety problems'
because of 'unsafe, negligent or reckless driving' that has
subjected the Port to 'a risk of financial liability and
moral culpability for failure to act to control actions by
third parties.' Those concerns would allegedly be
ameliorated because requiring employee drivers will provide
'control İto] the concessionaires as employers of their
employee drivers to a degree not possible with casual or
independent drivers.' We see little safety-related merit
in those threadpaper arguments, which denigrate small
businesses and insist that individuals should work for
large employers or not at all. As it is, the record
demonstrates that the Ports' primary concern was increasing
efficiency and regulating the drayage market."
AB 950
Page X
(3) The Employee Driver Requirement Nevertheless Escapes
Preemption Under the "Market Participant" Exception
Despite finding that the Port's employee driver requirement was
preempted by the FAAA Act and did not fall within the "safety
exception," the District Court nevertheless held that the
requirement escaped preemption under the "market participant"
exception (discussed above.)
In relevant part, the Court stated the following:
"The Port's adoption of the Concession Agreement as a whole
is an 'essentially proprietary' action under the market
participant doctrine, because the Port took the action in
order to sustain and promote Port operations. The
Concession Agreement helps the Port manage its property and
facilities as any private landlord and facilities operator
would?
?While the Port had not previously required drayage
services providers to contract with it to access Port
property, it made an economically driven decision to do so
via the Concession Agreement in its capacity as a landlord
and facilities operator?
?As recognized by the Ninth Circuit, the employee driver
provision was designed to transfer the financial burden of
administration and record-keeping onto the trucking
companies instead of the Port. This is clearly an
economically motivated action, and one that a private
company with substantial market power-such as the oligopoly
power of the Port-would take when possible in pursuit of
maximizing profit. The provision was also designed to help
protect the Port's investment in retrofitted trucks?
?Consequently, the weight of evidence demonstrates that the
employee provision was adopted to conserve administrative
costs of the Clean Truck Program and protect the Port's
investment in clean trucks."
Opponents' Comment on the Current Appeal
Opponents to this bill have stated that the ATA filed an appeal
to the District Court's decision (which is currently pending).
However, they note that the Port did not appeal the District
AB 950
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Court's finding that the employee driver requirement did not
fall under the "safety exception" to federal preemption.
Therefore, they contend that that issue has not been challenged
and therefore the only primary issue on appeal is whether the
District's Court's determination regarding the "market
participant" exception was correctly decided.
"Statutory Employees" Under the Federal Motor Carrier Act
Under traditional tort liability, an employer is generally not
liable for physical harm and damage caused by an independent
contractor. In the trucking industry, this raises obvious
public safety concerns. Prior to the 1950s, it is reported that
many motor carriers attempted to shield themselves from
liability for the negligent act of drivers they utilized as
independent contractors under lease agreements.
As a result, in 1956 federal law and regulations were amended to
protect the general driving public. Language was added to the
federal motor carrier safety regulations as follows:
"Employee means any individual, other than an employer, who
is employed by an employer and who in the course of his or
her employment directly affects commercial motor vehicle
safety. Such term includes a driver of a commercial motor
vehicle (including an independent contractor while in the
course of operating a commercial motor vehicle), a
mechanic, and a freight handler. Such term does not
include an employee of the United States, any State, any
political subdivision of a State, or any agency established
under a compact between States and approved by the Congress
of the United States who is acting within the course of
such employment." (49 C.F.R. § 390.5)
Thus, the individuals driving the trucks under a lease agreement
are essentially deemed "statutory employees" of the motor
carrier for purposes of the safety regulations protecting the
public.
In addition, with respect to the written lease agreements, the
federal regulations require the motor carrier shall have
"exclusive possession, control and use of the equipment" for the
duration of the lease and shall "assume complete responsibility
for the operation of the equipment" for the duration of the
lease. (49 C.F.R. § 376.12(c)(1))
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However, it is important to note that the regulations go on to
state that, "İn]othing in İthese provisions] is intended to
affect whether the lessor or driver provided by the lessor is an
independent contractor or an employee of the authorized carrier
lessee. An independent contractor relationship may exist when a
carrier lessee complies with İthese requirements]" (49 C.F.R. §
376.12(c)(4))
Is The Establishment of "Statutory" Employment Protection
Unprecedented Under State Law?
Under current law, there are already a number of circumstances
where state law deems an individual to be an employee for
specified employment purposes. This is referred to as
designation as a "statutory employee." A "statutory employee"
is defined as an employee by law under a specific statute,
whereas most individuals are determined to be an employee under
the common law test described above.
According to EDD<14>, certain groups of workers have been
specifically covered by state law for Unemployment Insurance,
Employment Training Tax, and State Disability Insurance
purposes.
Under California law, "statutory employees" include workers
performing services for an individual or entity in a continuing
relationship as:
An agent-driver or commission-driver engaged in
distributing meat, vegetable, fruit, or bakery products,
beverages (other than milk), or laundry or dry-cleaning
services for his/her principal.
A traveling or city salesperson, other than an
agent-driver or commission-driver, working full time on
behalf of their principal (except for sideline activities
on behalf of some other person), taking orders from
wholesalers, retailers, contractors, or operators of
hotels, restaurants, or other similar establishments for
merchandise for resale or supplies to be used in their own
business operations.
A homeworker performing work, according to
specifications furnished by the person for whom the
--------------------------
<14> See EDD Information Sheet DE 231SE
AB 950
Page A
services are performed, on materials or goods furnished by
that person which are required to be returned to that
person or a person designated by him/her.
"Statutory employees" also include certain unlicensed
individuals working in the construction industry, certain
authors or artists in the motion picture, radio or television
industry, and certain authors of commissioned or specifically
ordered work.
Therefore, supporters of this bill argue that it is not
unprecedented for certain types of individuals to be treated as
employees for specified employment purposes by statute.
Prior Legislative Proposals
In prior years, there have been several legislative proposals
aimed directly at port drivers and their classification as
employees or independent contractors.
In 2005, the California Teamsters Public Affairs Council
sponsored Senate Bill 848 (Dunn). Senate Bill 848 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.
Governor Schwarzenegger vetoed Senate Bill 848 on September 29,
2005 and stated the following in his veto message:
"While this bill is meant to improve the economic clout of
port owner-
operator drivers, its provisions could violate federal
antitrust law and
result in many unintended consequences. This legally
doubtful attempt
at an antitrust exemption, or untried expansion of state
regulation, is
sure to become a legal battleground.
California ports face heavy congestion and air quality
problems.
AB 950
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Motor carriers, drivers, port operators and shippers have
worked
cooperatively to address these issues in recent months. I
recently
signed Senate Bill 45, which was cooperatively negotiated
between
both the trucking companies and drivers, protects drivers
from being
assessed fees for circumstances that are out of their
control, including
locked gates, employee lockouts and traffic congestion.
The litigious firestorm this bill would assuredly ignite is
counter-
productive to the cooperative work that must be
accomplished to
capture the economic potential afforded by the growth in
international
trade."
In 2006, State Senator Dunn introduced a nearly identical bill,
Senate Bill 1213, that was similarly vetoed by Governor
Schwarzenegger.
Moreover, there have been numerous bills in recent years to
address port issues generally, some of which would have directly
or indirectly impacted the working conditions of port drivers.
ARGUMENTS IN SUPPORT :
Writing in support of this measure, the California Teamsters
Public Affairs Council states the following:
"These drivers - mostly vulnerable Spanish-speaking
immigrants unaware of their legal rights - have no choice
but to go along with being misclassified as an "independent
contractors." Port trucking companies misclassify drivers
not only to evade legal mandates such as minimum wage laws,
employment tax payment and workers' comp coverage, but also
in order to thrust onto drivers virtually the entire cost
of doing business by requiring drivers to supply their own
trucks and deducting from their pay numerous operational
costs, including maintenance, repairs, fuel and insurance -
costs that the Labor Code prohibits imposing on employees.
AB 950
Page C
These workers bear no resemblance to bona fide "independent
contractors." They plainly lack decision-making control of
an entrepreneurial nature. Unless a driver possesses his
own "operating authority" from the U.S. Dept. of
Transportation, he isn't allowed even to advertise himself
to shippers as being in the truck delivery business let
alone permitted to haul their freight. Nor do port drivers
have true entrepreneurial opportunity to profit by selling
driving services to multiple trucking companies. Most of
these drivers no longer even own their own trucks. A port
driver isn't in a position to negotiate his rates, as he
can't influence the rates paid by shippers to a trucking
company. Port drivers also lack power to decide whether or
in what manner to divide work among two or more companies;
instead, drivers are at the mercy of their employer's power
to terminate without cause, and also are constrained by,
among other things, contractual restrictions, maximum hours
regulations, and frequent limits on their productivity due
to chronic port gridlock.
The indisputable reality is that port drivers misclassified
as "independent contractors" do exactly the same work as
the much smaller group of port drivers who some trucking
companies have hired as "employees." Both groups carry out
the employer's core business: carrying goods to and from
the ports. Single-truck port drivers are simply a lower
cost alternative to using employee drivers. They do not
compete with other trucking companies; they compete with
other minimum wage workers in the lowest level of the labor
market. They are nothing less than sharecroppers on
wheels.
The price for the abuse of these workers has been paid not
only by the drivers themselves but also by Californians
living near the ports. Meager earnings have limited
drivers to buying very old used trucks, the toxic diesel
fumes from which poison the air around the ports where
drivers are forced to wait in lines for hours at a time,
engines idling all the while. The ensuing public health
crisis has necessitated a drastic measure: the California
Air Resources Board's ban of old diesel trucks at the
ports.
The CARB diesel truck ban has created the need for new
"clean" trucks - vehicles with six-figure price tags. The
AB 950
Page D
Port of Los Angeles devised a plan that included generous
subsidies for the purchase of "clean" trucks in conjunction
with a requirement that port trucking companies gradually
classify all drivers as "employees." This was deemed
necessary to, among other things, ensure that trucking
companies, not drivers, would bear the high cost of the
maintenance regimen essential to keeping the trucks
"clean." Trucking companies had no problem reclassifying
the requisite Trucking Association got a court injunction
against the employee-reclassification requirement, halting
this part of the plan pending resolution of ATA's lawsuit
against the ports. Trucking companies immediately
converted the newly reclassified "employee" drivers back
into "independent contractors."
The Los Angeles Port Plan was upheld by a federal court,
but the driver reclassification mandate has been placed on
hold pending the outcome of an appeal. Meanwhile, the
remainder of the original plan has been carried out with
perverse results. Several generous government grants
subsidizing the purchase of "clean" trucks were doled out
to trucking companies, each in exchange for a drivers' old
truck being scrapped. Incredibly, the trucking companies
have not only continued to make drivers pay for fuel,
maintenance, repair and insurance, they are now forcing
drivers to pay exorbitant truck rental fees or to accede to
unconscionable "lease-to-buy" deals.
For example, one Southern California trucking company
received several grants from the LA Port each in the
approximate amount of $182,000, with which the company
purchased "clean" trucks. The company's own cost per
truck, including tax on in-kind income, was $60,000. Each
grant was conditioned on a driver's old truck being
scrapped. Drivers, now lacking trucks of their own, were
subjected by the company to unconscionable lease-to-buy
deals; at least one such contract charged the driver $2000
per month for 84 months-or $168,000-for one of the
subsidized trucks! Moreover, the drivers cannot use the
truck for anything but port drayage, leaving them mired in
debt servitude and unable to use the truck in more
profitable sectors of trucking.
Historically, trucking industry lease-to-buy deals are
notorious for being unfairly stacked against drivers;
AB 950
Page E
rarely if ever have drivers been able to continue the
payments long enough to buy the truck. The even more
unconscionable terms of the "clean truck" lease-to-buy
deals have wiped out port drivers' financial resources in
record time. Many port drivers have lost their homes
and/or been forced into bankruptcy. Driver turnover is
rampant. And each time a driver is forced to quit, the
trucking company gets to lease the same truck to a new
driver.
This situation is outrageous. The flagrant, longstanding,
industry-wide violation of employee rights has now reached
true emergency levels. The port-trucking industry's
unlawful "business model" is ruinous to port drivers. The
unconscionable terms under which they're forced to work not
only destroys their families' lives, it gravely risks road
safety. For one thing, they simply can't afford truck
maintenance and repairs essential to safe operation. And
the fact that they're paid not by the hour but per trip
forces them to drive excessive hours regardless of fatigue
or federally mandated limits on hours of service. Saddling
drivers with truck maintenance costs they can't afford also
undermines the "clean truck" program and thereby threatens
the quality of the air we breathe. This misclassification
scheme also cheats California's coffers of tax monies. And
it inflicts unfair economic injury on competitor trucking
companies that obey law by correctly treating their
employees as such.
In the absence of a clear rule treating port drivers as
"employees,"
individual drivers have been burdened with having to
legally contest their misclassification, case by case,
subjecting driver-claimants to retaliation and evoking
scorched-earth legal response from the trucking industry,
whose aggressive litigation tactics and endless appeals
delay rulings and exhaust drivers' resources. Ultimately,
none of the many cases in which a port driver has prevailed
has convinced the industry to clean up its act.
Policymakers frequently have designated certain workers as
"statutory employees" via statute or regulation either to
curtail, as in this situation, rampant misclassification or
for other policy reasons. See, e.g., Labor Code § 2750.5
(providing that an unlicensed subcontractor is a statutory
AB 950
Page F
employee of the general contractor, not an independent
contractor); "EDD Information Sheet: Statutory Employees"
(DE 231SE Rev. 6 (1-11) (setting forth EDD's treatment as
"statutory employees" certain commission drivers, traveling
salespersons, construction workers, home workers,
artists and authors); 49 CFR § 390.5 (providing that, for
purposes of trucking
safety regulations, the term "employee" includes
independent contractor
drivers).
Enactment of Labor Code 2750.5 was targeted at the
construction sector of what the legislature at that time
referred to as the "subterranean economy," in which
employers evaded California law by paying workers in cash
or misclassifying them
as independent contractors. (Assm. Com. on Labor,
Employment & Consumer Affairs, Analysis of AB 3249
(1977-1978 Reg. Sess.) p. 1)
Legislative action targeted at the port-trucking sector of
the underground economy is urgently needed. İThis bill]
provides the only effective solution to the problem at
hand: a codified bright-line designation of port drivers as
"statutory employees" - a rule that affords no loopholes,
no ambiguities, and no other excuse for these companies to
continue acting as though they are above the law."
ARGUMENTS IN OPPOSITION :
The California Trucking Association (CTA) opposes this measure
and states the following:
"The practical effect of this bill is to ban independent
contractors, also known as owner-operators, from California
ports and negatively impact economic activity.
Today, thousands of independent owner-operators provide
critical goods movement services at each of California's
ports. Container movement would grind to a halt without
the services of the owner-operators that currently haul as
much as 90 percent of containers passing through California
ports. Also, container activity at the ports vary daily by
as much as 30 percent and annually such activity is closely
tied to the overall condition of state, national, and
AB 950
Page G
international economies. Owner-operators provide necessary
capacity and flexibility to meet the varying demands of
drayage and keep goods moving efficiently.
Under İthis bill], owner-operators would be left with the
choice of finding work outside the port or become an
employee of a company, if a job is available. These
owner-operators have chosen not to be an employee for their
own economic reasons and İthis bill] goes against their
free will to choose where they work. Choosing when to work
or spend time with their families gives owner-operators
flexibility that employee drivers lack. The opportunity to
work for another company that pays a better rate or whose
route keeps the driver closer to home are also important
personal considerations.
"Additionally, no practical public or driver safety
argument has been made for outright banning owner-operators
from California ports. In fact, California leads the
nation in safety with less than one fatality per 100
million miles, more than 20 percent below the national
average. Currently, commercial drivers undergo stringent
state and federal inspections of their trucks and oversight
driving records. Companies cannot afford to contract with
or employ unsafe drivers due to liability and profitability
concerns.
Mandating employee drivers will not eliminate the need for
trucks to haul cargo out of the ports to railheads or
distribution centers, nor does it affect the routes used by
drivers to accomplish their deliveries. Existing law
provides the Department of Transportation and local
municipalities with the authority to set certain
restrictions on routes for various reasons. İThis bill]
proves unnecessary under both driver and public safety
arguments.
If the main concern is misclassification, as the proponents
of İthis bill] claim, then California should focus on
existing and established enforcement mechanisms. Rather
than address potential misclassification, this bill reaches
too far in eliminating a class of drivers and small
businesses that represent the dominate model for the
drayage industry. Clear and uniform criteria for
classifying independent contractors serves the interests of
AB 950
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all parties. Conversely, elimination is a one-size-fits-all
approach in a highly variable industry that fails to
address critical issues.
"An anticipated drayage truck shortage in the coming years
will be exacerbated by mandates like İthis bill] that force
a specific business model that results in higher,
uncompetitive costs. According to a report by Dr. John
Husing on the employee mandate in the San Pedro Bay ports,
the cost of drayage would increase 167 percent over the
current use of owner-operators. A second report by the
Boston Consulting Group on the same mandate stated that
annual drayage costs would rise by at least $500 million.
Increased California costs and easier access to
out-of-state ports will draw cargo from California ports
resulting in lost jobs and tax revenue.
The fact of the matter is that an employee driver mandate
proposed in İthis bill] is preempted by federal law.
Federal law prohibits states from taking actions that
impact the rates, routes, or services of trucking companies
absent qualification under a specified "safety exception."
In August 2010, the U.S. District Court for the Central
District of California reaffirmed its earlier finding in a
case regarding the Port of Los Angeles Clean Trucks Program
that the employee mandate provision does not meet the
safety exception and is preempted by federal law:
'. . . this Court enjoined the provision, finding
that . . . provisions of the POLA Concession
Agreement dealing with the independent operator
phase-out are preempted under the FAAA Act, and
do not fall within the scope of the safety
exception.' . . . For the same reasons, the
Court again finds that the provision does not
fall within the safety exception.
The same facts that led the District and Ninth Circuit
Courts to reject that employee driver mandate would apply
to the employee driver mandate İin this bill]."
In addition, numerous individuals oppose this bill, stating (in
part), "As an independent owner-operator, I enjoy the freedom of
controlling my schedule and determining which companies I
contract with for services rather than work for one company on
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Page I
their schedule and at their pay. My family and I chose this
life and want to keep it."
REGISTERED SUPPORT / OPPOSITION :
Support
Alameda Labor Council, AFL-CIO
Amalgamated Transit Union
American Federation of Teachers
BlueGreen Alliance
California Labor Federation, AFL-CIO
California Teamsters Public Affairs Council
Center for Environmental Health
Center on Policy Initiatives
Change to Win
Clergy and Laity United for Economic Justice-Los Angeles
Coalition for Clean & Safe Ports
Communications Workers of America
East Bay Alliance for a Sustainable Economy
East Yard Communities for Environmental Justice
Interfaith Committee for Worker Justice
Laborers' International Union of North America
Los Angeles County Federation of Labor
Ms. Shirley Burnell
National Wildlife Federation
Natural Resources Defense Council
San Pedro Democratic Club
Service Employees International Union
Sheet Metal Workers' International Association
Sierra Club
South Asian Americans Leading Together
Teamsters Joint Council 7
Teamsters Local 70
Union of Concerned Scientists
United Auto Workers
United Food and Commercial Workers International Union
United Steelworkers
Utility Workers Union of America
Working Partnerships USA
Opposition
Agriculture Transportation Coalition
American Association of Exporters and Importers
AB 950
Page J
American Import Shippers Association
California Business Properties Association
California Chamber of Commerce
California Farm Bureau Federation
California Retailers Association
California Trade Coalition
California Trucking Association
Customs Brokers and Forwarders Association of Northern
California
Express Association of America
Harbor Trucking Association
Health & Personal Care Logistics Conference
International Warehouse & Logistics Association
Long Beach Area Chamber of Commerce
National Federation of Independent Business
National Retail Federation
National Shippers Strategic Transportation Council
Numerous individuals
Pacific Merchant Shipping Association
Retail Industry Leaders Association
The Waterfront Coalition
Travel Goods Association
West State Alliance
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091