Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would establish the Motor Carrier Employer Amnesty Program pursuant to which, notwithstanding any law, a motor carrier performing drayage services may be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a settlement agreement with the Labor Commissioner, with the cooperation and consent of the Employment Development Department, prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the settlement agreement contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. The bill would permit a settlement agreement to contain a provision authorizing the Labor Commissioner and the Employment Development Department to recover from the motor carrier the reasonable, actual costs of the Labor Commissioner and the Employment Development Department for their respective review, approval, and compliance monitoring of that settlement agreement.

Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would establish the Motor Carrier Employer Amnesty Program pursuant to which, notwithstanding any law, a motor carrier performing drayage services may be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a settlement agreement with the Labor Commissioner, with the cooperation and consent of the Employment Development Department, prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the settlement agreement contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. The bill would permit a settlement agreement to contain a provision authorizing the Labor Commissioner and the Employment Development Department to recover from the motor carrier the reasonable, actual costs of the Labor Commissioner and the Employment Development Department for their respective review, approval, and compliance monitoring of that settlement agreement.

Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would establish the Motor Carrier Employer Amnesty Program pursuant to which, notwithstanding any law, a motor carrier performing drayage services may be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a settlement agreement with the Labor Commissioner, with the cooperation and consent of the Employment Development Department, prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the settlement agreement contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. The bill would permit a settlement agreement to contain a provision authorizing the Labor Commissioner and the Employment Development Department to recover from the motor carrier the reasonable, actual costs of the Labor Commissioner and the Employment Development Department for their respective review, approval, and compliance monitoring of that settlement agreement.

Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would, would establish the Motor Carrier Employer Amnesty Program pursuant to which, notwithstanding any law, relieve a motor carrier performing drayage services may be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a settlement agreement with the Labor Commissioner, with the consent of the Employment Development Department, prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the settlement agreement contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. The bill would permit a settlement agreement to contain a provision authorizing the Labor Commissioner and the Employment Development Department to recover from the motor carrier specified costs associated with the settlement agreement. the reasonable, actual costs of the Labor Commissioner and the Employment Development Department for their respective review, approval, and compliance monitoring of that settlement agreement.

Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would, notwithstanding any law, relieve a motor carrier performing drayage services of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree settlement agreement with the Labor Commissioner prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the consent decree settlement agreement contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. The bill would permit a consent decree settlement agreement to contain a provision authorizing the Labor Commissioner to recover from the carrier specified costs associated with the consent decree settlement agreement.

Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would, notwithstanding any law, relieve a motor carrier performing drayage services of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree with the Labor Commissioner prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the consent decree contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. The bill would permit a consent decree to contain a provision authorizing the Labor Commissioner to recover from the carrier specified costs associated with the consent decree.

Existing law governs the relationship between an employer and an employee with regard to hiring, promotion, discipline, wages and hours, working conditions, and administrative and judicial remedies. Existing law sets forth guidelines for determining whether a person who performs work for another pursuant to a contract is an employee or an independent contractor. Existing law authorizes the Labor Commissioner to investigate employee complaints and to conduct a hearing in any action to recover wages, penalties, and other demands for compensation.

This bill would, notwithstanding any law, relieve a motor carrier performing drayage services of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree with the Labor Commissioner prior to January 1, 2017, whereby the motor carrier agrees to convert all of its commercial drivers to employees, and the consent decree contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 621

Author:(Roger Hernández)

As Amended Ver:September 4, 2015

Majority vote

Original Committee Reference: L. & E.

SUMMARY: Enacts a limited amnesty program with respect to the misclassification of port drivers.

The Senate amendments:

1. Replace the term "consent decree" with "settlement agreement" throughout this bill.

2. Establish the Motor Carrier Employer Amnesty Program, to be administered by the Labor Commissioner and the Employment Development Department (EDD).

3. Define "eligible motor carrier" to mean a motor carrier that shall not have any of the following on the date it applies to participate in the program:

   1. A civil lawsuit that was filed on or before December 31, 2015, pending against it in a state or federal court that alleges or involves a misclassification of a commercial driver.

   2. A specified penalty assessed by EDD that is final disposition of that penalty.

4. Add additional definitions.

5. Provide that a motor carrier shall only apply to participate in the program by doing all of the following:

   1. Submitting an application to the Labor Commissioner which shall, at a minimum, require the motor carrier to establish that it qualifies as an eligible motor carrier.

   2. Reporting on the results of a self-audit in accordance with guidelines provided by the Labor Commissioner.

6. Provide that a motor carrier that voluntarily or as a result of a final disposition in a civil proceeding reclassified its commercial drivers as employees on or before January 1, 2016, shall, in addition to other information requested by the Labor Commissioner, also submit with its application all of the following:

   1. Documentation demonstrating that the motor carrier reclassified its commercial drivers as employees, including the commencement periods applicable to the reclassification.

   2. The identification of each commercial driver reclassified in the documents specified above, the amounts paid to each commercial driver to compensate for the previous misclassification, and the time period applicable to the amount paid to each commercial driver prior to reclassification.

   3. A report of a self-audit for all commercial drivers reclassified by the motor carrier, and also include a separate self-audit report for any commercial driver who is subject to reclassification, but is not identified above.

7. Provide that the Labor Commissioner shall analyze the information provided for the purpose of evaluating the scope of a prior reclassification of an eligible motor carrier's commercial drivers to employees and has discretionary authority to determine whether the scope was sufficient to afford relief to the misclassified commercial drivers.

8. Provide that if the motor carrier's application is denied, the application shall not be considered an acknowledgment or admission by the motor carrier that it misclassified its drivers, and the application or its submission shall not be construed in any way to support an evidentiary inference that the motor carrier failed to properly classify its commercial drivers as employees.

9. Provide that, before January 1, 2017, the Labor Commissioner may negotiate and execute a settlement agreement with an eligible motor carrier pursuant to the program. The Labor Commissioner shall not execute a settlement agreement on or after January 1, 2017.

10. Provide that, prior to the Labor Commissioner executing a settlement agreement, an eligible motor carrier shall file its contribution returns and report unreported wages and taxes for the time period it seeks relief under the settlement agreement.

11. Provide that immediately after the execution of the settlement agreement, an eligible motor carrier shall the secure workers' compensation that is legally required for the commercial drivers who were reclassified as employees, effective on or before the date the settlement agreement is executed, and shall provide proof of coverage to the Labor Commissioner and EDD within five days of securing coverage.

12. Provide that a settlement agreement may require an eligible motor carrier to pay the reasonable actual costs to the Labor Commissioner and EDD, as specified.

13. Authorize a settlement agreement to include provisions for an eligible motor carrier to make installment payments, as specified.

14. Provide that an eligible motor carrier that executed and performed its obligations pursuant to a settlement agreement shall not be liable for specified penalties, except as provided.

15. Provide that the statute of limitations on any claim or liability shall be tolled from the date a motor carrier applies for participation in the program through the date the Labor Commissioner either denies the motor carrier participation in the program or the motor carrier, as an eligible motor carrier, has failed to perform an obligation under the settlement agreement, whichever is later.

16. Provide that the recovery obtained by the Labor Commissioner on behalf of a reclassified driver pursuant to a settlement agreement shall be tendered to the commercial driver on the condition that the driver shall execute a release of claims, as specified.

17. Provides that a commercial driver shall not be under any obligation to accept the terms of a settlement agreement.

18. Provides that if a commercial driver declines to accept the terms of a settlement agreement, the commercial driver shall not be bound by the settlement agreement, except that the eligible motor carrier shall still reclassify the commercial driver as an employee and that commercial driver shall be precluded from pursuing a claim for civil penalties or statutory penalties covered by the period of time covered by the settlement agreement.

19. Provides that if a commercial driver does not accept the terms of a settlement agreement, the motor carrier shall be excused from performing its requirements under the settlement agreement to pay the amount acknowledged in the settlement agreement to be due to that commercial driver.

20. Provides processes and procedures for the Labor Commissioner to pursue enforcement of the settlement agreement, as specified.

21. Provides that if the court determines in any action filed by the Labor Commissioner that a motor carrier has violated or otherwise failed to perform any of its obligations under a settlement agreement, the court shall award the Labor Commissioner costs and reasonable attorney's fees.

22. Make other related and technical changes.

FISCAL EFFECT: According to the Senate Appropriations Committee, the Department of Industrial Relations and EDD would likely incur annual costs in the hundreds of thousands of dollars to implement the provisions of this bill. To the extent the consent decree process reduces individual wage claim cases, these costs could be somewhat offset. This bill could also result in additional collections to the wage funds administered by EDD, the extent to which is unknown.

COMMENTS: This bill is sponsored by the California Teamsters Public Affairs Council, who argues that nearly all of the so-called "owner-operator" truck drivers that haul intermodal freight to and from the ports of California have been misclassified. In hundreds of recent cases and class action lawsuits, 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 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. The sponsor argues that this bill is a way for port drayage motor carriers to "come in from the cold" in a way that will save them from paying financially crippling penalties.

This bill is also supported by Total Transportation Services, Inc., who states that it will provide welcome relief to port drayage companies, like it, who wish to reclassify their drivers from independent contractor to employee status but face substantial penalties if they do so. They state further: "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 and appreciate your willingness to introduce this legislation."

The California Trucking Association writes that while it is willing to work with the author to

address the issues raised by this bill, it nevertheless opposes this bill because it does not address the "key issue" leading to drayage motor carriers facing this situation in the first place – "misuse" of the Division of Labor Standards Enforcement's administrative hearing process.

Analysis Prepared by: Benjamin Ebbink / L. & E. / (916) 319-2091 FN: 0002223

 THIRD READING  

Bill No: AB 621

Author: Roger Hernández (D)

Amended: 9/4/15 in Senate

Vote: 21

SENATE LABOR & IND. REL. COMMITTEE: 4-1, 6/24/15

AYES: Mendoza, Jackson, Leno, Mitchell

NOES: Stone

SENATE JUDICIARY COMMITTEE: 6-0, 7/7/15

AYES: Jackson, Moorlach, Hertzberg, Leno, Monning, Wieckowski

NO VOTE RECORDED: Anderson

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/27/15

AYES: Lara, Beall, Hill, Leyva, Mendoza

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 47-29, 6/3/15 - See last page for vote

SUBJECT: Drayage truck operators: Motor Carrier Employer Amnesty Program

SOURCE: California Teamsters Public Affairs Council

DIGEST: This bill creates the Motor Carrier Employer Amnesty program for port drayage companies that voluntarily execute a settlement agreement with the Labor Commissioner related to misclassification of employees.

Senate Floor Amendments of 9/4/15 change the date for civil lawsuit qualifications, add additional documentation requirements for participation in the program, and provide the Labor Commissioner with discretionary authority.

ANALYSIS:

Existing law:

1. Provides numerous comprehensive requirements, rights, and remedies relating to the employer-employee relationship, including, but not limited to, wages and other compensation, hours, workers’ compensation, labor code violation actions, employment contracts, and standards for working conditions. Under existing law, the Employment Development Department (EDD) has the powers and duties necessary to administer the reporting, collection, refunding to the employer, and enforcement of taxes required to be withheld by employers.

2. Requires, under the California common law theory of joint employment, a determination as to whether the entity in question has the right to direct and control the manner and means by which the work is performed, known as the “right of control” test. (S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. and Martinez v. Combs (2010) 49 Cal.4th 35)

3. Establishes the following definitions:

1. “Employee” means every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed, as specified. (Labor Code §3351) But excludes specified individuals such as someone who is employed by his or her parent, spouse or child. (Labor Code §3352)

2. “Independent contractor” means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. (Labor Code §3353)

3. The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person. (Labor Code §2750)

This bill:

1. Establishes the Motor Carrier Employer Amnesty program (program), to be administered by the Labor Commissioner and EDD, a limited amnesty program with respect to the misclassification of port drivers.
   
   

2. Provides that the Labor Commissioner and EDD shall administer the program to an eligible motor carrier performing drayage services at any port. The eligible motor carrier shall be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the eligible motor carrier executes a settlement agreement with the Labor Commissioner whereby the motor carrier agrees to properly classify all of its commercial drivers to employees.

3. Adds various definitions including an eligible motor carrier to mean a motor carrier that shall not have any of the following on the date it applies to participate in the program:

1. A civil lawsuit that was filed on or before December 31, 2015, pending against it in a state of federal court that alleges or involves misclassification of a commercial driver.

2. A specified penalty assessed by EDD that is final disposition of that penalty.

4. Provides that a motor carrier shall only apply to participate in the program by doing all of the following:

1. Submitting an application to the Labor Commissioner, which at a minimum requires the motor carrier to establish that it qualifies.

2. Reporting on the results of a self-audit in accordance with guidelines provided by the Labor Commissioner.

3. Submit various documents demonstrating that the motor carrier reclassified its commercial drivers as employees and the identification of each driver reclassified as well as the amounts paid to each driver.
   
   

1. Gives the Labor Commissioner the discretionary authority to determine whether the scope of a prior reclassification of an eligible motor carrier’s commercial drivers to employees was sufficient to afford relief to the misclassified drivers.
   
   

2. Provides that a settlement agreement executed by the Labor Commissioner and an eligible motor carrier shall require the eligible motor carrier to:
   
   

   1. Pay all wages, benefits, and taxes owed, if any, to or in relation to all of its converted commercial drivers covering the period of time from the first date of misclassification to the date the consent decree is entered into, but not exceeding the applicable statute of limitations.

   2. Maintain any converted commercial driver positions as employee positions.

   3. Consent that any future commercial drivers hired to perform the same or similar duties shall be presumed to have employee status and that the motor carrier shall have the burden to prove by clear and convincing evidence that they are not employees in any administrative or judicial proceeding in which their employment status is an issue.

   4. Perform any requirements or provisions the Labor Commissioner deems necessary to carry out the intent of this section or to enforce the provisions of the consent decree.
      
      

3. Provides that, before January 1, 2017, the Labor Commissioner may negotiate and execute a settlement agreement with an eligible motor carrier but may not on or after January 1, 2017.

8. Provides other specifics for the settlement agreement and processes and procedures for the Labor Commissioner to pursue enforcement, including among other provisions:

1. Requires the eligible motor carrier, after the execution of the settlement agreement, secure worker’s compensation coverage.

2. May require an eligible motor carrier to pay the reasonable actual costs to the Labor Commissioner and EDD, as specified.

3. Authorizes a settlement agreement to include provisions for installment payments.

4. Provides that an eligible motor carrier that executed and performed its obligations pursuant to a settlement agreement shall not be liable for specified penalties, except as provided.

Comments

In February 2014, the National Employment Law Project and others issued a report which revisited the issues of port driver working conditions and reported widespread misclassification of drivers. Among other findings, the report estimated that 49,000 of the nation's 75,000 port truck drivers are misclassified as independent contractors.

This report placed a particular emphasis on the costs to workers and the state and federal governments as a result of misclassification:

1. The report estimated that port trucking companies in California are annually liable for wage and hour violations of between $787 and $998 million.

2. The report estimated that industry's total federal and state liability for unemployment insurance fund contributions, workers' compensation premiums, and income tax payments at approximately $563 million annually.

3. The report estimated that total quantifiable costs of misclassification nationally (tax losses plus wage and hour violations) are $1.4 billion annually.

According to the author, this bill represents an important opportunity to revolutionize and modernize the port drayage industry to the benefit of drivers, drayage companies, the ports, and our local communities. The author contends that this bill represents a common-sense compromise in allowing the parties to come together, rectify the situation, and move forward in a productive manner.

Under this bill, port drayage companies will be provided an opportunity to voluntarily come forward to participate in a limited amnesty program by entering into a consent decree with the Labor Commissioner. Under the terms of the consent decree, the motor carrier must agree to pay all wages and benefits owed to previously misclassified independent contractors, and all taxes owed to the state as a result of such misclassification. In addition, the company must agree to classify any present or future commercial drivers as employees. In exchange, a motor carrier that enters into such a consent decree will be relieved of liability for statutory or civil penalties based on previous misclassification of drivers.

According to the author, AB 621 will transform and modernize port drayage operations by providing a limited opportunity for amnesty for motor carriers that come forward and correctly classify their drivers as employees rather than independent contractors.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, the Department of Industrial Relations and EDD would likely incur annual costs in the hundreds of thousands of dollars to implement the provisions of this bill. To the extent the consent decree process reduces individual wage claim cases, these costs could be somewhat offset. This bill could also result in additional collections to the wage funds (such as disability insurance) administered by EDD, the extent to which is unknown.

SUPPORT: (Verified 9/4/15)

California Teamsters Public Affairs Council (source)

California Labor Federation, AFL-CIO

Shippers Transport Express

Total Transportation Services, Inc.

OPPOSITION: (Verified 9/4/15)

California Business Properties Association

California Trucking Association
California Retailers Association

ARGUMENTS IN SUPPORT: Proponents note that numerous studies, reports, enforcement actions, and court decisions have confirmed that nearly all the so-called “owner-operator” truck drivers that haul intermodal freight to and from the ports of California have been misclassified. Proponents also note that in hundreds of recent cases and class action lawsuits, the drivers have been determined to be employees and when a driver has been misclassified, the employer is liable for back wages, taxes, social security contributions, and potentially massive penalties.

According to proponents, this bill creates a voluntary program (to be administered by the Labor Commissioner) which will allow motor carriers who wish to reclassify their drivers as employees and have the penalties associated with their past unlawful conduct waived. They argue that this bill is a way for port drayage motor carriers to be a part of the cleaning up of this industry and will save them from paying financially crippling penalties.

ARGUMENTS IN OPPOSITION: Opponents argue that AB 621 fails to address the greater underlying issues of misclassifying commercial drivers as independent contractors and should seek to find a solution within existing enforcement mechanisms. Opponents assert that it has been the longstanding policy of multiple Labor Commissioners prior to the current administration to defer such complex, high-wage claims to the court system.

Opponents recommend two reforms related to the use of the Berman hearing procedures. First, they assert that in order to reduce the subjectivity involved with these reviews, existing law should be amended to clearly define that these complex matters are "better addressed and eventually adjudicated in the courts." Second, opponents recommend that the law should be amended to statutorily memorialize the Division of Labor Standards Enforcement's previous policy (which they claim was utilized up until 2008) that the Labor Commissioner decline the use of the Berman hearing procedure for all claims of $30,000 or more where employment status is at issue. They state that average award against motor carriers is $87,000, but some have reached beyond $200,000.

ASSEMBLY FLOOR: 47-29, 6/3/15

AYES: Alejo, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Cristina Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Ting, Weber, Williams, Wood, Atkins

NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Hadley, Harper, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk

NO VOTE RECORDED: Bloom, Frazier, Perea, Thurmond

Prepared by: Deanna Ping / L. & I.R. / (916) 651-1556

9/9/15 10:17:16

**** END ****

 THIRD READING  

Bill No: AB 621

Author: Roger Hernández (D)

Amended: 8/31/15 in Senate

Vote: 21

SENATE LABOR & IND. REL. COMMITTEE: 4-1, 6/24/15

AYES: Mendoza, Jackson, Leno, Mitchell

NOES: Stone

SENATE JUDICIARY COMMITTEE: 6-0, 7/7/15

AYES: Jackson, Moorlach, Hertzberg, Leno, Monning, Wieckowski

NO VOTE RECORDED: Anderson

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/27/15

AYES: Lara, Beall, Hill, Leyva, Mendoza

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 47-29, 6/3/15 - See last page for vote

SUBJECT: Drayage truck operators

SOURCE: California Teamsters Public Affairs Council

DIGEST: This bill creates the Motor Carrier Employer Amnesty program for port drayage companies that voluntarily execute a settlement agreement with the Labor Commissioner related to misclassification of employees.

ANALYSIS:

Existing law:

1. Provides numerous comprehensive requirements, rights, and remedies relating to the employer-employee relationship, including, but not limited to, wages and other compensation, hours, workers’ compensation, labor code violation actions, employment contracts, and standards for working conditions. Under existing law, the Employment Development Department (EDD) has the powers and duties necessary to administer the reporting, collection, refunding to the employer, and enforcement of taxes required to be withheld by employers.

2. Requires, under the California common law theory of joint employment, a determination as to whether the entity in question has the right to direct and control the manner and means by which the work is performed, known as the “right of control” test. (S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. and Martinez v. Combs (2010) 49 Cal.4th 35)

3. Establishes the following definitions:

1. “Employee” means every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed, as specified. (Labor Code §3351) But excludes specified individuals such as someone who is employed by his or her parent, spouse or child. (Labor Code §3352)

2. “Independent contractor” means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished. (Labor code §3353)

3. The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person. (Labor Code §2750)

This bill:

1. Establishes the Motor Carrier Employer Amnesty program (program), to be administered by the Labor Commissioner and EDD, a limited amnesty program with respect to the misclassification of port drivers.
   
   

2. Provides that the Labor Commissioner and EDD shall administer the program to an eligible motor carrier performing drayage services at any port. The eligible motor carrier shall be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the eligible motor carrier executes a settlement agreement with the Labor Commissioner whereby the motor carrier agrees to properly classify all of its commercial drivers to employees.

3. Adds various definitions including an eligible motor carrier to mean a motor carrier that shall not have any of the following on the date it applies to participate in the program:

1. A civil lawsuit that was filed on or before January 1, 2015, pending against it in a state of federal court that alleges a misclassification of a commercial driver.

2. A specified penalty assessed by EDD that is final disposition of that penalty.

4. Provides that a motor carrier shall only apply to participate in the program by doing all of the following:

1. Submitting an application to the Labor Commissioner, which at a minimum requires the motor carrier to establish that it qualifies.

2. Reporting on the results of a self-audit in accordance with guidelines provided by the Labor Commissioner.
   
   

1. Provides that a settlement agreement executed by the Labor Commissioner and an eligible motor carrier shall require the eligible motor carrier to:
   
   

   1. Pay all wages, benefits, and taxes owed, if any, to or in relation to all of its converted commercial drivers covering the period of time from the first date of misclassification to the date the consent decree is entered into, but not exceeding the applicable statute of limitations.

   2. Maintain any converted commercial driver positions as employee positions.

   3. Consent that any future commercial drivers hired to perform the same or similar duties shall be presumed to have employee status and that the motor carrier shall have the burden to prove by clear and convincing evidence that they are not employees in any administrative or judicial proceeding in which their employment status is an issue.

   4. Perform any requirements or provisions the Labor Commissioner deems necessary to carry out the intent of this section or to enforce the provisions of the consent decree.
      
      

2. Provides that, before January 1, 2017, the Labor Commissioner may negotiate and execute a settlement agreement with an eligible motor carrier but may not on or after January 1, 2017.

7. Provides other specifics for the settlement agreement and processes and procedures for the Labor Commissioner to pursue enforcement, including among other provisions:

1. Requires the eligible motor carrier, after the execution of the settlement agreement, secure worker’s compensation coverage.

2. May require an eligible motor carrier to pay the reasonable actual costs to the Labor Commissioner and EDD, as specified.

3. Authorizes a settlement agreement to include provisions for installment payments.

4. Provides that an eligible motor carrier that executed and performed its obligations pursuant to a settlement agreement shall not be liable for specified penalties, except as provided.

Comments

In February 2014, the National Employment Law Project and others issued a report which revisited the issues of port driver working conditions and reported widespread misclassification of drivers. Among other findings, the report estimated that 49,000 of the nation's 75,000 port truck drivers are misclassified as independent contractors.

This report placed a particular emphasis on the costs to workers and the state and federal governments as a result of misclassification:

1. The report estimated that port trucking companies in California are annually liable for wage and hour violations of between $787 and $998 million.

2. The report estimated that industry's total federal and state liability for unemployment insurance fund contributions, workers' compensation premiums, and income tax payments at approximately $563 million annually.

3. The report estimated that total quantifiable costs of misclassification nationally (tax losses plus wage and hour violations) are $1.4 billion annually.

According to the author, this bill represents an important opportunity to revolutionize and modernize the port drayage industry to the benefit of drivers, drayage companies, the ports, and our local communities. The author contends that this bill represents a common-sense compromise in allowing the parties to come together, rectify the situation, and move forward in a productive manner.

Under this bill, port drayage companies will be provided an opportunity to voluntarily come forward to participate in a limited amnesty program by entering into a consent decree with the Labor Commissioner. Under the terms of the consent decree, the motor carrier must agree to pay all wages and benefits owed to previously misclassified independent contractors, and all taxes owed to the state as a result of such misclassification. In addition, the company must agree to classify any present or future commercial drivers as employees. In exchange, a motor carrier that enters into such a consent decree will be relieved of liability for statutory or civil penalties based on previous misclassification of drivers.

According to the author, AB 621 will transform and modernize port drayage operations by providing a limited opportunity for amnesty for motor carriers that come forward and correctly classify their drivers as employees rather than independent contractors.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, the Department of Industrial Relations and EDD would likely incur annual costs in the hundreds of thousands of dollars to implement the provisions of this bill. To the extent the consent decree process reduces individual wage claim cases, these costs could be somewhat offset. This bill could also result in additional collections to the wage funds (such as disability insurance) administered by EDD, the extent to which is unknown.

SUPPORT: (Verified 8/28/15)

California Teamsters Public Affairs Council (source)

California Labor Federation, AFL-CIO

Shippers Transport Express

Total Transportation Services, Inc.

OPPOSITION: (Verified 8/28/15)

California Business Properties Association

California Retailers Association

California Trucking Association

ARGUMENTS IN SUPPORT: Proponents note that numerous studies, reports, enforcement actions, and court decisions have confirmed that nearly all the so-called “owner-operator” truck drivers that haul intermodal freight to and from the ports of California have been misclassified. Proponents also note that in hundreds of recent cases and class action lawsuits, the drivers have been determined to be employees and when a driver has been misclassified, the employer is liable for back wages, taxes, social security contributions, and potentially massive penalties.

According to proponents, this bill creates a voluntary program (to be administered by the Labor Commissioner) which will allow motor carriers who wish to reclassify their drivers as employees and have the penalties associated with their past unlawful conduct waived. They argue that this bill is a way for port drayage motor carriers to be a part of the cleaning up of this industry and will save them from paying financially crippling penalties.

ARGUMENTS IN OPPOSITION: Opponents argue that AB 621 fails to address the greater underlying issues of misclassifying commercial drivers as independent contractors and should seek to find a solution within existing enforcement mechanisms. Opponents assert that it has been the longstanding policy of multiple Labor Commissioners prior to the current administration to defer such complex, high-wage claims to the court system.

Opponents recommend two reforms related to the use of the Berman hearing procedures. First, they assert that in order to reduce the subjectivity involved with these reviews, existing law should be amended to clearly define that these complex matters are "better addressed and eventually adjudicated in the courts." Second, opponents recommend that the law should be amended to statutorily memorialize the Division of Labor Standards Enforcement's previous policy (which they claim was utilized up until 2008) that the Labor Commissioner decline the use of the Berman hearing procedure for all claims of $30,000 or more where employment status is at issue. They state that average award against motor carriers is $87,000, but some have reached beyond $200,000.

ASSEMBLY FLOOR: 47-29, 6/3/15

AYES: Alejo, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Cristina Garcia, Eduardo Garcia, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Ting, Weber, Williams, Wood, Atkins

NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dahle, Beth Gaines, Gallagher, Gatto, Grove, Hadley, Harper, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk

NO VOTE RECORDED: Bloom, Frazier, Perea, Thurmond

Prepared by: Deanna Ping / L. & I.R. / (916) 651-1556

8/30/15 19:42:17

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 621 (Roger Hernández) - Drayage truck operators.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 27, 2015

Bill Summary:

AB 621 would create a limited amnesty program for port drayage companies that voluntarily enter into a consent decree with the Labor Commissioner related to misclassification of employees.

Fiscal Impact:

The Department of Industrial Relations (DIR) and the Employment Development Department would likely incur annual costs in the hundreds of thousands of dollars to implement the provisions of the bill. To the extent the consent decree process reduces individual wage claim cases, these costs could be somewhat offset. The bill could also result in additional collections to the wage funds (such as disability insurance) administered by EDD, the extent to which is unknown.

Author Amendments:

Streamline the procedures for the program and make clarifying changes.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 621 (Roger Hernández) - Drayage truck operators.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 27, 2015

Bill Summary:

AB 621 would create a limited amnesty program for port drayage companies that voluntarily enter into a consent decree with the Labor Commissioner related to misclassification of employees.

Fiscal Impact:

The Department of Industrial Relations (DIR) and the Employment Development Department would likely incur annual costs in the hundreds of thousands of dollars to implement the provisions of the bill. To the extent the consent decree process reduces individual wage claim cases, these costs could be somewhat offset. The bill could also result in additional collections to the wage funds (such as disability insurance) administered by EDD, the extent to which is unknown.

Author Amendments:

Streamline the procedures for the program and make clarifying changes.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 621 (Roger Hernández) - Drayage truck operators.

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 621 would create a limited amnesty program for port drayage companies that voluntarily enter into a consent decree with the Labor Commissioner related to misclassification of employees.

Fiscal Impact:

The Department of Industrial Relations (DIR) indicates that it would incur initial administrative costs of $900,000 and ongoing costs of $850,000 (special fund) to review new settlement agreements. To the extent the consent decree process reduces individual wage claim cases, these costs could be somewhat offset. The bill could also result in additional collections to the wage funds (such as disability insurance) administered by EDD, the extent to which is unknown.

Background:

Drayage services involve transporting goods a short distance via ground freight. Drayage is typically used to describe the trucking service from an ocean port to a rail ramp, warehouse, or other destination. By some estimates, there are approximately 20,000 port drivers in California.

Since the trucking industry was deregulated in the 1980s, the industry has increasingly relied on independent contractors or "owner operator" port truck drivers, rather than recognizing drivers as employees. There has been much debate concerning the lawfulness of this practice. The determination of whether a worker is an employee or independent contractor is important for a number of reasons, including (1) what rights and remedies the worker is afforded under state and federal law, (2) federal and state tax consequences for the employer, and (3) 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).

Proposed Law:

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. Specifically, the bill would do all of the following:

• Provide that a settlement agreement entered into pursuant this bill shall 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 consent decree 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 shall be presumed to have employee status and that the motor carrier shall have the burden to prove by clear and convincing evidence that they are not employees in any administrative or judicial proceeding in which their employment status is an issue.

  • Any other provisions the Labor Commissioner deems necessary to carry out the intent of this section or to enforce the provisions of the consent decree.

• Provide that this bill does not apply to a motor carrier that has a pending civil lawsuit against it in state or federal court alleging misclassification of commercial drivers where the lawsuit was filed prior to January 1, 2015.

• Provide that this bill shall apply only to consent decrees entered into by the Labor Commissioner prior to January 1, 2017.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2015-2016 Regular Session

Bill No: AB 621 (Author:Roger Hernández)

Version: June 25, 2015

Hearing Date: July 7, 2015

Fiscal: Yes

Urgency: No

Consultant: 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 <http://nelp.org/content/uploads/2015/03/ Big-Rig-Overhaul-Misclassification-Port-Truck-Drivers-Labor-Law-Enforcement.pdf> [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 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) <http://oag.ca.gov/news/press-releases/brown-wins-fifth-suit-against-port-trucking-companies-violated-workers-rights> [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 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) <https://www.dir.ca.gov/DIRNews/2013/IR2013-11.html> [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 <http://www.reuters. com/article/2015/01/31/us-usa-truckers-california-idUSKBN0L404020150131> [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, 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 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.)

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

• “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 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, 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. . . .

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 <http://www.presstelegram.com/business/ 20150516/los-angeles-long-beach-port-truck-drivers-move-nations-goods> [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 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 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 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)

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

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Tony Mendoza, Chair

2015 - 2016 Regular

Bill No: AB 621 Hearing Date: June 24, 2015

Subject: Drayage truck operators.

KEY ISSUE

Should the Legislature create a limited amnesty program for port drayage companies that voluntarily enter into a consent decree with the Labor Commissioner due to misclassification of employees?

ANALYSIS

Existing law provides numerous comprehensive requirements, rights, and remedies relating to the employer-employee relationship, including, but not limited to, wages and other compensation, hours, workers’ compensation, labor code violation actions, employment contracts, and standards for working conditions. Under existing law, the Employment Development Department has the powers and duties necessary to administer the reporting, collection, refunding to the employer, and enforcement of taxes required to be withheld by employers.

Existing California common law theory of joint employment requires a determination as to whether the entity in question has the right to direct and control the manner and means by which the work is performed, known as the “right of control” test. (S. G. Borello & Sons, Inc. v Dept. of Industrial Relations (1989) 48 Cal.3d 341. and Martinez v. Combs (2010) 49 Cal.4^th 35)

Existing law establishes the following definitions:

• “Employee” means every person in the service of an employer under any appointment or contract of hire or apprenticeship, express or implied, oral or written, whether lawfully or unlawfully employed, as specified. (Labor Code §3351) But excludes specified individuals such as someone who is employed by his or her parent, spouse or child. (Labor Code §3352)

• “Independent contractor” means any person who renders service for a specified recompense for a specified result, under the control of his principal as to the result of his work only and not as to the means by which such result is accomplished.
  (Labor code §3353)

• The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person. (Labor Code §2750)

This Bill enacts a limited amnesty program with respect to the misclassification of port drivers.

Specifically, this bill:

1. Provides that, notwithstanding any law, a motor carrier performing drayage services at one or more ports in this state shall be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree with the Labor Commissioner whereby the motor carrier agrees to convert all of its commercial drivers to employees.
   
   
   

2. Provides that a consent decree entered into pursuant this bill shall contain all of the following:
   
   
   

   1. An agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any, to or in relation to all of its converted commercial drivers covering the period of time from the first date of misclassification to the date the consent decree is entered into, but not exceeding the applicable statute of limitations.

   2. An agreement by the motor carrier to maintain any converted commercial driver positions as employee positions.

   3. An agreement by the motor carrier that any future commercial drivers hired to perform the same or similar duties shall be presumed to have employee status and that the motor carrier shall have the burden to prove by clear and convincing evidence that they are not employees in any administrative or judicial proceeding in which their employment status is an issue.

   4. Any other provisions the Labor Commissioner deems necessary to carry out the intent of this section or to enforce the provisions of the consent decree.
      
      
      

3. Provides that this bill does not apply to a motor carrier that has a pending civil lawsuit against it in state or federal court alleging misclassification of commercial drivers where the lawsuit was filed prior to January 1, 2015.
   
   
   

4. Provides that this bill shall apply only to consent decrees entered into by the Labor Commissioner prior to January 1, 2017.
   
   
   

5. Provides the following definitions:

   1. “Commercial driver” means a person who holds a valid commercial driver’s license hired or contracted with to provide port drayage services.

   2. “Motor carrier” means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle as set forth in Section 34500 of the Vehicle Code, who operates or directs the operation of any such vehicle on a for-hire or not-for-hire basis to perform port drayage services.

   3. “Port” means any sea or river port in this state.

COMMENTS

1. Background

California is home to some of the largest and most complex port operations in the world. Together, the Ports of Los Angeles and Long Beach are the third largest port operation in the world and the busiest seaport in America. By some estimates, there are approximately 20,000 port drivers in California. An important part of the intermodal transportation system is port trucking or drayage, which generally involves the movement of shipping containers by truck via public roadway to or from the port. Port drivers are the individuals who pick up a container from a port terminal operation and haul it by truck from the port to the rail yard, warehouse or local delivery destination.

Over the years, concern has been expressed about the working conditions facing these port truck drivers. By many accounts, conditions facing port drivers began to change dramatically in the early 1980s. Prior to this time, port truck drivers had generally been recognized as employees, and many were unionized with union wages and benefits. However, following deregulation the industry began to shift and more of a reliance was placed on the use of independent contractors or "owner operators." There has been much debate over the years about whether this classification of drivers as independent contractors is lawful.

Over the past decade the Assembly Labor and Employment Committee has held four separate hearings on this topic in order to hear from port drivers directly about their working conditions, as well as to explore potential solutions with interested stakeholders in the process. The most recent hearing was held in June 2014 where it noted that port drivers had recently filed over 500 complaints with the Division of Labor Standards Enforcement (DLSE) for wage theft violations related to misclassification. At the time, DLSE had issued over 30 decisions, all but one in favor of the drivers and finding that they had been misclassified as independent contractors.

2. Independent Contractor vs. Employee Status Generally

In determining whether an individual providing service to another is an independent contractor or an employee, there is no single determinative factor. Rather, it is necessary to closely examine the facts of each service relationship and to then apply a multi-factor or “economic realities” test. Borello at 351. An important, but not necessarily determinative, factor involves the independent contractor's right to control the manner and means of accomplishing the desired result. Other factors considered in this determination, as set forth by the Borello court include, among others, whether the person performing services is engaged in an occupation or business distinct from that of the principal; whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work; and the alleged employee's opportunity for profit or loss depending on his or her managerial skill.

The determination of whether a worker is an employee or independent contractor is important for a number of reasons, including what rights and remedies the worker is afforded under state and federal law and the level of tax revenues for the state and federal government. In general, independent contractors need not be covered by workers' compensation, do not have employment taxes deducted from their earnings, are not covered by many state and federal anti-discrimination laws, are not included under Cal-OSHA and federal OSHA in an employer's duty to provide a safe and healthy work environment, among other things.

3. Need for this bill?

In February 2014, the National Employment Law Project (NELP) and others issued a report which revisited the issues of port driver working conditions and reported widespread misclassification of drivers. Among other findings, the report estimated that 49,000 of the nation's 75,000 port truck drivers are misclassified as independent contractors.

This report placed a particular emphasis on the costs to workers and the state and federal governments as a result of misclassification:

• The report estimated that port trucking companies in California are annually liable for wage and hour violations of between $787 and $998 million.

• The report estimated that industry's total federal and state liability for unemployment insurance fund contributions, workers' compensation premiums, and income tax payments at approximately $563 million annually.

• The report estimated that total quantifiable costs of misclassification nationally (tax losses plus wage and hour violations) are $1.4 billion annually.

According to the author, this bill represents an important opportunity to revolutionize and modernize the port drayage industry to the benefit of drivers, drayage companies, the ports, and our local communities. The author contends that the bill represents a common-sense compromise in allowing the parties to come together, rectify the situation, and move forward in a productive manner.

Under this bill, port drayage companies will be provided an opportunity to voluntarily come forward to participate in a limited amnesty program by entering into a consent decree with the Labor Commissioner. Under the terms of the consent decree, the motor carrier must agree to pay all wages and benefits owed to previously misclassified independent contractors, and all taxes owed to the state as a result of such misclassification. In addition, the company must agree to classify any present or future commercial drivers as employees. In exchange, a motor carrier that enters into such a consent decree will be relieved of liability for statutory or civil penalties based on previous misclassification of drivers.

Under the bill, consent decrees would need to be entered into by December 21, 2016. The bill would not impact current civil litigation, specifying that it would not apply to a motor carrier that has a pending lawsuit against it if the lawsuit was filed prior to January 1, 2015. According to the author, AB 621 will transform and modernize port drayage operations by providing a limited opportunity for amnesty for motor carriers that come forward and correctly classify their drivers as employees rather than independent contractors.

4. Double Referral:

This bill has been double referred to the Senate Judiciary Committee.

5. Proponent Arguments:

Proponents note that numerous studies, reports, enforcement actions, and court decisions have confirmed that nearly all the so-called “owner-operator” truck drivers that haul intermodal freight to and from the ports of California have been misclassified. Proponents also note that in hundreds of recent cases and class action lawsuits, the drivers have been determined to be employees and when a driver has been misclassified, the employer is liable for back wages, taxes, social security contributions, and potentially massive penalties.

Proponents contend that at the ports this practice has become so commonplace, it is the rare driver who is not misclassified and is properly considered an employee and note that violations of this nature are so widespread that they have overwhelmed state enforcement resources.

According to proponents, this bill creates a voluntary program (to be administered by the Labor Commissioner) which would allow motor carriers who wish to reclassify their drivers as employees and have the penalties associated with their past unlawful conduct waived. They argue that this bill is a way for port drayage motor carriers to be a part of the cleaning up of this industry and will save them from paying financially crippling penalties.

Proponents also state that AB 621 will provide welcome relief to port drayage companies who wish to reclassify their drivers from independent contractor to employee status but face substantial penalties if they do so.

6. Opponent Arguments:

Opponents argue that AB 621 fails to address the greater underlying issues of misclassifying commercial drivers as independent contractors and should seek to find a solution within existing enforcement mechanisms. Opponents note specifically that the bill does not address the Division of Labor Standards Enforcement’s misuse of the Berman Hearing process to address DLSE claims of misclassification of commercial drivers as independent contractors.

Opponents state that the administrative (or "Berman hearing") process was designed to provide a speedy, informal and affordable method for employers and employees to resolve simple wage claims. They argue that claims of misclassification of commercial drivers as independent contractors are some of the most complex claims being addressed by DLSE, and therefore should not be addressed via this procedure. Additionally, opponents assert that it has been the longstanding policy of multiple Labor Commissioners prior to the current administration to defer such complex, high-wage claims to the court system.

Therefore, opponents recommend two reforms related to the use of the Berman hearing procedures. First, they assert that in order to reduce the subjectivity involved with these reviews, existing law should be amended to clearly define that these complex matters are "better addressed and eventually adjudicated in the courts." Second, opponents recommend that the law should be amended to statutorily memorialize the DLSE's previous policy (which they claim was utilized up until 2008) that the Labor Commissioner decline the use of the Berman hearing procedure for all claims of $30,000 or more where employment status is at issue. They state that average award against motor carriers is $87,000, but some have reached beyond $200,000.

7. Prior Legislation:

SB 848 (Dunn) of 2015, would have utilized the "state action doctrine" of federal antitrust law to authorize port owner-operator drivers to organize collectively to better their economic conditions through joint negotiations with port motor carrier concerning their compensation, benefits, and terms and conditions of engagement. This bill was vetoed by the Governor.

SB 1213 (Dunn) of 2006, was nearly identical to SB 848. This bill was similarly vetoed by Governor Schwarzenegger.

AB 950 (Perez) of 2011, would have deemed drayage truck operators to be "statutory employees" for employment purposes, as specified. AB 950 was moved to the Inactive File on the Assembly Floor.

SB 459 (Corbett), Chapter 706, Statues of 2011 – established specific civil penalties for the willful misclassification of an individual as an independent contractor with penalties ranging from $5,000 to $15,000.

SUPPORT

California Labor Federation, AFL-CIO

California Teamsters Public Affairs Council

Total Transportation Services

OPPOSITION

California Business Properties Association

California Retailers Association

California Trucking Association

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 621

Author:(Roger Hernández)

As Amended Ver:June 1, 2015

Majority vote

SUMMARY: Enacts a limited amnesty program with respect to the misclassification of port drivers. Specifically, this bill:

1. Provides that, notwithstanding any law, a motor carrier performing drayage services at one or more ports in this state shall be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree with the Labor Commissioner whereby the motor carrier agrees to convert all of its commercial drivers to employees.

2. Provides that a consent decree entered into pursuant this bill shall contain all of the following:

   1. An agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any, to or in relation to all of its converted commercial drivers covering the period of time from the first date of misclassification to the date the consent decree is entered into, but not exceeding the applicable statute of limitations.

   2. An agreement by the motor carrier to maintain any converted commercial driver positions as employee positions.

   3. An agreement by the motor carrier that any future commercial drivers hired to perform the same or similar duties shall be presumed to have employee status and that the motor carrier shall have the burden to prove by clear and convincing evidence that they are not employees in any administrative or judicial proceeding in which their employment status is an issue.

   4. Any other provisions the Labor Commissioner deems necessary to carry out the intent of this section or to enforce the provisions of the consent decree.

3. Provides that a consent decree entered into may 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 consent decree.

4. Provides that this bill does not apply to a motor carrier that has a pending civil lawsuit against it in state or federal court alleging misclassification of commercial drivers where the lawsuit was filed prior to January 1, 2015.

5. Provides that this bill shall apply only to consent decrees entered into by the Labor Commissioner prior to January 1, 2017.

FISCAL EFFECT: According to the Assembly Appropriations Committee, initial administrative costs of approximately $900,000 and ongoing costs of approximately $850,000 to the Department of Industrial Relations Division of Labor Standards Enforcement (DLSE) to review consent decrees. These costs may be offset to the extent the consent decree process reduces individual wage claim cases.

COMMENTS: This bill is sponsored by the California Teamsters Public Affairs Council, who argues that nearly all of the so-called "owner-operator" truck drivers that haul intermodal freight to and from the ports of California have been misclassified. In hundreds of recent cases and class action lawsuits, 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 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. The sponsor argues that this bill is a way for port drayage motor carriers to "come in from the cold" in a way that will save them from paying financially crippling penalties.

This bill is also supported by Total Transportation Services, Inc., who states that it will provide welcome relief to port drayage companies, like it, who wish to reclassify their drivers from independent contractor to employee status but face substantial penalties if they do so. They state further: "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 and appreciate your willingness to introduce this legislation."

The California Trucking Association writes that while it is willing to work with the author to address the issues raised by this bill, it nevertheless opposes this bill because it does not address the "key issue" leading to drayage motor carriers facing this situation in the first place – "misuse" of the DLSE's administrative hearing process.

Analysis Prepared by: Ben Ebbink / L. & E. / (916) 319-2091 FN: 0000575

Date of Hearing: April 22, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 621

Author:(Roger Hernández) – As Introduced Ver:February 24, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY: This bill relieves a motor carrier performing drayage services of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree with the Labor Commissioner prior to January 1, 2017, where the motor carrier agrees to convert all of its commercial drivers to employees, and the consent decree contains prescribed components, including, but not limited to, an agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any. This bill would not apply to a motor carrier that has a pending lawsuit against it if the lawsuit was filed prior to January 1, 2015.

FISCAL EFFECT: Initial administrative costs of approximately $900,000 and ongoing costs of approximately $850,000 to the Department of Industrial Relations (DIR) Division of Labor Standards Enforcement (DLSE) to review consent decrees.  These costs may be offset to the extent the consent decree process reduces individual wage claim cases.  

COMMENTS:

1. Purpose. This bill enacts a limited amnesty program with respect to the misclassification of port drivers. According to the author and the California Teamsters Public Affairs Council (sponsor), nearly all of the "owner-operator" truck drivers that haul intermodal freight to and from the ports of California have been misclassified. They point to hundreds of recent cases and class action lawsuits where the drivers have been determined to be employees. A recent court decision in San Diego, for example, awarded seven drivers a judgment of over $2 million against their employer for not properly classifying them as employees. Supporters contend this bill will allow the parties to come together, rectify the situation, and move forward in a productive manner.

2. Background. California is home to some of the largest and most complex port operations in the world. 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.

As the trucking industry was deregulated in the 1980s, the industry has relied more on independent contractors or "owner operator" port truck drivers, rather than recognizing drivers as employees. There has been much debate over whether this classification of drivers as independent contractors is lawful. This particular question is not unique to the port drayage context, as concern about misclassification of workers as independent contractors affects many other industries.

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).

3. Berman hearings. According to DIR, over the last three years, the DLSE has held over 500 wage claim hearings (aka Berman hearings) for this industry and note the hearings have been very fact intensive. Generally, Berman hearings take a half day or one full day to complete. Many of these cases have taken up to a week.  Additionally, DLSE attorneys have enforced hearing findings in civil court on appeal. 

As of January 2015, the Labor Commissioner had issued 113 orders, decisions or awards (ODAs) totaling almost $5 million. Of these, 46 ODAs had been appealed by the employer (representing $3.9 million in awards).

4. Opposition. The California Trucking Association (CTA) opposes this bill as it does not address the key issue leading to drayage motor carriers facing this situation in the first place – misuse of the DLSE's administrative hearing process.

CTA states that the administrative (or "Berman hearing") process was designed to provide a speedy, informal and affordable method for employers and employees to resolve simple wage claims. CTA argues that claims of misclassification of commercial drivers as independent contractors are some of the most complex claims being addressed by DLSE, and therefore should not be addressed via this procedure. Additionally, CTA asserts that it has been the longstanding policy of multiple Labor Commissioners, prior to the current administration to defer such complex, high-wage claims to the court system.

Therefore, CTA recommends two reforms related to the use of the Berman hearing procedures. First, in order to reduce the subjectivity involved with these reviews, they suggest that existing law should be amended to clearly define that these complex matters are "better addressed and eventually adjudicated in the courts." Second, CTA recommends that the law should be amended to statutorily memorialize the DLSE's previous policy (which they claim was utilized up until 2008) that the Labor Commissioner decline the use of the Berman hearing procedure for all claims of $30,000 or more where employment status is at issue. They state that average award against motor carriers is $87,000, but some have reached beyond $200,000.

CTA concludes that, in "concert with any discussion about partial relief of liability for penalties associated with wage claims where a dispute of employment status exists, we should first examine the mechanism generating this liability."

Analysis Prepared by: Misty Feusahrens / APPR. / (916) 319-2081

Date of Hearing: April 8, 2015

ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT

Roger Hernández, Chair

ABPCA Bill Id:AB 621

Author:(Roger Hernández) – As Introduced Ver:February 24, 2015

SUBJECT: Drayage truck operators

SUMMARY: Enacts a limited amnesty program with respect to the misclassification of port drivers. Specifically, this bill:

1. Provides that, notwithstanding any law, a motor carrier performing drayage services at one or more ports in this state shall be relieved of liability for statutory or civil penalties associated with misclassification of commercial drivers as independent contractors if the motor carrier enters into a consent decree with the Labor Commissioner whereby the motor carrier agrees to convert all of its commercial drivers to employees.
   
   
   

2. Provides that a consent decree entered into pursuant this bill shall contain all of the following:
   
   
   

   1. An agreement by the motor carrier to pay all wages, benefits, and taxes owed, if any, to or in relation to all of its converted commercial drivers covering the period of time from the first date of misclassification to the date the consent decree is entered into, but not exceeding the applicable statute of limitations.
      
      
      

   2. An agreement by the motor carrier to maintain any converted commercial driver positions as employee positions.
      
      
      

   3. An agreement by the motor carrier that any future commercial drivers hired to perform the same or similar duties shall be presumed to have employee status and that the motor carrier shall have the burden to prove by clear and convincing evidence that they are not employees in any administrative or judicial proceeding in which their employment status is an issue.
      
      
      

   4. Any other provisions the Labor Commissioner deems necessary to carry out the intent of this section or to enforce the provisions of the consent decree.
      
      
      

3. Provides that this bill does not apply to a motor carrier that has a pending civil lawsuit against it in state or federal court alleging misclassification of commercial drivers where the lawsuit was filed prior to January 1, 2015.
   
   
   

4. Provides that this bill shall apply only to consent decrees entered into by the Labor Commissioner prior to January 1, 2017.

FISCAL EFFECT: Unknown

COMMENTS: The issue of misclassification of port truck drivers as independent contractors (rather than employees) has been a significant issue before this Committee over the last decade. On four separate occasions over the last 12 years, this Committee has conducted oversight hearings to explore this problem in greater detail. The most recent oversight hearing was held in June 2014.

Much of the background information in this analysis comes from the most recent oversight hearing.

General Background

California is home to some of the largest and most complex port operations in the world. Together, the Ports of Los Angeles and Long Beach are the third largest port operation in the world and the busiest seaport in America. 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 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.

As discussed above, over the past decade, this Committee 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. The most recent hearing was held in June 2014.

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 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:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;

2. Whether or not the work is part of the regular business of the principal;

3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;

4. The alleged employee's investment in the equipment or materials required by the task;

5. The skill required in the particular occupation;

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

7. The alleged employee's opportunity for profit or loss depending on his or her managerial skill;

8. The length of time for which the services are to be performed;

9. The degree of permanence of the working relationship;

10. The method of payment, whether by time or by the job;

11. 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.

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 act¹."

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 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 transport²."

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 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 days they choose and ultimately control their working environment. Studies show high levels of job satisfaction among independent contractors³."

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 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 operations⁴."

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 received $66,187 in gross annual earnings⁵. 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 plan⁶. 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 percent⁷.

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 expenses⁸. 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 benefits¹⁰.

A 2011 research report¹¹ 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:

  • 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.

  • 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.

  • 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:

  • 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 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.

  • 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.

  • 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.

  • 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:

  • 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.

  • 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."

Recent 2014 Report on Port Truck Drivers and Misclassification

In February 2014, the National Employment Law Project (NELP) and others issued a report¹² which revisited the issues of port driver working conditions and the reported widespread misclassification of drivers. Among other findings, the report estimated that 49,000 of the nation's 75,000 port truck drivers are misclassified as independent contractors.

This report placed a particular emphasis on the costs to workers and the state and federal governments as a result of misclassification:

• The report estimated that port trucking companies in California are annually liable for wage and hour violations of between $787 and $998 million.

• The report estimated that industry's total federal and state liability for unemployment insurance fund contributions, workers' compensation premiums, and income tax payments at approximately $563 million annually.

• The report estimated that total quantifiable costs of misclassification nationally (tax losses plus wage and hour violations) are $1.4 billion annually.

The report also noted that port drivers have filed approximately 400 complaints in recent years with the Division of Labor Standards Enforcement (DLSE) for wage and hour violations related to misclassification. The report found that penalties in the 19 cases already adjudicated have averaged $66,240 per driver (or approximately $4,266 per driver per month).

The report made a number of recommendations, including the following:

• State and federal labor and tax law enforcement agencies should prioritize investigations in those industries, like port trucking, in which widespread violations have the greatest impact on workers and law-abiding employers.

• Enforcement agencies should coordinate their efforts to fight misclassification in the trucking industry, with each taking the most advantage of their particular capacities.

• Enforcement agencies should be adequately funded and field enough well-trained staff to ensure investigations are accurate, consistent, and sufficient in scope.

• States should use legal tests of employee status that account for the lack of independence among port drivers. State laws should ensure that employer-mandated deductions for truck and other business-related expenses are illegal.

• Anti-retaliation measures for workers reporting violations of employment, tax, and safety laws should be strengthened.

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 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.

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 drivers to be directly employed by the motor carriers¹³.

On July 28, 2008, the American Trucking Association (ATA) filed lawsuits challenging both the Los Angeles and Long Beach¹⁴ clean truck concession programs (or portions thereof).

After several years of litigation, in 2011 the Ninth Circuit Court of Appeals found that the employee-driver requirement of the program was preempted by federal law because it did not fall within a specified "market participant" exception since the requirement was "tantamount to regulation." Specifically, the court stated:

"We conclude that…the employee driver provision seeks to impact third party behavior unrelated to the performance of the concessionaire’s obligations to the Port. One of the Port’s primary motives in adopting the employee driver provision was to increase stability in Port drayage by ensuring that drivers were paid higher wages. As a facilities provider, the Port has an interest in continued provision of drayage services, but it may not obtain that stability by unilaterally inserting itself into the contractual relationship between motor carriers and drivers."¹⁵

Previous Legislative Proposals

In recent 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. 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.

In 2011, Speaker John A. Pérez introduced Assembly Bill 950, which would have deemed drayage truck operators to be "statutory employees" for employment purposes, as specified. However, AB 950 was moved to the Inactive File on the Assembly Floor and was never taken up for a vote.

Senate Bill 459 (Corbett), which was enacted in 2011, established specific civil penalties for the willful misclassification of an individual as an independent contractor. These penalties range from $5,000 to $15,000 for each violation to $10,000 to $25,000 per violation for a pattern or practice of violations.

Moreover, there have been numerous bills in recent years to address port issues generally, some of which may directly or indirectly impact the working conditions of port drivers.

Recent Enforcement Actions

When this Committee last conducted oversight of this issue (last June), it noted that port drivers had recently filed over 500 complaints with the Division of Labor Standards Enforcement (DLSE) for wage theft violations related to misclassification. At the time, DLSE had issued over 30 decisions, all but one if favor of the drivers and finding that they had been misclassified as independent contractors.

According to updated information provided by DLSE to the Committee in January 2015, there were 471 claims filed, of which 418 had been referred to hearings. The Labor Commissioner had issued 113 orders, decisions or awards (ODAs) totaling almost $5 million. Of these, 46 ODAs had been appealed by the employer (representing $3.9 million in awards).

Other drivers have brought actions in civil court. Recently (January 2015), the San Diego County Superior Court awarded seven drivers a judgment of over $2 million against their employer for not properly classifying them as employees

The Legislative Solution Proposed by This Bill

According to the author and sponsor, this bill represents an important opportunity to revolutionize and modernize the port drayage industry to the benefit of drivers, drayage companies, the ports, and our local communities. They contend that the bill represents a common-sense compromise in allowing the parties to come together, rectify the situation, and move forward in a productive manner.

Under this bill, port drayage companies will be provided an opportunity to voluntarily come forward to participate in a limited amnesty program by entering into a consent decree with the Labor Commissioner. Under the terms of the consent decree, the motor carrier must agree to pay all wages and benefits owed to previously misclassified independent contractors, and all taxes owed to the state as a result of such misclassification. In addition, the company must agree to classify any present or future commercial drivers as employees. In exchange, a motor carrier that enters into such a consent decree will be relieved of liability for statutory or civil penalties based on previous misclassification of drivers.

Under the bill, consent decrees would need to be entered into by December 21, 2016. The bill would not impact current civil litigation, specifying that it would not apply to a motor carrier that has a pending lawsuit against it if the lawsuit was filed prior to January 1, 2015.

ARGUMENTS IN SUPPORT

This bill is sponsored by the California Teamsters Public Affairs Council, who argues that nearly all of the so-called "owner-operator" truck drivers that haul intermodal freight to and from the ports of California have been misclassified. In hundreds of recent cases and class action lawsuits, 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 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. The sponsor argues that this bill is a way for port drayage motor carriers to "come in from the cold" in a way that will save them from paying financially crippling penalties.

This bill is also supported by Total Transportation Services, Inc. (TTSI), who states that it will provide welcome relief to port drayage companies, like it, who wish to reclassify their drivers from independent contractor to employee status but face substantial penalties if they do so. They state further: "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 and appreciate your willingness to introduce this legislation."

ARGUMENTS IN OPPOSITION

The California Trucking Association (CTA) writes that while it is willing to work with the author to address the issues raised by this bill, it nevertheless opposes the bill because it does not address the "key issue" leading to drayage motor carriers facing this situation in the first place – "misuse" of the DLSE's administrative hearing process.

CTA states that the administrative (or "Berman hearing") process was designed to provide a speedy, informal and affordable method for employers and employees to resolve simple wage claims. CTA argues that claims of misclassification of commercial drivers as independent contractors are some of the most complex claims being addressed by DLSE, and therefore should not be addressed via this procedure. Additionally, CTA asserts that it has been the longstanding policy of multiple Labor Commissioners prior to the current administration to defer such complex, high-wage claims to the court system.

Therefore, CTA recommends two reforms related to the use of the Berman hearing procedures. First, in order to reduce the subjectivity involved with these reviews, they suggest that existing law should be amended to clearly define that these complex matters are "better addressed and eventually adjudicated in the courts." Second, CTA recommends that the law should be amended to statutorily memorialize the DLSE's previous policy (which they claim was utilized up until 2008) that the Labor Commissioner decline the use of the Berman hearing procedure for all claims of $30,000 or more where employment status is at issue. They state that average award against motor carriers is $87,000, but some have reached beyond $200,000.

CTA concludes that, in "concert with any discussion about partial relief of liability for penalties associated with wage claims where a dispute of employment status exists, we should first examine the mechanism generating this liability."

The California Retailers Association opposes this measure, arguing that it fails to address the greater underlying issues of misclassifying commercial drivers as independent contractors and should seek to find a solution within existing enforcement mechanisms.

REGISTERED SUPPORT / OPPOSITION:

Support

California Labor Federation, AFL-CIO

California Teamsters Public Affairs Council (Sponsor)

Total Transportation Services, Inc.

Opposition

California Retailers Association

California Trucking Association

Analysis Prepared by: Ben Ebbink / L. & E. / (916) 319-2091