(1)Existing law prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. Existing law creates a rebuttable presumption affecting the burden of proof that there has been no violation of the above-described prohibition if the contract meets specified requirements, including being in a single document and containing a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws and regulations.

This bill would apply these provisions to port drayage motor carriers, except as specified. The bill would include in the requirements for the rebuttable presumption described above that the contract include a list of the current local, state, and federal motor carrier authority or registration and a copy of any agreement executed by an independent contractor identified pursuant to the provisions described above. The bill would define port drayage motor carriers for these purposes.

(2)Existing law requires the Division of Labor Standards Enforcement to post on its internet web page information on port drayage motor carriers with unsatisfied final court judgments, tax assessments, or tax liens relating to, among other things, the misclassification of employees as independent contractors with regard to a port drayage commercial driver. Existing law also requires the division to post on its internet web page a list of port drayage motor carriers that are prior offenders with a subsequent judgment finding that the port drayage motor carrier has violated a labor or employment law, among other information. Existing law requires a customer that, as part of its business, engages or uses a port drayage motor carrier that is on the list established by the division to share with the motor carrier or the motor carriers successor all civil legal responsibility and civil liability owed to a port drayage driver or to the state for port drayage services obtained after the date the motor carrier appeared on the list.

This bill, on and after January 1, 2025, and except under specified circumstances, would also require a customer that, as part of its business, engages or uses a port drayage motor carrier to share with the motor carrier or their successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carriers misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the divisions list.

(1)Existing law prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. Existing law creates a rebuttable presumption affecting the burden of proof that there has been no violation of the above-described prohibition if the contract meets specified requirements, including being in a single document and containing a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws and regulations.

This bill would apply these provisions to port drayage motor carriers, except as specified. The bill would include in the requirements for the rebuttable presumption described above that the contract include a list of the current local, state, and federal motor carrier authority or registration and a copy of any agreement executed by an independent contractor identified pursuant to the provisions described above. The bill would define port drayage motor carriers for these purposes.

(2)Existing law requires the Division of Labor Standards Enforcement to post on its internet web page information on port drayage motor carriers with unsatisfied final court judgments, tax assessments, or tax liens relating to, among other things, the misclassification of employees as independent contractors with regard to a port drayage commercial driver. Existing law also requires the division to post on its internet web page a list of port drayage motor carriers that are prior offenders with a subsequent judgment finding that the port drayage motor carrier has violated a labor or employment law, among other information. Existing law requires a customer that, as part of its business, engages or uses a port drayage motor carrier that is on the list established by the division to share with the motor carrier or the motor carriers successor all civil legal responsibility and civil liability owed to a port drayage driver or to the state for port drayage services obtained after the date the motor carrier appeared on the list.

This bill, on and after January 1, 2025, and except under specified circumstances, would also require a customer that, as part of its business, engages or uses a port drayage motor carrier to share with the motor carrier or their successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carriers misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the divisions list.

(1)Existing law prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. Existing law creates a rebuttable presumption affecting the burden of proof that there has been no violation of the above-described prohibition if the contract meets specified requirements, including being in a single document and containing a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws and regulations.

This bill would apply these provisions to port drayage motor carriers, except as specified. The bill would include in the requirements for the rebuttable presumption described above that the contract include a list of the current local, state, and federal motor carrier authority or registration and a copy of any agreement executed by an independent contractor identified pursuant to the provisions described above. The bill would define port drayage motor carriers for these purposes to mean an entity that utilizes commercial drivers to move containerized freight. purposes.

(1)Existing law prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. Existing law creates a rebuttable presumption affecting the burden of proof that there has been no violation of the above-described prohibition if the contract meets specified requirements, including being in a single document and containing a description of the labor or services to be provided. a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws and regulations.

This bill would apply these provisions to motor carriers. carriers, except as specified. The bill would include in the requirements for the rebuttable presumption described above that the contract include a list of the current local, state, and federal motor carrier authority or registration and a copy of any agreement executed by an independent contractor identified pursuant to the provisions described above. The bill would define motor carriers for these purposes to mean an entity that utilizes commercial drivers to move containerized freight.

(2)Existing law requires a client employer to share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers compensation coverage. Existing law also prohibits a client employer from shifting to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor. Existing law defines terms for these purposes and authorizes the Labor Commissioner to adopt regulations and rules of practice and procedure necessary to administer and enforce these provisions. Existing law excludes certain types of employers from these provisions, including a client employer that is not a motor carrier of property based solely on the employers use of a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight, and a client employer that is a motor carrier of property subcontracting with, or otherwise engaging, another motor carrier of property to provide transportation services using its own employees and commercial motor vehicles.

This bill would delete the above-described exclusions for those client employers. The bill would define a client employer to include a business entity that utilizes a labor contractors workers to ship or receive containerized freight to or from the premises or worksite, as specified. The bill would also require a client employer to share with a labor contractor all civil legal responsibility and civil liability for workers supplied by that labor contractor with respect to the reimbursement of and indemnification for business expenses and losses. The bill would expand the definition of labor contractor under these provisions to include providing workers to ship or receive a client employers containerized freight to or from the client employers facility or worksite, under either the client employers operating authority, the labor contractors operating authority, or the drivers own operating authority.

Existing law does not impose liability on a client employer for the use of an independent contractor other than a labor contractor or to change the definition of independent contractor.

This bill would revise that provision to specify that a client employer will be liable if either that client employer or the labor contractor misclassifies an employee as an independent contractor.

(1)Existing law prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. Existing law creates a rebuttable presumption affecting the burden of proof that there has been no violation of the above-described prohibition if the contract meets specified requirements, including being in a single document and containing a description of the labor or services to be provided.

This bill would apply these provisions to motor carriers. The bill would define motor carriers for these purposes to mean an entity that utilizes commercial drivers to move freight.

(2)Existing law requires a client employer to share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers compensation coverage. Existing law also prohibits a client employer from shifting to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor. Existing law defines terms for these purposes and authorizes the Labor Commissioner to adopt regulations and rules of practice and procedure necessary to administer and enforce these provisions. Existing law excludes certain types of employers from these provisions, including a client employer that is not a motor carrier of property based solely on the employers use of a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight, and a client employer that is a motor carrier of property subcontracting with, or otherwise engaging, another motor carrier of property to provide transportation services using its own employees and commercial motor vehicles.

This bill would delete the above-described exclusions for those client employers. The bill would define a client employer to include a business entity that utilizes a labor contractors workers to ship or receive freight to or from the premises or worksite, as specified. The bill would also require a client employer to share with a labor contractor all civil legal responsibility and civil liability for workers supplied by that labor contractor with respect to the reimbursement of and indemnification for business expenses and losses. The bill would expand the definition of labor contractor under these provisions to include providing workers to ship or receive a client employers freight to or from the client employers facility or worksite, under either the client employers operating authority, the labor contractors operating authority, or the drivers own operating authority.

Existing law does not impose liability on a client employer for the use of an independent contractor other than a labor contractor or to change the definition of independent contractor.

This bill would revise that provision to specify that a client employer will be liable if either that client employer or the labor contractor misclassifies an employee as an independent contractor.

 THIRD READING  

Bill No: AB 2754

Author: Rendon (D)

Amended: 5/20/24 in Assembly

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 4-1, 6/26/24

AYES: Smallwood-Cuevas, Cortese, Durazo, Laird

NOES: Wilk

SENATE JUDICIARY COMMITTEE: 9-2, 7/2/24

AYES: Umberg, Allen, Ashby, Caballero, Durazo, Laird, Roth, Stern, Wahab

NOES: Wilk, Niello

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/15/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

ASSEMBLY FLOOR: 52-3, 5/22/24 - See last page for vote

SUBJECT: Employment contracts and agreements: sufficient funds: liability

SOURCE: California Teamsters Public Affairs Council

DIGEST:

This bill addresses the issue of worker misclassification in the port drayage industry by (1) prohibiting port drayage motor carriers from entering into contracts for services if they know or should have known that the contract was insufficient to comply with labor laws, as specified; and (2) requiring on or after January 1, 2025, a customer that uses a port drayage motor carrier to share all civil legal responsibility and civil liability, as specified, regardless of whether or not the port drayage motor carrier is on the Division of Labor Standards Enforcement’s (DLSE) list of carriers that have engaged in illegal conduct.

ANALYSIS:

Existing law:

1. Prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors, including garment, janitorial, and warehouse contractors, if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable local, state, and federal laws or regulations governing the labor or services to be provided. (Labor Code §2810(a))
2. Creates a rebuttable presumption affecting the burden of proof that there has been no violation of the prohibition in 1), above, if the contract meets specified conditions. (Labor Code §2810(b))
3. Provides that to qualify for the rebuttable presumption, a contract or agreement must be in writing, in a single document, and contain specified provisions, including, but not limited to:
4. The name, address, and telephone number of the person or entity and the construction, farm labor, garment, janitorial, security guard, or warehouse contractor through whom the labor or services are to be provided.
5. A description of the labor or services to be provided and a statement of when those services are to be commenced and completed.
6. The workers’ compensation insurance policy number and the name, address, and telephone number of the insurance carrier, as specified.
7. The total number of persons who will be utilized under the contract or agreement as independent contractors, along with a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws or regulations.
8. Excludes from 1), above, a person or entity who executes a collective bargaining agreement covering the workers employed under the contract or agreement, or a person who enters into a contract or agreement for labor or services to be performed on that person’s home residences, as specified. (Labor Code §2810(c))
9. An employee aggrieved by a violation of 1), above, may file an action for damages to recover the greater of all of the employee’s actual damages or $250 per employee per violation for an initial violation and $1000 per employee for each subsequent violation, as specified. The employee may also bring an action for injunctive relief. (Labor Code §2810(g))
10. Defines, for purposes of Labor Code §2810.4, “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. It also means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified. (Labor Code §2810.4(a)(5))
11. Defines, for purposes of Labor Code §2810.4, “customer” as a business entity, regardless of its form, that engages or uses a port drayage motor carrier to perform port drayage services on the customer’s behalf, whether the customer directly engages or uses a port drayage motor carrier or indirectly engages or uses a port drayage motor carrier through the use of an agent, including, but not limited to, a freight forwarder, motor transportation broker, ocean carrier, or other motor carrier. Excludes a business entity with a workforce of fewer than 25 workers, as specified. (Labor Code §2810.4(a)(2))
12. Directs the DLSE to post on its internet webpage the names, addresses, and essential information for a port drayage motor carrier with an unsatisfied final court judgment, tax assessment, or tax lien that may be released to the public under federal and state disclosure laws, as specified. (Labor Code §2810.4(b))
13. Directs DLSE to post on its internet webpage a list consisting of the names, addresses, and essential information for a prior offender with a subsequent judgment, ruling, citation, order, decision, or award finding that the port drayage motor carrier has violated a labor or employment law or regulation, even if all periods for appeals have not expired. (Labor Code §2810.4(b))
14. Subjects a customer that engages or uses a port drayage motor carrier that is on the DLSE list to joint and several liability with the motor carrier or the motor carrier’s successor for all civil legal responsibility and civil liability owed to a port drayage driver for services obtained after the date the motor carrier appeared on the list, as specified. This includes sharing with the motor carrier the full amount of unpaid wages, unreimbursed expenses, damages and penalties, including applicable interest, which are found due, as specified. (§2810.4(b)(3))
15. Provides a series of exemptions for customers from the joint and several liability, including where the carrier’s employees are covered by a collective bargaining agreement, as specified. (Labor Code §2810.4(d))
16. Requires a port drayage motor carrier that provides port drayage services to a customer to furnish written notice to the customer of any unsatisfied final judgments against the motor carrier, as specified, and the text of this section. (Labor Code §2810.4(e), (f))
17. Prohibits adverse action against a commercial driver for providing notification of violations or filing a claim or civil action pertaining to unpaid wages, unreimbursed expenses, or the recovery of damages and penalties. (Labor Code §2810.4(h))

This bill:

1. Adds port drayage motor carrier to the list of services where a person or entity is prohibited from entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
2. Excludes from 1) above a contract with a port drayage motor carrier involving 30 days or fewer of cumulative labor or services within a one-year period.
3. Adds port drayage motor carrier to the list services for which there is a rebuttable presumption affecting the burden of proof that there has been no violation of 1), above, if the contract or agreement meets specified requirements.
4. Adds to the requirements for the rebuttable presumption described in 3), above, that the contract include, the total number of persons who will be utilized under the contract or agreement as independent contractors, along with both of the following:
5. A list of the current local, state, and federal contractor license identification numbers or motor carrier authority or registration that the independent contractors are required to have under local, state, or federal laws or regulations.
6. A copy of any agreement executed by an independent contractor identified pursuant to these provisions.
7. For purposes of these provisions, defines “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. It also means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified.
8. Requires on and after January 1, 2025, a customer that, as part of its business, engages or uses a port drayage motor carrier to share with the motor carrier or the motor carrier’s successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carrier’s misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the DLSE maintained list of port drayage motor carriers that have engaged in illegal conduct, as specified.
9. Provides that the customer shall have no liability pursuant to 6), above, under either of the following circumstances:
10. The motor carrier utilizes its own employee drivers to perform services for the customer.
11. The motor carrier utilizes bona fide independent contractors to perform services for the customer where each independent contractor possesses their own operating authority and has a business relationship with the motor carrier that meets the California legal standard for being determined an independent contractor.

Background

Port Drayage. Port drayage services describe the hauling of standardized metal shipping containers between ports and warehouses for conveyance onto ships, trucks, or retail cars. Simply put, drayage is an essential logistical function that ensures freight moves from its origin point to its destination. California has 12 ports, through which large volumes of goods are both imported and exported internationally. These ports vary in size, operations, and finances, but combined, they process about 40 percent of all containerized imports and 30 percent of all exports in the United States.

Worker Misclassification Although California’s port truckers are an integral part of the nation’s supply chains, many of them are victims of exploitative labor practices and misclassification. Decades-long efforts to undercut port trucker wages, rights, and livelihoods have had serious consequences. Misclassification is particularly harmful because independent contractors do not enjoy the same protections employees do.

*For more information on worker misclassification in the port drayage industry, please see the Senate Labor, Public Employment and Retirement policy analysis.

SB 1402 (Lara, Chapter 702, Statutes of 2018) and SB 338 (Gonzalez, Chapter333, Statutes of 2021). In response to well-documented labor abuses in the port drayage industry, SB 1402 established a new enforcement mechanism. It required DLSE to list the names and other information of port drayage motor carriers with unsatisfied judgements, assessments, or other awards against it based on illegal conduct, including failure to pay wages and misclassification of employees, as specified. Customers working with carriers that are placed on the list are subject to joint and several liability with the carrier for relevant liabilities, including unpaid wages and assessed penalties.

SB 338 strengthened the protections enacted under SB 1402 by among other things, designating Cal/OSHA violations as triggers that put trucking companies on the DLSE list, including “prior offenders” on the list, and requiring companies to show they have remedied violations to be removed from the list.

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

According to the Senate Appropriations Committee:

“The Department of Industrial Relations (DIR) indicates that it would incur first-year costs of $2.3 million, and $2.1 million annually thereafter, to implement the provisions of the bill (Labor Enforcement and Compliance Fund).”

SUPPORT: (Verified 8/15/24)

California Teamsters Public Affairs Council (source)

California Labor Federation
City of Los Angeles

Container Connection

Heavy Load Transfer, LLC

Pac 9

EcoFlow Transportation

SeaLogix

Shippers Transport Express

Taylored

Waterfront Transport

OPPOSITION: (Verified 8/15/24)

Agricultural Council of California
Agriculture Transportation Coalition

Associated General Contractors
California Building Industry Association
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Cotton Ginners & Growers Association
California Forestry Association
California Fresh Fruit Association
California League of Food Producers
California Moving and Storage Association
California Tomato Growers Association
Carmax
Civil Justice Association of California
Gemini Shippers Association
Harbor Trucking Association
Industry Business Council
Los Angeles Customs Brokers and Freight Forwarders Association
NAIOP California

National Industrial Transportation League
Pacific Merchant Shipping Association
San Gabriel Valley Economic Partnership
Southern California Leadership Council
Truck Renting and Leasing Association
U.S. Forage Export Council
Western Agricultural Processors Association
Western States Trucking Association

ARGUMENTS IN SUPPORT:

The sponsors of the measure, the California Teamsters Public Affairs Council, state:

“AB 2754 would address the ongoing employee misclassification problem in trucking by proposing a series of changes to California's sufficient contracts and joint liability laws to clarify their application to port trucking companies and the entities that engage them…

This means that cargo owners will be vicariously liable for any labor code violations arising out of misclassification committed by their trucking contractors, and that cargo owners will be on the hook if they knowingly enter into unsustainable contracts that would require the contractor to violate the law or to lose money on the contract. Making cargo owners responsible in this way will incentivize them to only contract with companies that follow the law and properly classify their employees, will push them to look at the economics of the contracts they are entering into to ensure that the contract can satisfy all of its legal obligation to its workers, and will ultimately put positive pressure on the trucking industry as a whole to stop misclassifying employees.”

ARGUMENTS IN OPPOSITION:

The California Chamber of Commerce, among others, is opposed unless amended to this bill, stating:

“Our outstanding concern is that, under the current language, an entity could be held liable for a carrier’s actions not only for any violations arising out of their contract, but also for any violations arising out of every other contract the carrier is involved in. Even if an entity tries to do its due diligence to ensure their carrier is operating legally and is misled, it is still liable. We therefore request an amendment specifying that if a carrier is deemed to be operating illegally, the contracting entity’s liability is linked to the volume of loads shipped by the carrier for that entity, not all shipments moved by the carrier.”

ASSEMBLY FLOOR: 52-3, 5/22/24

AYES: Addis, Aguiar-Curry, Alvarez, Arambula, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Juan Carrillo, Wendy Carrillo, Connolly, Mike Fong, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Santiago, Schiavo, Ting, Villapudua, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NOES: Dixon, Vince Fong, Sanchez

NO VOTE RECORDED: Alanis, Bains, Calderon, Cervantes, Chen, Megan Dahle, Davies, Essayli, Flora, Friedman, Gallagher, Holden, Hoover, Lackey, Mathis, Stephanie Nguyen, Jim Patterson, Joe Patterson, Luz Rivas, Blanca Rubio, Soria, Ta, Valencia, Waldron, Wallis

Prepared by: Emma Bruce / L., P.E. & R. / (916) 651-1556

8/18/24 9:19:33

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 2754 (Rendon) - Employment contracts and agreements: sufficient funds: liability

Bill Summary:

AB 2754 would (1) extend the prohibition on contracting for labor or services with specified types of contractors, if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable local, state, and federal laws or regulations governing the labor or services to be provided, and (2) provide that a customer that uses or engages a port drayage motor carrier shares joint and severable liability with the motor carrier for misclassifications of the motor carrier’s workers.

Fiscal Impact:

The Department of Industrial Relations (DIR) indicates that it would incur first-year costs of $2.3 million, and $2.1 million annually thereafter, to implement the provisions of the bill (Labor Enforcement and Compliance Fund).

Background:

California has enacted a variety of laws aimed at protecting employees in the State and ensuring they can be made whole when they are wronged by their employer. Nevertheless, wage theft, in which an employer does not pay a worker the amount the worker is due, or does not pay the worker for all of their working hours, continues to be a major issue in the state. Available data indicate that wage theft in the State totaled $338 million.

Wage theft and labor violations also can occur through misclassification of workers, in which an employer incorrectly classifies an employee as an independent contractor. Doing so can deny that employee the wage and hour, overtime, and other protections that classification as an employee provides. In addition, it allows employers to unlawfully charge employees for the tools required for their job, and deny them vital benefits. . In addition, when an employer violates labor law, it places law-abiding employers at a disadvantage, and if violations are not enforced, it incentivizes a race to the bottom as employers try to compete with their competitors in the market. One study found that 90 percent of businesses inspected by the State were out of compliance with worker classification laws.

The Legislature has attempted to address the issue of wage theft and worker misclassification, including in the trucking industry, through a variety of laws over the years. For example, in 2018, the Legislature passed SB 1402 (Lara) to address labor issues specific to port drayage motor carriers in the port drayage industry. Port drayage motor carriers are entities or individuals that hire commercial drivers to transport goods or shipping containers from a port to inland locations. About 33,500 drayage trucks service California’s seaports and railyards every year, including the ports of Los Angeles and Long Beach, two of the largest ports in the nation. SB 1402 created a new enforcement mechanism for labor law violations in the port drayage industry by requiring DIR to list the names and other information of port drayage motor carriers that have unsatisfied legal judgements, assessments, or other awards against them based on labor law violations like wage theft or worker misclassification. SB 1402 provided joint and severable liability to entities that work with listed port drayage motor carriers. Another bill, SB 338 (Gonzalez, 2021), strengthened SB 1402’s provisions, by including “prior offenders” on the list and requiring companies to show they have remedied violations in order to be removed from the list.

Proposed Law:

This bill, among other things, would do the following:

• Include port drayage motor carriers in the list of services in which a person or entity is prohibited from entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
• Add port drayage motor carriers to the rebuttable presumption affecting the burden of proof that there has been no violation of this prohibition, as specified.
• Add to the requirements for the rebuttable presumption described above, that the written contract include the total number of persons who will be utilized under the contract or agreement as independent contractors, and both of the following: (1) a list of the current local, state, and federal contractor license identification numbers or motor carrier authority or registration that the independent contractors are required to have under local, state, or federal laws or regulations, and (2) a copy of any agreement executed by an independent contractor identified pursuant to these provisions.
• Specify that the aforementioned prohibition would does not apply if (1) a person or entity executes a collective bargaining agreement covering the workers employed under the contract or agreement, (2) a person enters into a contract or agreement for labor or services to be performed on that person’s home residences, if a family member resides for at least a part of a year in the residence for which the labor or services are to be performed, or (3) a contract with a port drayage motor carrier involving 30 days or fewer of cumulative labor or services within a one year period.
• For purposes of these provisions, define “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. It also means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified.
• Require that, on and after January 1, 2025, a customer that engages or uses a port drayage motor carrier as part of its business to share with the motor carrier or the motor carrier’s successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carrier’s misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the DLSE maintained list of port drayage motor carriers that have engaged in illegal conduct, as specified.

Related Legislation:

• SB 338 (Gonzalez, Chapter 333, Statutes of 2021) expanded the set of violations that can cause port drayage contractors to be placed on a Division of Labor Standards Enforcement list that extends joint liability for future violations to customers of that contractor.
• SB 1402 (Lara, Chapter 702, Statutes of 2018) required the DLSE to list the names and other information of port drayage motor carriers with unsatisfied judgments, assessments, or other awards against it based on illegal conduct, including failure to pay wages and misclassification of employees, as specified. Required joint and several liability for customers who contract with port drayage services who have unpaid wage, tax and workers’ compensation liability.
• AB 1897 (Roger Hernández, Chapter 728, Statutes of 2014) required a client employer, as defined, to share with a labor contractor, as defined, all civil legal responsibility and civil liability for: (1) payment of wages to workers provided by a labor contractor; (2) failure to report and pay all required employer contributions, worker contributions, and personal income tax withholdings as required by the Unemployment Insurance Code; and (3) failure to secure valid workers’ compensation coverage.
• 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.

Staff Comments:

DIR notes that these figures are a conservative estimate of the resources needed to enforce the bill’s requirements.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: AB 2754 (Author:Rendon)

Version: May 20, 2024

Hearing Date: July 2, 2024

Fiscal: Yes

Urgency: No

Consultant: ID

SUBJECT

Employment contracts and agreements: sufficient funds: liability

DIGEST

This bill extends the prohibition on contracting for labor or services with specified types of contractors, if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable local, state, and federal laws or regulations governing the labor or services to be provided, and provides that a customer that uses or engages a port drayage motor carrier shares joint and severable liability with the motor carrier for misclassifications of the motor carrier’s workers.

EXECUTIVE SUMMARY

Wage theft and worker misclassification are significant issues in California that harm the state’s workers every day. To help address these issues, the Legislature has enacted a law that prohibits a person or entity from entering into a contract for labor services with specified types of contractors when that person knows or should know that the contract does not provide enough funds to allow the contractor to comply with labor law. This bill extends this prohibition to apply to port drayage motor carriers. The Legislature also enacted a law that requires the Department of Labor Standard Enforcement (DLSE) to post a list of port drayage motor carriers with an unsatisfied final court judgment, tax assessment, or tax lien, and makes these listed motor carriers jointly and severally liable for labor law violations. This bill specifies that a customer that engages or uses a port drayage motor carrier shall be jointly and severally liable with the motor carrier for misclassification of the motor carrier’s workers, except as specified. AB 2754 is sponsored by the California Teamsters Public Affairs Council, and is supported by the California Labor Federation and the City of Los Angeles. It is opposed by the California Chamber of Commerce and a number of business associations. AB 2754 previously passed out of the Senate Labor, Public Employment and Retirement Committee by a vote of 4 to 1.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors, including garment, janitorial, and warehouse contractors, if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable local, state, and federal laws or regulations governing the labor or services to be provided. (Lab. Code §2810(a).)
2. Creates a rebuttable presumption affecting the burden of proof that there has been no violation of the prohibition in (1), above, if the contract meets the specified conditions in (3), below. (Lab. Code § 2810(b).)
3. Provides that to qualify for the rebuttable presumption, a contract or agreement must be in writing, in a single document, and contain specified provisions, including, but not limited to:
   1. the name, address, and telephone number of the person or entity and the construction, farm labor, garment, janitorial, security guard, or warehouse contractor through whom the labor or services are to be provided;
   2. a description of the labor or services to be provided and a statement of when those services are to be commenced and completed;
   3. the workers’ compensation insurance policy number and the name, address, and telephone number of the insurance carrier, as specified;
   4. the total number of persons who will be utilized under the contract or agreement as independent contractors, along with a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws or regulations. (Lab. Code § 2810(d).)
4. Excludes from (1), above, a person or entity who executes a collective bargaining agreement covering the workers employed under the contract or agreement, or a person who enters into a contract or agreement for labor or services to be performed on that person’s home residences, as specified. (Lab. Code § 2810(c).)
5. Provides that an employee aggrieved by a violation of (1), above, may file an action for damages to recover the greater of all of the employee’s actual damages or $250 per employee per violation for an initial violation and $1000 per employee for each subsequent violation, as specified. The employee may also bring an action for injunctive relief, and may recover costs and reasonable attorney’s fees upon prevailing. (Lab. Code §2810(g).)
6. Provides that a client employer, as defined, shall share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to secure valid workers’ compensation coverage as required. (Lab. Code § 2810.3(b).)
7. Defines, for purposes of Labor Code §2810.4, “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. Defines the term to also mean a registered owner, lessee, licensee, or Bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified. (Lab. Code § 2810.4(a)(5).)
8. Defines, for purposes of Labor Code §2810.4, “customer” as a business entity, regardless of its form, that engages or uses a port drayage motor carrier to perform port drayage services on the customer’s behalf, whether the customer directly engages or uses a port drayage motor carrier or indirectly engages or uses a port drayage motor carrier through the use of an agent, including, but not limited to, a freight forwarder, motor transportation broker, ocean carrier, or other motor carrier. Excludes a business entity with a workforce of fewer than 25 workers, as specified. (Lab. Code §2810.4(a)(2).)
9. Directs the DLSE to post on its internet webpage the names, addresses, and essential information for a port drayage motor carrier with an unsatisfied final court judgment, tax assessment, or tax lien that may be released to the public under federal and state disclosure laws, including any order, decision, or award obtained by a public or private person or entity finding that a port drayage motor carrier has engaged in illegal conduct, as specified. (Lab. Code § 2810.4(b).)
10. Directs DLSE to post on its internet webpage a list consisting of the names, addresses, and essential information for a prior offender with a subsequent judgment, ruling, citation, order, decision, or award finding that the port drayage motor carrier has violated a labor or employment law or regulation, even if all periods for appeals have not expired. (Lab. Code §2810.4(b).)
11. Subjects a customer that engages or uses a port drayage motor carrier that is on the DLSE list to joint and several liability with the motor carrier or the motor carrier’s successor for all civil legal responsibility and civil liability owed to a port drayage driver for services obtained after the date the motor carrier appeared on the list, as specified. Specifies that this includes sharing with the motor carrier the full amount of unpaid wages, unreimbursed expenses, damages and penalties, including applicable interest, which are found due for all of the following:
    1. minimum, regular, or premium wages that are unpaid by the motor carrier;
    2. unlawful deductions from wages;
    3. out-of-pocket expenses incurred by the commercial driver; and
    4. civil penalties for failure to secure workers’ compensation coverage. (Lab. Code § 2810.4(b)(3).)
12. Provides that a customer’s joint and several liability is to be determined by either of the following:
    1. the Labor Commissioner in an administrative proceeding or pursuant to their citation authority;
    2. a court in a civil action brought by the Labor Commissioner, a commercial driver, or their representative after providing the customer with at least 30 business days notice prior to filing the action, as provided. (Lab. Code § 2810.4(c).)
13. Provides a series of exemptions for customers from the joint and several liability, including where the carrier’s employees are covered by a collective bargaining agreement, as specified. (Lab. Code § 2810.4(d).)
14. Requires a port drayage motor carrier that provides port drayage services to a customer to furnish written notice to the customer of any unsatisfied final judgments against the motor carrier, as specified, and the text of this section. (Lab. Code §§ 2810.4(e), (f).)
15. Prohibits adverse action against a commercial driver for providing notification of violations or filing a claim or civil action pertaining to unpaid wages, unreimbursed expenses, or the recovery of damages and penalties. (Lab. Code § 2810.4(h).)

This bill:

1. Includes port drayage motor carriers in the list of services in which a person or entity is prohibited from entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
2. Adds port drayage motor carriers to the rebuttable presumption affecting the burden of proof that there has been no violation of this prohibition, as described in (2), above.
   1. Adds to the requirements for the rebuttable presumption described in (2), above, that the written contract include the total number of persons who will be utilized under the contract or agreement as independent contractors, and both of the following:
      1. a list of the current local, state, and federal contractor license identification numbers or motor carrier authority or registration that the independent contractors are required to have under local, state, or federal laws or regulations;
      2. a copy of any agreement executed by an independent contractor identified pursuant to these provisions.
3. Specifies that the prohibition in (1), above, does not apply if:
   1. a person or entity executes a collective bargaining agreement covering the workers employed under the contract or agreement;
   2. a person enters into a contract or agreement for labor or services to be performed on that person’s home residences, if a family member resides for at least a part of a year in the residence for which the labor or services are to be performed;
   3. a contract with a port drayage motor carrier involving 30 days or fewer of cumulative labor or services within a one year period
4. For purposes of these provisions, defines “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. It also means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified.
5. Requires that, on and after January 1, 2025, a customer that engages or uses a port drayage motor carrier as part of its business to share with the motor carrier or the motor carrier’s successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carrier’s misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the DLSE maintained list of port drayage motor carriers that have engaged in illegal conduct, as specified.
6. Provides that the customer shall have no liability pursuant to (5), above, under either of the following circumstances:
   1. the motor carrier utilizes its own employee drivers to perform services for the customer;
   2. the motor carrier utilizes bona fide independent contractors to perform services for the customer where each independent contractor possesses their own operating authority and has a business relationship with the motor carrier that meets the California legal standard for being determined an independent contractor.

COMMENTS

1. Author’s statement

According to the author:

Although some trucking companies have changed their ways and are complying with AB 5 by classifying their drivers as employees, many trucking companies, both at ports and across the state, continue to misclassify their drivers. Cargo owners continue to benefit from this misclassification, often without having to shoulder any of the responsibility. Protecting these workers by providing them with deserved benefits and just wages aligns with the equity goals of our state.

1. Wage theft and worker misclassification are major issues in California

Over the years, California has enacted a variety of laws aimed at protecting employees in the state and ensuring they can be made whole when they are wronged by their employer. These laws are designed to ensure that workers receive fair treatment and pay and are afforded dignity and respect. These laws help ensure that California’s can meet their basic needs and protect their right to just compensation for their labor. However, wage theft, in which an employer does not pay a worker the amount the worker is due, or does not pay the worker for all of their working hours, continues to be a major issue in the state. In fact, it is the largest form of theft in the nation.^[1] Reports state that workers lost at least 338 million dollars to wage theft in 2021.^[2]

Wage theft and labor violations also can occur through misclassification of workers, in which an employer incorrectly classifies an employee as an independent contractor. When an employer classifies an employee as an independent contractor, they can deny that employee the wage and hour, overtime, and other protections that classification as an employee provides. In addition, it allows employers to unlawfully charge employees for the tools required for their job, and deny them vital benefits. One study found that 90 percent of businesses inspected by the state were out of compliance with worker classification laws.^[3] California has worked consistently over the years to clarify when an employer has misclassified a worker and to combat misclassification. In 2019, the Legislature enacted AB 5 (Gonzalez, Ch. 296, Stats. 2019) to codify the California Supreme Court’s three-part test in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal 5th 903) for determining when a worker should be classified as an employee and not an independent contractor.

These labor violations cause serious harm. When an employer violates labor law, it places law-abiding employers at a disadvantage, and if violations are not enforced, it incentivizes a race to the bottom as employers try to compete with their competitors in the market. Moreover, those employees wronged by violations, or who have their wages stolen, lose thousands of dollars every year, hurting their pocketbooks and livelihoods. In 2020, hundreds of truckers in the Los Angeles and Long Beach ports won $30 million for wage theft and misclassification on claims that the workers were effectively paid less than the minimum wage.^[4] Another report found that drivers hired as independent contractors reported 18% lower income than employee drivers, and that independent contractors were 2.5 times less likely to have health insurance and three times less likely to have retirement benefits than employee drivers.^[5] Thus, when employers steal workers’ wages or misclassify their workers, workers suffer significant harms.

1. California’s legislative efforts to combat wage theft and misclassification

The California Legislature has attempted to address the harms of wage theft and worker misclassification, including in the trucking industry, through a variety of laws over the years. In 2003, the Legislature passed SB 179 (Alcaron, Ch. 908, Stats. 2003) to address the issue in which entities contracting for labor services enter into contracts in which they know the contractor cannot comply with the minimum wage and other labor laws for the services and price provided for in the contract. Because the contractor relationship gives the entity contracting for labor services some cover for any labor violations that do occur, while still relying on under-paid labor, many employers pressured labor contractors to take too low of contracts than would allow the contractor to pay workers a minimum wage and comply with other labor laws. SB 179 attempted to prohibit this work-around for employers. It codified Labor Code Section 2810 into law, which prohibited a person or entity from entering into a contract for labor or services in specific industries, like farm labor or the garment industry, where the person or entity knows or should know that the contract does not provide sufficient funds to comply with labor laws for the workers hired by the contractor for the contract. (Lab. Code § 2810.) Labor Code Section 2810 also includes an exception for contracts where the person or entity entering into the contract executes a collective bargaining agreement covering workers under the contract, or the contract or agreement is for labor or services on the person’s home residences where at least one family member resides in the residence for at least a part of the year. (Lab. Code § 2810(c).)

In 2014, the Legislature enacted AB 1897 (Hernández, Ch. 728, Stats. 2014), which further attempted to address the issue of ensuring compliance with labor laws in the subcontracting for labor services. AB 1897 aimed to ensure that contracting entities would not rely on labor contractors to skirt the state’s labor laws by extending joint and severable liability to contracting entities for all of the labor law obligations owed to workers on the project by the labor contractor. Joint and severable liability means that the contracting entity, or client employer, may be liable for the full amount of any award of damages by a court, so that a prevailing plaintiff may collect the awarded damages from one or both parties. This helps avoid an injured worker from being unable to collect their damages from a “judgement proof” contractor that lacks the assets to cover the judgement.

Lastly, in 2018, the Legislature passed SB 1402 (Lara, Ch. 702, Stats. 2018) to address labor issues specific to port drayage motor carriers in the port drayage industry. Port drayage motor carriers are entities or individuals that hire commercial drivers to transport goods or shipping containers from a port to inland locations. About 33,500 drayage trucks service California’s seaports and railyards every year, including the ports of Los Angeles and Long Beach, two of the largest ports in the nation.^[6] SB 1402 created a new enforcement mechanism for labor law violations in the port drayage industry by requiring DLSE to list the names and other information of port drayage motor carriers that have unsatisfied legal judgements, assessments, or other awards against them based on labor law violations like wage theft or worker misclassification. SB 1402 provided joint and severable liability to entities that work with listed port drayage motor carriers. Another bill, SB 338 (Gonzalez, Ch. 333, Stats. 2021), strengthened SB 1402’s provisions, by including “prior offenders” on the list and requiring companies to show they have remedied violations in order to be removed from the list.

1. AB 2754 extends labor protections to port drayage motor carrier drivers

AB 2754 builds upon these laws to provide additional protections for port drayage motor carrier drivers. AB 2754 proposes its changes to address continued misclassification and labor law violations by port drayage motor carriers. According to the author, “[c]argo owners continue to benefit from this misclassification, often without having to shoulder any of the responsibility.” Specifically, AB 2754 amends the Labor Code to make Labor Code Section 2810 applicable to port drayage motor carriers. Thus, port drayage motor carriers are prohibited from entering into contracts with labor contractors for which the motor carrier knows or should know the contract is insufficient to cover the driver’s wages and other rights covered by labor law. AB 2754 also makes a number of changes to the rebuttable presumption that this requirement has been met, specifically requiring that the written contract for the worker’s services include the total number of persons who will be utilized under the contract as independent contractors, and a copy of any agreement executed by the independent contractors hired. AB 2754 specifies that Labor Code Section 2810’s prohibition does not apply to a contract with a port drayage motor carrier involving 30 days or fewer of cumulative labor or services in a one year period.

Additionally, it provides customers that engage or use port drayage motor carriers as part of their business with joint and severable liability with the motor carriers for all civil legal responsibility and civil liability for the motor carrier’s misclassification of the driver as an independent contractor. Where SB 1403 provided port drayage motor carriers with joint and severable liability for a variety of labor law and health code violations when the motor carrier is placed on the list of violators by DLSE, AB 2754 would provide customers of port drayage motor carriers with joint and severable liability for worker misclassification, regardless of whether the motor carrier is on DLSE’s list. AB 2754 does include an exception for port drayage motor carriers that utilize their own employee drivers, or that utilize bona fide independent contractors that possess their own operating authority and have a business relationship with the motor carrier that satisfies the legal test as an independent contractor.

1. Arguments in support

According to the California Teamsters Public Affairs Council, which is the sponsor of AB 2754:

The California Legislature has continually recognized that workers’ misclassification as independent contractors is one of the most serious challenges facing the state today. Misclassified employees are deprived of all state employment protections that the Legislature has developed over decades, and employers who employ misclassified employees gain an unfair advantage over law-abiding companies (in part by avoiding their obligations to contribute as employers to California safety net systems, such as workers’ compensation insurance and unemployment insurance). One industry where this problem has become endemic is commercial trucking and freight across the state. At ports nationwide, for example, studies estimate that approximately 82% of all drivers are labeled “independent contractors” but over 80% are actually misclassified employees.

This endemic misclassification in trucking hurts workers by depriving them of wages and other protections while making them bear the costs and responsibility of truck purchase, maintenance, and upkeep of their trucks. It hurts the state by depriving it of much needed revenue while putting it on the hook when these misclassified drivers must avail themselves of California’s safety net, which is fairly often considering that truck driving is one of the most dangerous professions in the country. It hurts our supply chain efficiency and causes delays. And it hurts the State’s compliance rates with the state’s emissions regulations, as drivers cannot afford to shoulder the costs of maintaining their trucks or purchasing newer, cleaner trucks.

Trucking is not the first nor the only industry where the Legislature has faced these exact types of issues. And over time, the Legislature has enacted laws to address these types of situations in other industries. Labor Code Section 2810.3, for example, makes client employers who obtain employees from a labor contractor liable for violations committed by that contractor. AB 2810.3, however, explicitly excludes motor carriers and does not apply to any companies who obtain labor to move their goods from motor carriers. Similarly, Section 2810 makes companies liable when they enter into a contract – with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor – that does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations.

Considering the problems that currently exist in trucking, there is no reason why these two sections of the labor code should exclude motor carriers. That is why AB 2754 would amend these two sections of the labor code to make them explicitly applicable to motor carriers and to the cargo owners that utilize their services. This means that cargo owners will be vicariously liable for any labor code violations arising out of misclassification committed by their trucking contractors, and that cargo owners will be on the hook if they knowingly enter into unsustainable contracts that would require the contractor to violate the law or to lose money on the contract. Marking cargo owners responsible in this way will incentivize them to only contract with companies that follow the law and properly classify their employees, will push them to look at the economics of the contracts they are entering into to ensure that the contract can satisfy all of its legal obligations to its workers, and will ultimately put positive pressure on the trucking industry as a whole to stop misclassifying employees. This will be a direct benefit to the workers who are being misclassified, to the state’s coffers, and to the public who will have access to a strengthened and safer supply chain.

1. Arguments in opposition

According to the California Chamber of Commerce, which is opposed to AB 2754:

We appreciate the amendments taken to date on this bill. Our outstanding concern is that, under the current language, an entity could be held liable for a carrier’s actions not only for any violations arising out of their contract, but also for any violations arising out of every other contract the carrier is involved in. Even if an entity tries to do its due diligence to ensure their carrier is operating legally and is misled, it is still liable. We therefore request an amendment specifying that if a carrier is deemed to be operating illegally, the contracting entity’s liability is linked to the volume of loads shipped by the carrier for that entity, not all shipments moved by the carrier. We believe this will also incentivize contracting companies to do their due diligence because they know they would be on the hook for a carrier misclassifying their drivers rather than betting on a plaintiff going after a bigger company to cover the entire liability in full. We appreciate the discussion with the author and sponsor to date and will continue to discuss a potential resolution.

SUPPORT

California Teamsters Public Affairs Council (sponsor)
California Labor Federation, AFL-CIO

City of Los Angeles

OPPOSITION

California Chamber of Commerce

California Cotton Ginners and Growers Association

California Forestry Association

California Fresh Fruit Association

California League of Food Producers

California Tomato Growers Association

Carmax

Civil Justice Association of California

Western Agricultural Processors Association

Western States Trucking Association

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation:

SB 338 (Gonzalez, Ch. 333, Stats. 2021) expanded the set of violations that can cause port drayage contractors to be placed on a DLSE list that extends joint liability for future violations to customers of that contractor.

AB 5 (Gonzalez, Ch. 296, Stats. 2019) codified the California Supreme Court’s three-part test in Dynamex Operations West, Inc. v. Superior Court of Los Angeles for determining when a worker should be classified as an employee and not an independent contractor.

SB 1402 (Lara, Ch. 702, Stats. 2018) required the DLSE to list the names and other information of port drayage motor carriers with unsatisfied judgments, assessments, or other awards against it based on illegal conduct, including failure to pay wages, as specified. Required joint and several liability for customers who contract with port drayage services who have unpaid wage, tax and workers’ compensation liability.

AB 1897 (Hernández, Ch. 728, Stats. 2014) required a client employer, as defined, to share with a labor contractor, as defined, all civil legal responsibility and civil liability for: (1) payment of wages to workers provided by a labor contractor; (2) failure to report and pay all required employer contributions, worker contributions, and personal income tax withholdings as required by the Unemployment Insurance Code; and (3) failure to secure valid workers’ compensation coverage.

SB 459 (Corbett, Ch. 706, Stats. 2011) prohibited any person or employer from engaging in willful misclassification of an employee as an independent contractor, and provided for civil penalties.

SB 179 (Alcaron, Ch. 908, Stats. 2003) prohibited a person or entity from entering into a contract for labor or services in specific industries, like farm labor or the garment industry, where the person or entity knows or should know that the contract does not provide sufficient funds to comply with labor laws for the workers hired by the contractor for the contract.

PRIOR VOTES:

Senate Labor, Public Employment and Retirement Committee (Ayes 4, Noes 1)

Assembly Floor (Ayes 52, Noes 3)

Assembly Appropriations Committee (Ayes 11, Noes 4)

Assembly Judiciary Committee (Ayes 9, Noes 2)

Assembly Labor and Employment Committee (Ayes 5, Noes 0)

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

1. Brady Meixell & Ross Eisenbrey, Wage theft is a much bigger problem than other forms of theft – but workers remain mostly unprotected, Economic Policy Institute (Sept. 18, 2014), available at https://www.epi.org/publication/wage-theft-bigger-problem-forms-theft-workers/. ↑

2. Alejandro Lazo et al, When employers steal wages from workers, CalMatters (Jul. 25, 2022), available at https://calmatters.org/explainers/when-employers-steal-wages-from-workers/?series=unpaid-wages-california-workers. ↑

3. Policy Brief: Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries, National Employment Law Project, 3 (Oct. 2020). ↑

4. Margot Roosevelt, “Port truckers win $30 million in wage theft settlements,” Los Angeles Times (Oct. 13, 2021), available at https://www.latimes.com/business/story/2021-10-13/la-fi-port-trucker-xpo-settlements. ↑

5. Rebecca Smith et al, The Big Rig Overhaul: Restoring middle-class jobs at America’s ports through labor law enforcement¸ National Employment Law Project (Feb. 2014), available at https://www.nelp.org/insights-research/big-rig-overhaul-restoring-middle-class-jobs-at-americas-ports-thru-labor-law-enforcement/. ↑

6. Eunice Roh, “Overview of California Ports,” Legislative Analyst’s Office (Aug. 23, 2022), https://lao.ca.gov/Publications/Report/4618. ↑

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Lola Smallwood-Cuevas, Chair

2023 - 2024 Regular

Bill No: AB 2754 Hearing Date: June 26, 2024

SUBJECT: Employment contracts and agreements: sufficient funds: liability

KEY ISSUE

This bill addresses the issue of worker misclassification in the port drayage industry by 1) prohibiting port drayage motor carriers from entering into contracts for services if they know or should have known that the contract was insufficient to comply with labor laws, as specified; and 2) requiring on or after January 1, 2025, a customer that uses a port drayage motor carrier to share all civil legal responsibility and civil liability, as specified, regardless of whether or not the port drayage motor carrier is on the Division of Labor Standards Enforcement’s (DLSE) list of carriers that have engaged in illegal conduct.

ANALYSIS

Existing law:

1. Prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors, including garment, janitorial, and warehouse contractors, if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with applicable local, state, and federal laws or regulations governing the labor or services to be provided. (Labor Code §2810(a))
2. Creates a rebuttable presumption affecting the burden of proof that there has been no violation of the prohibition in 1), above, if the contract meets specified conditions. (Labor Code §2810(b))
3. Provides that to qualify for the rebuttable presumption, a contract or agreement must be in writing, in a single document, and contain specified provisions, including, but not limited to:
4. The name, address, and telephone number of the person or entity and the construction, farm labor, garment, janitorial, security guard, or warehouse contractor through whom the labor or services are to be provided.
5. A description of the labor or services to be provided and a statement of when those services are to be commenced and completed.
6. The workers’ compensation insurance policy number and the name, address, and telephone number of the insurance carrier, as specified.
7. The total number of persons who will be utilized under the contract or agreement as independent contractors, along with a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws or regulations.
8. Excludes from 1), above, a person or entity who executes a collective bargaining agreement covering the workers employed under the contract or agreement, or a person who enters into a contract or agreement for labor or services to be performed on that person’s home residences, as specified. (Labor Code §2810(c))
9. An employee aggrieved by a violation of 1), above, may file an action for damages to recover the greater of all of the employee’s actual damages or $250 per employee per violation for an initial violation and $1000 per employee for each subsequent violation, as specified. The employee may also bring an action for injunctive relief. (Labor Code §2810(g))
10. Defines, for purposes of Labor Code §2810.4, “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. It also means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified. (Labor Code §2810.4(a)(5))
11. Defines, for purposes of Labor Code §2810.4, “customer” as a business entity, regardless of its form, that engages or uses a port drayage motor carrier to perform port drayage services on the customer’s behalf, whether the customer directly engages or uses a port drayage motor carrier or indirectly engages or uses a port drayage motor carrier through the use of an agent, including, but not limited to, a freight forwarder, motor transportation broker, ocean carrier, or other motor carrier. Excludes a business entity with a workforce of fewer than 25 workers, as specified. (Labor Code §2810.4(a)(2))
12. Directs the DLSE to post on its internet webpage the names, addresses, and essential information for a port drayage motor carrier with an unsatisfied final court judgment, tax assessment, or tax lien that may be released to the public under federal and state disclosure laws, including any order, decision, or award obtained by a public or private person or entity finding that a port drayage motor carrier has engaged in illegal conduct, as specified. (Labor Code §2810.4(b))
13. Directs DLSE to post on its internet webpage a list consisting of the names, addresses, and essential information for a prior offender with a subsequent judgment, ruling, citation, order, decision, or award finding that the port drayage motor carrier has violated a labor or employment law or regulation, even if all periods for appeals have not expired. (Labor Code §2810.4(b))
14. Subjects a customer that engages or uses a port drayage motor carrier that is on the DLSE list to joint and several liability with the motor carrier or the motor carrier’s successor for all civil legal responsibility and civil liability owed to a port drayage driver for services obtained after the date the motor carrier appeared on the list, as specified. This includes sharing with the motor carrier the full amount of unpaid wages, unreimbursed expenses, damages and penalties, including applicable interest, which are found due for all of the following:
15. Minimum, regular, or premium wages that are unpaid by the motor carrier
16. Unlawful deductions from wages
17. Out-of-pocket expenses incurred by the commercial driver
18. Civil penalties for failure to secure workers’ compensation coverage (Labor Code §2810.4(b)(3))
19. Provides that a customer’s joint and several liability is to be determined by either of the following:
    1. By the Labor Commissioner in an administrative proceeding or pursuant to their citation authority.
    2. By a court in a civil action brought by the Labor Commissioner, a commercial driver, or their representative after providing the customer with at least 30 business days notice prior to filing the action, as provided. (Lab Code §2810.4(c).)
20. Provides a series of exemptions for customers from the joint and several liability, including where the carrier’s employees are covered by a collective bargaining agreement, as specified. (Labor Code §2810.4(d))
21. Requires a port drayage motor carrier that provides port drayage services to a customer to furnish written notice to the customer of any unsatisfied final judgments against the motor carrier, as specified, and the text of this section. (Labor Code §2810.4(e), (f))
22. Prohibits adverse action against a commercial driver for providing notification of violations or filing a claim or civil action pertaining to unpaid wages, unreimbursed expenses, or the recovery of damages and penalties. (Labor Code §2810.4(h))

This bill:

1. Adds port drayage motor carrier to the list of services where a person or entity is prohibited from entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
2. Excludes from 1) above a contract with a port drayage motor carrier involving 30 days or fewer of cumulative labor or services within a one-year period.
3. Adds port drayage motor carrier to the list services for which there is a rebuttable presumption affecting the burden of proof that there has been no violation of 1), above, if the contract or agreement meets specified requirements.
4. Adds to the requirements for the rebuttable presumption described in 3), above, that the contract include, the total number of persons who will be utilized under the contract or agreement as independent contractors, along with both of the following:
5. A list of the current local, state, and federal contractor license identification numbers or motor carrier authority or registration that the independent contractors are required to have under local, state, or federal laws or regulations.
6. A copy of any agreement executed by an independent contractor identified pursuant to these provisions.
7. For purposes of these provisions, defines “port drayage motor carrier” as an individual or entity that hires or engages commercial drivers in the port drayage industry. It also means a registered owner, lessee, licensee, or bailee of a commercial motor vehicle, as specified, that operates or directs the operation of a commercial motor vehicle by a commercial driver on a for-hire or not-for-hire basis to perform port drayage services in the port drayage industry. It also means an entity or individual who succeeds in the interest and operation of a predecessor port drayage motor carrier, as specified.
8. Requires on and after January 1, 2025, a customer that, as part of its business, engages or uses a port drayage motor carrier to share with the motor carrier or the motor carrier’s successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carrier’s misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the DLSE maintained list of port drayage motor carriers that have engaged in illegal conduct, as specified.
9. Provides that the customer shall have no liability pursuant to 6), above, under either of the following circumstances:
10. The motor carrier utilizes its own employee drivers to perform services for the customer.
11. The motor carrier utilizes bona fide independent contractors to perform services for the customer where each independent contractor possesses their own operating authority and has a business relationship with the motor carrier that meets the California legal standard for being determined an independent contractor.

COMMENTS

1. Background:

Port Drayage

Port drayage services describe the hauling of standardized metal shipping containers between ports and warehouses for conveyance onto ships, trucks, or retail cars. Simply put, drayage is an essential logistical function that ensures freight moves from its origin point to its destination. California has 12 ports, through which large volumes of goods are both imported and exported internationally. These ports vary in size, operations, and finances, but combined, they process about 40 percent of all containerized imports and 30 percent of all exports in the United States^[1]. The two largest ports in the nation, the Port of Los Angeles and the Port of Long Beach, are also located within the state^[2]. Port truckers make this movement of goods possible, with approximately 33,500 drayage trucks servicing California’s seaports and railyards annually^[3]. The port trucking industry is worth upwards of $12 billion per year.^[4]

Worker Misclassification

Although California’s port truckers are an integral part of the nation’s supply chains, many of them are victims of exploitative labor practices and misclassification. Decades-long efforts to undercut port trucker wages, rights, and livelihoods have had serious consequences. Misclassification is particularly harmful because independent contractors do not enjoy the same protections employees do. For example, employees must be paid at least the minimum wage, are due overtime, generally cannot be forced to pay for equipment needed to do the job, must be covered by workers’ compensation, and are entitled to state unemployment and disability insurance. A 2014 National Employment Law Project (NELP) report found that approximately 49,000 of the 75,000 port truck drivers in the US are misclassified as independent contractors^[5]. In driver surveys, independent contractors reported an average net income 18 percent lower than that of employee drivers. Independent contractors were also two-and-a-half times less likely than employee drivers to have health insurance and almost three times less likely to have retirement benefits^[6]. A 2017 investigative report by USA Today found that port trucking companies in Southern California spent decades forcing drivers to finance their own trucks by taking on debt they could not afford. Companies then used that debt to extract forced labor, even taking steps to physically bar workers from leaving^[7]. Port congestion during the Covid-19 pandemic only worsened the conditions described above.

In recent years, the Labor Commissioner’s Office has awarded more than $50 million to some 500 truckers who claimed they were deprived of wages through misclassification^[8]. One of the world’s largest trucking companies, XPO Logistics agreed to pay $30 million in 2021 to settle class-action lawsuits filed by drivers who said they earned less than the minimum wage delivering goods for major retailers from the ports of Los Angeles and Long Beach.

The impact of misclassification has ramifications outside of the workers and their families. When employers misclassify employees, they deprive the state of revenue all while expanding participation in public safety net programs. Additionally, it makes it difficult for the state to meet its green economy goals and to cut down on air pollution related to port activities. Lastly, misclassification hurts law-abiding employers who have to compete with bad actors that avoid obligations to contribute to California safety net programs and comply with labor law.

SB 1402 (Lara, 2018) and SB 338 (Gonzalez, 2021)

In response to well-documented labor abuses in the port drayage industry, SB 1402 established a new enforcement mechanism. It required DLSE to list the names and other information of port drayage motor carriers with unsatisfied judgements, assessments, or other awards against it based on illegal conduct, including failure to pay wages and misclassification of employees, as specified. Customers working with such carriers that are placed on the list are subject to joint and several liability with the carrier for relevant liabilities, including unpaid wages and assessed penalties. SB 1402 put financial pressure on trucking companies to pay outstanding wage claims quickly.

SB 338 strengthened the protections enacted under SB 1402 by among other things, designating Cal/OSHA violations as triggers that put trucking companies on the DLSE list, including “prior offenders” on the list, and requiring companies to show they have remedied violations to be removed from the list. Unlike first time offenders, prior offenders can be added to the DLSE list before all periods for appeals expire.

Under both of these measures, customers that use a port drayage motor carrier that is on the DLSE list share with the motor carrier all civil legal responsibility and civil liability owed to a port drayage driver or to the state for port drayage services obtained after the date the motor carrier appeared on the list. This means joint and several liability with the motor carrier for the full amount of unpaid wages, unreimbursed expenses, damages, and penalties, including applicable interest.

AB 2754 would require on or after January 1, 2025 a customer that uses a port drayage motor carrier to share all civil legal responsibility and civil liability regardless of whether or not the port drayage motor carrier is on the DLSE list.

2. Need for this bill?

According to the author:

“Endemic misclassification in trucking hurts workers by depriving them of wages and other protections while making them bear the costs and responsibility of truck purchase, maintenance, and upkeep…

Considering the problems that currently exist in trucking, there is no reason why the Labor Code should not apply to port drayage motor carriers. AB 2754 would amend the Labor Code to make it applicable to port drayage motor carriers and to the cargo owners that utilize their services. This means that cargo owners will be liable for labor code violations committed by their trucking contractors. These cargo owners will be held responsible if a port drayage motor carrier or their successor misclassify drivers as independent contractors or if they knowingly enter into unsustainable contracts that would require the contractor to violate the law or to lose money on the contract. Making cargo owners accountable in this way will incentivize them only to contract with companies that follow the law and properly classify their employees. These changes will ultimately put pressure on the port drayage trucking industry as a whole to stop misclassifying employees.”

3. Proponent Arguments:

The sponsors of the measure, the California Teamsters Public Affairs Council, state:

“AB 2754 would address the ongoing employee misclassification problem in trucking by proposing a series of changes to California's sufficient contracts and joint liability laws to clarify their application to port trucking companies and the entities that engage them.

The California legislature has continually recognized that workers' misclassification as independent contractors is one of the most serious challenges facing the state today. Misclassified employees are deprived of all state employment protections that the legislature has developed over decades, and employers who employ misclassified employees gain an unfair advantage over law-abiding companies (in part by avoiding their obligations to contribute as employers to California safety net systems, such as workers' compensation insurance and unemployment insurance). One industry where this problem has become endemic is commercial trucking and freight across the state. At ports nationwide, for example, studies estimate that approximately 82% of all drivers are labeled ‘independent contractors’ but over 80% are actually misclassified employees.

This endemic misclassification in trucking hurts workers by depriving them of wages and other protections while making them bear the costs and responsibility of truck purchase, maintenance, and upkeep of their trucks. It hurts the state by depriving it of much needed revenue while putting it on the hook when these misclassified drivers must avail themselves of California's safety net, which is fairly often considering that truck driving is one of the most dangerous professions in the country.”

4. Opponent Arguments:

A coalition of opponents, including the CalChamber and the Western States Trucking Association, state:

“AB 2754 would unwind previously agreed-to amendments in AB 1897 (Hernandez – 2014) to exempt motor carriers from provisions of the bill targeting ‘contingent’ or ‘permatemp’ work.

As drafted, AB 2754 instead implicates nearly every customer and transportation service provider in the supply chain as jointly liable for payment of wages, worker’s compensation and reimbursement of business expenses where a worker receives, picks up, or delivers containerized freight at the shipper or consignee’s premises, facility or worksite. Additionally, the legislation uses an impossibly broad definition of motor carrier, defining it to be any entity that utilizes commercial drivers to move containerized freight. Taken as a whole, the legislation seeks to place joint and several liability on any entity that pays for the movement of or accepts freight and does not attempt to acknowledge that most of the implicated entities will have no visibility into the arrangement of that transportation or the cost of the same.

The transportation of containerized freight simply does not equate to the use of contingent and permatemp staff in other industries identified by the legislation.”

5. Dual Referral:

The Senate Rules Committee referred this bill to the Senate Labor Public Employment and Retirement Committee and the Senate Judiciary Committee.

6. Prior Legislation:

SB 338 (Gonzalez, Chapter 333, Statutes of 2021) expanded the set of violations that can cause port drayage contractors to be placed on a Division of Labor Standards Enforcement list that extends joint liability for future violations to customers of that contractor.

SB 1402 (Lara, Chapter 702, Statutes of 2018) required the DLSE to list the names and other information of port drayage motor carriers with unsatisfied judgments, assessments, or other awards against it based on illegal conduct, including failure to pay wages and misclassification of employees, as specified. Required joint and several liability for customers who contract with port drayage services who have unpaid wage, tax and workers’ compensation liability.

AB 1897 (Roger Hernández, Ch. 728, Stats. 2014) required a client employer, as defined, to share with a labor contractor, as defined, all civil legal responsibility and civil liability for: (1) payment of wages to workers provided by a labor contractor; (2) failure to report and pay all required employer contributions, worker contributions, and personal income tax withholdings as required by the Unemployment Insurance Code; and (3) failure to secure valid workers’ compensation coverage.

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.

SUPPORT

California Teamsters Public Affairs Council (Sponsors)

California Labor Federation
City of Los Angeles

OPPOSITION

Agricultural Council of California
Agriculture Transportation Coalition
Associated California Loggers
California Building Industry Association
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Cotton Ginners & Growers Association
California Forestry Association
California Fresh Fruit Association
California League of Food Producers
California Moving and Storage Association
California Tomato Growers Association
Carmax
Civil Justice Association of California
Gemini Shippers Association
Harbor Trucking Association
Industry Business Council
Los Angeles Customs Brokers and Freight Forwarders Association
NAIOP California
San Gabriel Valley Economic Partnership
Southern California Leadership Council
Truck Renting and Leasing Association
U.S. Forage Export Council
Western Agricultural Processors Association
Western States Trucking Association

-- END -

1. Eunice Roh, “Overview of California Ports,” LAO, August 23, 2022, https://lao.ca.gov/Publications/Report/4618 ↑

2. Ibid. ↑

3. Ibid. ↑

4. Erica Phillips, Port-Trucking Firms Run Into Labor Dispute (May 11, 2016) Wall Street Journal, https://www.wsj.com/articles/port-trucking-firms-run-into-labor-dispute-1462959003. ↑

5. Smith, Rebecca, Paul Marvy, and Jon Zerolnick. "The Big Rig Overhaul: Restoring Middle-Class Jobs at America's Ports Through Labor Law Enforcement." National Employment Law Project, Change to Win, Los Angeles Alliance for a New Economy, February 2014. https://www.nelp.org/wp-content/uploads/2015/03/Big-Rig-Overhaul-Misclassification-Port-Truck-Drivers-Labor-Law-Enforcement.pdf; ↑

6. Ibid. ↑

7. Brett Murphy, “Rigged: Forced Into Debt. Worked Past Exhaustion. Left With Nothing.,” USA Today, June 16, 2017, https://www.usatoday.com/pages/interactives/news/rigged-forced-into-debt-worked-past-exhaustion-left-with-nothing/ ↑

8. Margot Roosevelt, “Port Truckers Win $30 Million in Wage Theft Settlement,” Los Angeles Times, October 13, 2021, Port truckers win $30 million in wage theft settlements - Los Angeles Times (latimes.com) ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 2754

Author:(Rendon)

As Amended Ver:May 20, 2024

Majority vote

SUMMARY

Amends provisions related to client employer and labor contractor liability to make them applicable to certain port drayage motor carriers and to certain customers that utilize their services.

Major Provisions

1. Adds port drayage motor carriers to the list of types of contractors covered by the prohibition against a person or entity entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
2. Excludes from 1), above, a contract with a port drayage motor carrier contractor involving 30 days or fewer of cumulative labor or services within a one-year period.
3. Adds port drayage motor carriers to the list of entities for which there is a rebuttable presumption affecting the burden of proof that there has been no violation of 1), above, if the contract or agreement with that entity meets specified requirements.
4. Adds to the requirements for the rebuttable presumption described in 3), above, that the contract include, if applicable, the motor carrier authority or registration, and a copy of any agreement executed by an independent contractor, as specified.
5. Defines "port drayage motor carriers" for the above purposes to mean an individual or entity that hires or engages commercial drivers in the port drayage industry.
6. Requires, on an after January 1, 2025, a customer that, as part of its business, engages or uses a port drayage motor carrier, to share with the motor carrier or the motor carrier's successor all civil legal responsibility and civil liability owed to a port drayage driver or the state arising out of the motor carrier's misclassification of the driver as an independent contractor, regardless of whether or not the port drayage motor carrier is on the Division of Labor Standards Enforcement (DLSE)-maintained list of port drayage motor carriers that have engaged in illegal conduct, as specified.
7. Provides that the customer shall have no liability pursuant to 6), above, if the motor carrier utilizes its own employee drivers to perform services for the customer, or utilizes bona fide independent contractors to perform services for the customer where each independent contractor possesses their own operating authority and has a business relationship with the motor carrier that meets the California legal standard for being determined an independent contractor.

COMMENTS

In port trucking, known as port drayage, misclassification and other labor violations are widespread. Studies estimate that approximately 85%-90% of port driving operations nationwide are carried out by contractors.^[1] A 2014 National Employment Law Project (NELP) report found that approximately 49,000 of the 75,000 port-truck drivers in the US are misclassified as independent contractors.^[2]

An investigative report by USA Today in 2017 listed the following as common abusive practices in the port drayage segment: 1) drivers being forced to work against their will, 2) employers physically barring drivers from going home, 3) employers charging not just for the truck lease but for a host of other expenses including insurance and fuel, and 4) companies forcing workers to work such long hours so as to violate federal safety laws.^[3]

The 2014 NELP report estimated that port trucking companies operating in California are annually liable for wage and hour violations of $787 to $998 million each year.^[4]

A 2019 press release from the LC stated that, since 2011, port drivers filed more than 1,000 claims with the DLSE for violations related to misclassification, and that the LC issued 448 decisions in these cases and found drivers were owed more than $50 million in damages collectively.^[5]

Legislation Addressing Misclassification

In the past several years, the Legislature has enacted laws to address misclassification and other labor law violations with contract labor in certain other industries. One such law is codified in Labor Code Section 2810, which prohibits companies from entering into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor that does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations. However, Section 2810 does not apply to port drayage motor carriers or companies that obtain labor to move their goods from port drayage motor carriers.

Legislation Addressing Labor Law Violations in Port Drayage

In 2018, the Legislature passed, and the governor signed, SB 1402 (Lara) Chapter 702, which required that the DLSE post on its website information on port drayage motor carriers with unsatisfied final court judgments, tax assessments, or tax liens relating to, among other things, the misclassification of employees as independent contractors with regard to a port drayage commercial driver. SB 1402 extended to a customer both shared civil legal responsibility and liability owed to a port drayage driver – including unpaid wages, unreimbursed expenses, and damages and penalties that are due, as specified – for all port drayage services obtained after the date the motor carrier appeared on the list. However, SB 1402 included a mechanism by which port drayage motor carriers that paid the judgement against them could be removed from the list.

Three years later, SB 338 (Gonzalez) Chapter 333, Statutes of 2021 expanded the set of violations that can cause port drayage contractors to be placed on the DLSE list to include port drayage motor carriers that are prior offenders with a subsequent judgment finding that the port drayage motor carrier has violated a labor or employment law, among other information. SB 338 also expanded the civil legal responsibility and civil liability owed to the state for port drayage services obtained after the date the motor carrier appeared on the prior offender list by adding potential responsibility and liability for employment tax assessments issued by the state and civil liability stemming from the motor carrier's failure to comply with applicable health and safety laws, rules, or regulations. However, SB 338 included a provision that allowed port drayage motor carriers to avoid being on this list by settling cases and paying drivers before any judgements were issued.

In effect, neither SB 1402 nor SB 338 is able to fully ensure that offending port drayage motor carriers actually cease misclassifying workers or otherwise committing labor law violations.

What This Bill Does

This bill would amend Section 2810 of the Labor Code to make it applicable to certain motor carriers and to certain cargo owners that utilize their services. It would also require a cargo owner to share liability with a port drayage motor carrier or their successor if the motor carrier misclassifies its drivers as independent contractors, regardless of whether the motor carrier is on the DLSE list described above.

According to the Author

"Although some trucking companies have changed their ways and are complying with AB 5 by classifying their drivers as employees, many trucking companies, both at ports and across the state, continue to misclassify their drivers. Cargo owners continue to benefit from this misclassification, often without having to shoulder any of the responsibility. Protecting these workers by providing them with deserved benefits and just wages aligns with the equity goals of our state."

Arguments in Support

The California Labor Federation is in support and states that "The California Legislature has continually recognized that workers' misclassification as independent contractors is one of the most serious challenges facing the state. The endemic misclassification in the trucking industry hurts workers specifically by depriving them of wages and other protections, while making them bear the costs and responsibility of truck purchase, maintenance, and upkeep."

Arguments in Opposition

A coalition of business organizations, including the California Chamber of Commerce, is opposed and states, "Industries as diverse as healthcare, agriculture, manufacturing, retail, grocers, energy, and construction rely upon trucking and will be pulled into the joint liability created by the proposed language simply for arranging with a third party to deliver containerized goods that are critical to the daily functioning of our economy."

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. Costs of an unknown amount, potentially in excess of $150,000, to the Labor Commissioner to administer and enforce protections for port drayage drivers (Labor Enforcement and Compliance Fund).
2. By expanding when an aggrieved port drayage driver may bring a civil action against a port drayage motor carrier or customer this bill may result in an increased number of civil claims, resulting in potentially significant cost pressures of an unknown amount to the courts (Trial Court Trust Fund (TCTF)). It is unclear how many new actions may be filed statewide, but one hour of court time is estimated to cost $1,000 in workload.  Although courts are not funded on the basis of workload, increased pressure on staff and the TCTF may create a need for increased court funding from the General Fund (GF) to perform existing duties.  The Governor's proposed 2024-25 state budget includes $83.1 million ongoing GF to backfill declining TCTF revenue.

According to the Legislative Analyst's Office, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

VOTES

ASM LABOR AND EMPLOYMENT: 5-0-2

YES: Ortega, Wendy Carrillo, Lee, Ward, Zbur

ABS, ABST OR NV: Flora, Alanis

ASM JUDICIARY: 9-2-1

YES: Kalra, Bauer-Kahan, Bryan, Connolly, Haney, Maienschein, McKinnor, Pacheco, Reyes

NO: Dixon, Sanchez

ABS, ABST OR NV: Waldron

ASM APPROPRIATIONS: 11-4-0

YES: Wicks, Arambula, Bryan, Calderon, Wendy Carrillo, Mike Fong, Grayson, Haney, Hart, Pellerin, Villapudua

NO: Sanchez, Dixon, Jim Patterson, Ta

UPDATED

VERSION: May 20, 2024

CONSULTANT: Erin Hickey / L. & E. / (916) 319-2733 FN: 0003288

1. Monaco, Kristen, and Lisa Grobar. "A Study of Drayage at the Ports of Los Angeles and Long Beach." METRANS, December 15, 2004. https://www.metrans.org/sites/default/files/research-project/AR%2004-01_final_draft_0_0.pdf. ↑

2. Smith, Rebecca, Paul Marvy, and Jon Zerolnick. "The Big Rig Overhaul: Restoring Middle-Class Jobs at America's Ports Through Labor Law Enforcement." National Employment Law Project, Change to Win, Los Angeles Alliance for a New Economy, February 2014. https://www.nelp.org/wp-content/uploads/2015/03/Big-Rig-Overhaul-Misclassification-Port-Truck-Drivers-Labor-Law-Enforcement.pdf; ↑

3. USA Today, 2017 "Retail giants enable trucker exploitation," https://www.usatoday.com/pages/interactives/news/rigged-retail-giants-enable-trucker-exploitation/ ↑

4. "The Big Rig Overhaul: Restoring Middle-Class Jobs at America's Ports Through Labor Law Enforcement." ↑

5. California Department of Industrial Relations, 2019, "Labor Commissioner Posts List of Port Trucking Companies with Unsatisfied Judgments for Labor Violations" https://www.dir.ca.gov/DIRNews/2019/2019-01.html ↑

Date of Hearing: May 8, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2754

Author:(Rendon) – As Amended Ver:April 9, 2024

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

SUMMARY:

This bill applies labor contractor liability provisions to motor carriers and client employers in the containerized freight industry.

FISCAL EFFECT:

1. Costs of an unknown amount, potentially in excess of $150,000, to the Labor Commissioner to administer and enforce protections for motor carrier workers (Labor Enforcement and Compliance Fund).
2. By allowing an aggrieved worker to bring a civil action against a motor carrier or client employer, this bill may result in an increased number of civil claims, resulting in potentially significant cost pressures of an unknown amount to the courts (Trial Court Trust Fund (TCTF)). It is unclear how many new actions may be filed statewide, but one hour of court time is estimated to cost $1,000 in workload.  Although courts are not funded on the basis of workload, increased pressure on staff and the TCTF may create a need for increased court funding from the General Fund (GF) to perform existing duties.  The Governor’s proposed 2024-25 state budget includes $83.1 million ongoing GF to backfill declining TCTF revenue.

According to the Legislative Analyst’s Office, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

COMMENTS:

1. Purpose. According to the author:

When motor carriers break the law and violate the rights of truck drivers, the cargo companies that contract to ship goods with these motor carriers should be held accountable. AB 2754 will protect the rights of truckers by ensuring that cargo owners be held liable for any labor code violations committed by trucking contractors, or for knowingly entering into contracts that would require motor carriers to break the law.

1. Support and Opposition. This bill is sponsored by the California Teamsters Public Affairs Council, which argues this bill addresses “the ongoing employee misclassification problem in trucking by proposing a series of changes to California’s sufficient contracts and joint liability laws to clarify their application to port trucking companies and the entities that engage them.” This bill is also supported by the California Labor Federation.

This bill is opposed by a large coalition of business groups that includes the California Trucking Association. The coalition argues this bill “seeks to place joint and several liability on any entity that pays for the movement of or accepts freight and does not attempt to acknowledge that most of the implicated entities will have no visibility into the arrangement of that transportation or the cost of the same.”

1. Labor Contracts. Existing law prohibits an entity from entering into a contract for labor services with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor if the entity knows or should know that the contract does not include sufficient funds to allow the contractor to comply with applicable labor laws. AB 1897 (Hernandez), Chapter 728, Statutes of 2014, subsequently required a client employer that obtains workers from a third party labor contractor to share liability for certain labor violations, such as failure to pay wages and workers’ compensation. This bill expands both of these laws to apply to a motor carrier, defined as an entity that utilizes commercial drivers to move containerized freight, and specifically provides that liability extends to a client employer using an independent contractor if the client employer or labor contractor is misclassifying an employee as an independent contractor.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 23, 2024

ASSEMBLY COMMITTEE ON JUDICIARY

Ash Kalra, Chair

ABPCA Bill Id:AB 2754

Author:(Rendon) – As Amended Ver:April 9, 2024

SUBJECT: Employment contracts and agreements: sufficient funds: liability

KEY ISSUES:

1. SHOULD MOTOR CARRIERS BE PROHIBITED FROM ENTERING INTO CONTRACTS FOR LABOR OR SERVICES IF THEY KNOW OR SHOULD HAVE KNOWN THAT THE CONTRACT WAS INSUFFICIENT TO COMPLY WITH LABOR LAWS?
2. SHOULD MOTOR CARRIERS BE JOINTLY AND SEVERALLY LIABLE FOR ALL WORKERS SUPPLIED BY A LABOR CONTRACTOR FOR THE PAYMENT OF WAGES AND FAILURE TO OBTAIN ADEQUATE WORKERS COMPENSATION INSURANCE?

SYNOPSIS

Employees enjoy a number of legal protections in the workplace, including minimum wage standards, overtime and meal break requirements, workplace safety laws, and statutory protections against retaliation. Since independent contractors are not legally considered employees, employers are under no obligation to abide by the same requirements in relation to their employment. Misclassification of workers as independent contractors, rather than employees, is fairly common across industries in the state. Such misclasification, whether intentional or otherwise, allows employers to evade their legal obligations under the Labor Code. This bill proposes to address the issue of misclassification in the motor carrier industry, typically referred to as trucking, by expanding two sections of the Labor Code to cover motor carriers.

This bill is sponsored by the California Teamsters Public Affairs Council and is supported by the California Labor Federation (CLF). It is opposed by a large coalition of business advocates and trucking industry organizations including the California Trucking Association. The bill was previously heard by the Assembly Committee on Labor and Employment and passed 5-0.

SUMMARY: Expands provisions of the Labor Code relating to client employer and labor contractor liability to include specified motor carriers and cargo owners. Specifically, this bill:

1. Adds motor carriers to the list of types of contractors covered by the prohibition against a person or entity entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
2. Excludes from 1) above a contract with a motor carrier contractor involving 30 days or fewer of cumulative labor or services within a one-year period.
3. Adds motor carriers to the list of entities for which there is a rebuttable presumption affecting the burden of proof that there has been no violation of 1) above if the contract or agreement with that entity meets specified requirements.
4. Adds to the requirements for the rebuttable presumption described in 3) above that the contract include, if applicable, the motor carrier authority or registration, and a copy of any agreement executed by an independent contractor, as specified.
5. Defines motor carriers for these purposes to mean an entity that utilizes commercial drivers to move containerized freight.
6. Provides that the following types of client employers must share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage, and shall not shift to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor:
   1. A client employer that is not a motor carrier of property based solely on the employer’s use of a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight; and
   2. A client employer that is a motor carrier of property subcontracting with, or otherwise engaging, another motor carrier of property to provide transportation services using its own employees and commercial motor vehicles.
7. Expands the definition of a “client employer” for the purposes of 6) above to include a business entity, regardless of its form, that utilizes a labor contractor’s workers to ship or receive containerized freight to or from the premises or worksite of the client employer, regardless of the operating authority under which the containerized freight is moved, unless any of the following applies:
   1. The freight container is not full.
   2. The shipments occur fewer than 11 times in a one-year period.
   3. The contract period is less than 31 cumulative days in a one-year period.
8. Expands the definition of “labor contractor” for the purposes of 6) above to include providing workers to ship or receive a client employer’s containerized freight to or from the client employer’s facility or worksite, under either the client employer’s operating authority, the labor contractor’s operating authority, or the drivers’ own operating authority.
9. Requires a client employer to share with a labor contractor all civil legal responsibility and civil liability for workers supplied by that labor contractor with respect to the reimbursement of and indemnification for business expenses and losses.
10. Specifies that a client employer will be liable if either that client employer or the labor contractor misclassifies an employee as an independent contractor.

EXISTING LAW:

1. Prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. (Labor Code Section 2810 (a). Unless specified all further references are to the Labor Code.)
2. Creates a rebuttable presumption affecting the burden of proof that there has been no violation of the prohibition described in 1) above if the contract meets specified requirements, including being in a single document and containing a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws and regulations. (Section 2810 (b) and (d).)
3. Provides that client employers that obtain workers from a labor contractor shall share with the labor contractor all civil legal responsibility and civil liability for the payment of wages and the failure to secure workers’ compensation coverage. (Section 2810.3 (b).)
4. Defines “client employer” to mean a business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor. (Section 2810.3 (a)(1)(A).)
5. Excludes from the definition of client employer the following entities:
6. A business entity with a workforce of fewer than 25 workers, including those hired directly by the client employer and those obtained from, or provided by, any labor contractor.
7. A business entity with five or fewer workers supplied by a labor contractor or labor contractors to the client employer at any given time.
8. The state or any political subdivision of the state, including any city, county, city and county, or special district. (Section 2810.3 (a)(1)(B).)
9. Defines labor contractor as an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business with exemptions for specified entities such as a bona fide nonprofit organization, a labor organization or apprenticeship program, and a motion picture payroll services company as defined by the Unemployment Insurance Code. (Section 2810.3 (a)(3).)
10. Prohibits a client employer from shifting to the labor contractor any legal duties or liabilities under workplace safety provisions with respect to workers supplied by the labor contractor. (Section 2810.3 (c).)
11. Prohibits a client employer or labor contractor from taking adverse action against any worker for providing notification of violations or filing a claim or civil action. (Section 2810.3 (e).)
12. Provides that the Labor Commissioner may adopt regulations and rules of practice and procedure necessary to administer and enforce the provisions under his or her jurisdiction. (Section 2810.3 (j).)
13. Declares that any waiver of the above provisions is contrary to public policy, and is void and unenforceable. (Section 2810.3 (m).)
14. Does not impose liability on a client employer for the use of an independent contractor other than a labor contractor or to change the definition of independent contractor. (Section 2810.3 (o).)
15. Exempts certain client employers from liability, including a client employer that is not a motor carrier of property based solely on the employer’s use of a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight, and a client employer that is a motor carrier of property subcontracting with, or otherwise engaging, another motor carrier of property to provide transportation services using its own employees and commercial motor vehicles. (Section 2810.3 (p).)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: Whether a worker is an independent contractor or an employee is a crucial distinction. Employees enjoy a number of legal protections in the workplace, including minimum wage standards, overtime and meal break requirements, workplace safety laws, and statutory protections against retaliation. Since independent contractors are not legally considered employees, employers are under no obligation to abide by the same requirements in relation to their labor. Misclassification of workers as independent contractors, rather than employees, is a fairly common occurrence across industries. It allows employers to evade their legal obligations under the Labor Code. According to the author, misclassification has become particularly severe in the motor carrier industry. The author submits:

When motor carriers break the law and violate the rights of truck drivers, the cargo companies that contract to ship goods with these motor carriers should be held accountable. AB 2754 will protect the rights of truckers by ensuring that cargo owners be held liable for any labor code violations committed by trucking contractors, or for knowingly entering into contracts that would require motor carriers to break the law.

A brief history on the efforts to legislate on the question of employee versus independent contractors, and contracts for labor services. In 2003, the Legislature passed SB 179 (Alarcon, Chap. 908, Stats. 2003). Codified as Labor Code Section 2810, the law is intended to ensure that entities that enter into contracts for certain types of labor services, such as construction work, garment, janitorial, and farm labor among others, are incentivized to enter into contracts that are actually sufficient to cover their labor costs, including minimum wage standards. More than a decade later, Labor Code Section 2810.3 was enacted by AB 1897 (Hernández, Chap. 728, Stats. 2014). In an attempt to address the growth of subcontracting and “permatemp work” and the accompanying difficulty of ensuring those workers receive the full protections of California law, that measure imposed joint and several liability for all the legal obligations for the employees provided by a labor contractor to a client employer. The obligations include payment of wages and penalties associated with failing to obtain sufficient workers’ compensation coverage.

Demonstrating a dedication to ensuring that California’s workers receive the full litany of workplace protections to which they are entitled, regardless of new strategies employed by some employers to avoid accountability, the Legislature passed AB 5 (Gonzalez, Chap. 296, Stats. 2019) just five years after AB 1897. AB 5 codified a California Supreme Court decision, Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal. 5th 903, commonly referred to as “Dynamex.” The new law established a three-part test to determine whether a worker is classified as an employee, enjoying the full protections of California’s workplace protections, or an independent contractor.

As evidenced by this history, the question of who is legally responsible for workers has been a consistent topic of debate.

This bill adds to the ongoing conversation by amending Labor Code sections 2810 and 2810.3, discussed above, to include motor carriers. The bill prohibits motor carriers from entering into contracts for labor services that they know or should know are insufficient to cover labor costs and imposes joint and several liability on motor carriers for the legal obligations of the workforce provided by a labor contractor. Notably, under Section 2810.3, liability is currently not imposed on a client employer “for the use of an independent contractor other than a labor contractor[.]” (Labor Code Section 2810.3 (o).) The bill specifically amends this subdivision of Section 2810.3 to make a client employer liable “if either it or the labor contractor misclassifies an employee as an independent contractor.” (Proposed Section 2810.3 (o).)

As currently in print, this bill proposes to modify the definition of “labor contractor” in Section 2810.3 (a)(3). Currently, the paragraph defines “labor contractor” as “an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business.” The section then provides a number of exceptions. The proposed change to the section would insert the following emphasized language specific to motor carriers into the general definition of “labor contractor”:

an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business, including providing workers to ship or receive a client employer’s containerized freight to or from the client employer’s facility or worksite, under either the client employer’s operating authority, the labor contractor’s operating authority, or the drivers’ own operating authority[.]

A similar approach is taken with changes to Section 2810 (a)(1), which currently defines “client employer” as “a business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor.” The bill proposes to add subparagraph (B) to paragraph (1) to clarify that a client employer includes a business “that utilizes a labor contractor’s workers to ship or receive containerized freight to or from the premises or worksite of the client employer, regardless of the operating authority under which the containerized freight is moved,” unless certain factors apply.

These statutes currently provide language sufficiently general as to capture business across industries in California. Apart from the exemptions found at 2810.3 (a)(3), there is no industry-specific language in any of the sections subdivisions. Understanding the intent of the bill is to ensure no question remains that the section applies to motor carriers that function as client employers or labor contractors, shoehorning this industry-specific language into a statute of more general applicability may frustrate attempts to apply the statute in other matters.

Technical issues of statutory construction aside, considering the concern identified by the author over the prevalence of misclassified workers in the motor carrier industry, expanding existing law as proposed seems a reasonable approach.

The bill’s opponents identify a number of concerns with the measure. They argue that the bill goes “far afield of the original intent of AB 1897 and exceeds even AB 5 in its attack on small business trucking.” While reasonable minds can differ on the extent to which the bill’s proposed changes may impact small businesses in the trucking industry, it is possible that legislation passed with one intent in mind may legitimately be amended a decade later if warranted by a change in circumstances. In the instant case, there is evidence of a, “[h]igh prevalence of truck driver misclassification […] in local freight trucking, local pickup and delivery, and the long-haul trucking segments of the California industry.” (Sam Appel and Carol Zabin, Truck Driver Misclassification: Climate, Labor, and Environmental Justice Impacts, August 22, 2019 (UC Berkeley Labor Center) available at: https://laborcenter.berkeley.edu/truck-driver-misclassification/#:~:text=Contract%20trucking%20and%20misclassification%20impede,low%2Dincome%20communities%20of%20color.) Thus, it is not unreasonable to pursue legislation a decade after the enactment of the initial statute to address novel, or continuing issues in the trucking industry.

The opponents also contend that the bill’s proposed contracting provisions are preempted by the Federal Aviation Administration Authorization Act (FAAAA) which “preempts States from enacting or enforcing ‘a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier… with respect to the transportation of property.” (40 U.S.C. 14501 (c)(2).) It is not clear how imposing legal obligations relating to workers pay would constitute a provision “related to a price, route, or service of any motor carrier.” A recent Ninth Circuit Court decision determined that AB 5 (or Labor Code Section 2775) is not preempted by the FAAAA, stating that, “the particular regulations about which Congress is concerned are those addressing carrier prices, routes, and services. Congress does not appear to be concerned with a patchwork quilt of truck driver classifications for purposes of wage and hour protections.” (California Trucking Association v. Attorney General Rob Bonta, 2024 U.S. Dist LEXIS 56081, 14.) A similar logic would likely apply to the concern identified by the opposition regarding this bill.

ARGUMENTS IN SUPPORT: This bill is sponsored by the California Teamsters Public Affairs Council and is supported by the California Labor Federation (CLF). In support of the bill, the sponsors submit:

The California Legislature has continually recognized that workers’ misclassification as independent contractors is one of the most serious challenges facing the state. The endemic misclassification in the trucking industry hurts workers specifically by depriving them of wages and other protections, while making them bear the costs and responsibility of truck purchase, maintenance, and upkeep.

Many workers in varying industries face similar challenges. To address some of them, Labor Code Section 2810.3 makes client employers who obtain employees from a labor contractor liable for violations committed by that contractor, but it specifically excludes motor carriers. Similarly, Section 2819 makes companies liable when they enter into a contract that does not include sufficient funds to allow the contractor to comply with any laws or regulations, and excludes motor carriers.

AB 2754 will amend these two labor code sections to ensure that motor carriers are explicitly covered, so that drivers have adequate protections as employees in one of the most dangerous industries. This will directly benefit workers, the state, and the public, as it will ultimately result in a stronger and safer supply chain.

ARGUMENTS IN OPPOSITION: This bill is opposed by a large coalition of business advocates and trucking industry organizations. The California Trucking Association submits the following in opposition to the measure:

As drafted, AB 2754 instead implicates nearly every customer and transportation service provider in the supply chain as jointly liable for payment of wages, worker’s compensation and reimbursement of business expenses where a worker receives, picks up, or delivers containerized freight at the shipper or consignee’s premises, facility or worksite. Additionally, the legislation uses an impossibly broad definition of motor carrier, defining it to be any entity that utilizes commercial drivers to move containerized freight. Taken as a whole, the legislation seeks to place joint and several liability on any entity that pays for the movement of or accepts freight and does not attempt to acknowledge that most of the implicated entities will have no visibility into the arrangement of that transportation or the cost of the same.

The transportation of containerized freight simply does not equate to the use of contingent and permatemp staff in other industries identified by the legislation.

AB 2754 Goes Even Further Than AB 5

The proposed changes in definition to “client employer” and “labor contractor” cast a wide net and are far afield of the original intent of AB 1897 and exceeds even AB 5 in its attack on small business trucking.

In response to AB 5 and subsequent case law1, California’s remaining owner-operators have obtained their own operating authorities, wholly own their own truck and pay for their own insurance coverage. Others chose to leave California entirely2.

AB 2754 would deal the final blow to these truckers by changing the rules yet again, redefining “usual course of business” to mean simply picking up delivering containerized freight to a client employer’s facility or premises.

[…]

Federal Law Provides Protections for Independent Drivers

Finally, owner-operators providing equipment that will be operated pursuant to a motor-carrier’s operating authority are protected by the requirements of the Federal Truth in Leasing Regulations, 49 C.F.R. § 376.12 (“FLR”). The FLRs (also adopted by California for intrastate operations) set forth specific requirements of items that must be contained in any agreement between an independent truck driver and the motor carrier. These terms include disclosures on the part of the carrier with regard to payment terms, timelines for payment, insurance obligations and purchases from the carrier as well as specific requirements relating how a carrier must inform a driver of items that may be deducted from compensation. These items are much more tailored to the special needs of the trucking industry and permit independent truck drivers to evaluate the contractual payments they will receive from the carrier.

REGISTERED SUPPORT / OPPOSITION:

Support

California Teamsters Public Affairs Council (sponsor)

California Labor Federation, AFL-CIO

Opposition

Agricultural Council of California
Agriculture Transportation Coalition – AGTC
Associated California Loggers
California Association of Winegrape Growers
California Building Industry Association
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Cotton Ginners & Growers Association
California Farm Bureau
California Forestry Association
California Fresh Fruit Association
California League of Food Producers
California Manufacturers & Technology Association
California Moving & Storage Association
California Retailers Association
California Tomato Growers Association
California Trucking Association
CarMax
Civil Justice Association of California
Gemini Shippers Association
Harbor Trucking Association
Industry Business Council
Los Angeles County Business Federation (BIZFED)
Los Angeles Customs Brokers and Freight Forwarders Association
NAIOP California
National Federation of Independent Business (NFIB)
National Industrial Transportation League
San Gabriel Valley Economic Partnership
Southern California Leadership Council
Truck Renting and Leasing Association
U.S. Forage Export Council
Western Agricultural Processors Association
Western Growers Association
Western States Trucking Association

Analysis Prepared by: Manuela Boucher-de la Cadena / JUD. / (916) 319-2334

Date of Hearing: April 17, 2024

ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT

Liz Ortega, Chair

ABPCA Bill Id:AB 2754 (

Author:Rendon) – As Amended Ver:April 9, 2024

SUBJECT: Employment contracts and agreements: sufficient funds: liability

SUMMARY: Amends provisions related to client employer and labor contractor liability to make them applicable to certain motor carriers and to certain cargo owners that utilize their services. Specifically, this bill:

1. Adds motor carriers to the list of types of contractors covered by the prohibition against a person or entity entering into a contract or agreement for labor or services if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided.
2. Excludes from 1) above a contract with a motor carrier contractor involving 30 days or fewer of cumulative labor or services within a one-year period.
3. Adds motor carriers to the list of entities for which there is a rebuttable presumption affecting the burden of proof that there has been no violation of 1) above if the contract or agreement with that entity meets specified requirements.
4. Adds to the requirements for the rebuttable presumption described in 3) above that the contract include, if applicable, the motor carrier authority or registration, and a copy of any agreement executed by an independent contractor, as specified.
5. Defines motor carriers for these purposes to mean an entity that utilizes commercial drivers to move containerized freight.
6. Provides that the following types of client employers must share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage, and shall not shift to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor:
   1. A client employer that is not a motor carrier of property based solely on the employer’s use of a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight; and
   2. A client employer that is a motor carrier of property subcontracting with, or otherwise engaging, another motor carrier of property to provide transportation services using its own employees and commercial motor vehicles.
7. Expands the definition of a “client employer” for the purposes of 6) above to include includes a business entity, regardless of its form, that utilizes a labor contractor’s workers to ship or receive containerized freight to or from the premises or worksite of the client employer, regardless of the operating authority under which the containerized freight is moved, unless any of the following applies:
   1. The freight container is not full.
   2. The shipments occur fewer than 11 times in a one-year period.
   3. The contract period is less than 31 cumulative days in a one-year period.
8. Expands the definition of “labor contractor” for the purposes of 6) above to include providing workers to ship or receive a client employer’s containerized freight to or from the client employer’s facility or worksite, under either the client employer’s operating authority, the labor contractor’s operating authority, or the drivers’ own operating authority.
9. Requires a client employer to share with a labor contractor all civil legal responsibility and civil liability for workers supplied by that labor contractor with respect to the reimbursement of and indemnification for business expenses and losses.
10. Specifies that a client employer will be liable if either that client employer or the labor contractor misclassifies an employee as an independent contractor.

EXISTING LAW:

1. Prohibits a person or entity from entering into a contract or agreement for labor or services with specified types of contractors if the person or entity knows or should know that the contract or agreement does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations governing the labor or services to be provided. Labor Code § 2810(a).
2. Creates a rebuttable presumption affecting the burden of proof that there has been no violation of the prohibition described in 1) above if the contract meets specified requirements, including being in a single document and containing a list of the current local, state, and federal contractor license identification numbers that the independent contractors are required to have under local, state, or federal laws and regulations. Labor Code § 2810(b) and (d).
3. Provides that client employers that obtain workers from a labor contractor shall share with the labor contractor all civil legal responsibility and civil liability for the payment of wages and the failure to secure workers’ compensation coverage. Labor Code § 2810.3(b).
4. Defines “client employer” to mean a business entity, regardless of its form, that obtains or is provided workers to perform labor within its usual course of business from a labor contractor. Labor Code § 2810.3(a)(1)(A).
5. Excludes from the definition of client employer the following entities:
6. A business entity with a workforce of fewer than 25 workers, including those hired directly by the client employer and those obtained from, or provided by, any labor contractor.
7. A business entity with five or fewer workers supplied by a labor contractor or labor contractors to the client employer at any given time.
8. The state or any political subdivision of the state, including any city, county, city and county, or special district. Labor Code § 2810.3(a)(1)(B).
9. Defines labor contractor as an individual or entity that supplies, either with or without a contract, a client employer with workers to perform labor within the client employer’s usual course of business with exemptions for specified entities such as a bona fide nonprofit organization, a labor organization or apprenticeship program, and a motion picture payroll services company as defined by the Unemployment Insurance Code. Labor Code § 2810.3(a)(3).
10. Prohibits a client employer from shifting to the labor contractor any legal duties or liabilities under workplace safety provisions with respect to workers supplied by the labor contractor. Labor Code § 2810.3(c).
11. Prohibits a client employer or labor contractor from taking adverse action against any worker for providing notification of violations or filing a claim or civil action. Labor Code § 2810.3(e).
12. Provides that the Labor Commissioner may adopt regulations and rules of practice and procedure necessary to administer and enforce the provisions under his or her jurisdiction. Labor Code § 2810.3(j).
13. Declares that any waiver of the above provisions is contrary to public policy, and is void and unenforceable. Labor Code § 2810.3(m).
14. Does not impose liability on a client employer for the use of an independent contractor other than a labor contractor or to change the definition of independent contractor. Labor Code § 2810.3(o).
15. Exempts certain client employers from liability, including a client employer that is not a motor carrier of property based solely on the employer’s use of a third-party motor carrier of property with interstate or intrastate operating authority to ship or receive freight, and a client employer that is a motor carrier of property subcontracting with, or otherwise engaging, another motor carrier of property to provide transportation services using its own employees and commercial motor vehicles. Labor Code § 2810.3(p).

FISCAL EFFECT: Unknown

COMMENTS: Note: This bill is double referred to the Assembly Judiciary Committee upon passage out of this Committee.

The California Legislature in recent years has focused heavily on misclassification of workers as independent contractors in the state. One industry in which this problem is especially pervasive is commercial trucking and freight. Misclassification is concentrated in specific segments of the industry, including in the for-hire segment. This segment involves trucking companies offering their services to other entities. The for-hire segment commonly uses contract truck drivers – those who contract with a motor carrier to drive a vehicle pursuant to an operating authority issued to the motor carrier. The for-hire segment includes both long-haul and short-haul trucking – each of which experiences significant issues with misclassification.

Short-Haul Trucking

Short-haul, or local freight, trucking involves making regional deliveries, including package delivery, port trucking and local delivery jobs. Contract truck drivers are estimated to make up more than 90 percent of all local freight industry establishments in California.^[1]

In port trucking, known as port drayage, misclassification and other labor violations are widespread. Studies estimate that approximately 85-90 percent of port driving operations nationwide are carried out by contractors.^[2] A 2014 National Employment Law Project (NELP) report found that approximately 49,000 of the 75,000 port-truck drivers in the US are misclassified as independent contractors.^[3]

An investigative report by USA Today in 2017 listed the following as common abusive practices in the port drayage segment: 1) drivers being forced to work against their will, 2) employers physically barring drivers from going home, 3) employers charging not just for the truck lease but for a host of other expenses including insurance and fuel, and 4) companies forcing workers to work such long hours so as to violate federal safety laws.^[4]

The 2014 NELP report estimated that port trucking companies operating in California are annually liable for wage and hour violations of $787 to $998 million each year.^[5]

A 2019 press release from the LC stated that, since 2011, port drivers filed more than 1,000 claims with the DLSE for violations related to misclassification, and that the LC issued 448 decisions in these cases and found drivers were owed more than $50 million in damages collectively.^[6]

Long-Haul Trucking

Long-haul trucking carriers commonly carry loads farther distances, including across state lines or across the country. This segment also has high concentrations of misclassified drivers.

A 2010 NIOSH study found that approximately 28 percent of long-haul drivers nationwide are leased contractors without their own operating authority.^[7]

The number of independently-contracted long-haul freight-truck drivers increased by more than 90 percent between 1997 to 2016.^[8]

Consequences of Misclassification

Misclassification in trucking hurts workers by depriving them of all the state employment protections that the Legislature has developed over decades, while also making them bear the costs and responsibility of truck purchase, maintenance, and upkeep. Drivers who are misclassified as independent contractors lose essential rights enjoyed by “employees,” such as the ability to file wage and benefit claims, and to be covered by workers’ compensation insurance.

Misclassification also hurts law-abiding employers. Employers who misclassify employees gain an unfair advantage, in part by avoiding their obligations to contribute as employers to California safety net systems, such as workers’ compensation insurance and unemployment insurance.

The State itself is also impacted by misclassification, in that it deprives it of revenue and requires it to cover services when misclassified workers need to use the state’s safety net systems.

Additionally, contract trucking and misclassification impede California’s climate and clean air goals. Since contract drivers have to bear the costs of maintaining their trucks or purchasing newer, cleaner trucks, this segment has lower compliance with the state’s emissions regulations. A study by the UC Berkeley Labor Center found that contract drivers have compliance rates of 61 percent with the California Air Resources Board’s Truck & Bus regulation, as compared to 83 percent compliance for large firms that directly employ truck drivers.^[9] This non-compliance drives up pollution and emissions, which disproportionately affect health outcomes of low-income communities of color.

Legislation Addressing Misclassification

In the past several years, the Legislature has enacted laws to address these types of situations with contract labor in certain other industries. One such law is codified in Labor Code Section 2810.3, and provides that client employers must share with a labor contractor all civil legal responsibility and civil liability for all workers supplied by that labor contractor for the payment of wages and the failure to obtain valid workers’ compensation coverage, and shall not shift to the labor contractor legal duties or liabilities under workplace safety provisions with respect to workers provided by the labor contractor.

Another related law is codified in Labor Code Section 2810, which makes companies liable when they enter into a contract for labor or services with a construction, farm labor, garment, janitorial, security guard, or warehouse contractor that does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws or regulations.

However, neither section 2810 nor 2810.3 apply to motor carriers or companies that obtain labor to move their goods from motor carriers.

What This Bill Does

AB 2754 would amend the above-referenced sections of the Labor Code to make them applicable to certain motor carriers and to certain cargo owners that utilize their services.

According to the author, “When motor carriers break the law and violate the rights of truck drivers, the cargo companies that contract to ship goods with these motor carriers should be held accountable. AB 2754 will protect the rights of truckers by ensuring that cargo owners be held liable for any labor code violations committed by trucking contractors, or for knowingly entering into contracts that would require motor carriers to break the law.”

Regarding how the bill promotes equity solutions and maximizes benefits for underserved and marginalized communities, the author adds that “although some trucking companies have changed their ways and are complying with AB 5 by classifying their drivers as employees, many trucking companies, both at ports and across the state, continue to misclassify their drivers. Cargo owners continue to benefit from this misclassification, often without having to shoulder any of the responsibility. Protecting these workers by providing them with deserved benefits and just wages aligns with the equity goals of our state.”

Arguments in Support

The Teamsters, sponsor of this bill, state that “Considering the problems that currently exist in trucking, there is no reason why these two sections of the labor code should exclude motor carriers. That is why AB 2754 would amend these two sections of the labor code to make them explicitly applicable to motor carriers and to the cargo owners that utilize their services. This means that cargo owners will be vicariously liable for any labor code violations arising out of misclassification committed by their trucking contractors, and that cargo owners will be on the hook if they knowingly enter into unsustainable contracts that would require the contractor to violate the law or to lose money on the contract. Making cargo owners responsible in this way will incentivize them to only contract with companies that follow the law and properly classify their employees, will push them to look at the economics of the contracts they are entering into to ensure that the contract can satisfy all of its legal obligation to its workers, and will ultimately put positive pressure on the trucking industry as a whole to stop misclassifying employees. This will be a direct benefit to the workers who are being misclassified, to the state’s coffers, and to the public who will have access to a strengthened and safer supply chain.”

Arguments in Opposition

A coalition of business organizations, including the California Chamber of Commerce, is opposed and states, “AB 2754 would unwind previously agreed-to amendments in AB 1897 (Hernandez – 2014) to exempt motor carriers from provisions of the bill targeting “contingent” or “permatemp” work. As drafted, AB 2754 instead implicates nearly every customer and transportation service provider in the supply chain as jointly liable for payment of wages, worker’s compensation and reimbursement of business expenses where a worker receives, picks up, or delivers freight at the shipper or consignee’s premises, facility or worksite. Additionally, the legislation uses an impossibly broad definition of motor carrier, defining it to be any entity that utilizes commercial drivers to move freight. Taken as a whole, the legislation seeks to place joint and several liability on any entity that pays for the movement of or accepts freight and does not attempt to acknowledge that most of the implicated entities will have no visibility into the arrangement of that transportation or the cost of the same.”

Prior Legislation

SB 338 (Gonzalez) Chapter 333, Statutes of 2021, expanded the set of violations that can cause port drayage contractors to be placed on a Division of Labor Standards Enforcement list that extends joint liability for future violations to customers of that contractor.

SB 1402 (Lara) Chapter 702, Statutes of 2018, required joint and several liability for customers who contract with port drayage services who have unpaid wage, tax and workers’ compensation liability.

AB 1509 (R. Hernandez) Chapter 792, Statutes of 2015 revises various provisions of law related to employment retaliation.

AB 1897 (R. Hernandez) Chapter 728, Statutes of 2014 requires client employers who

obtain workers from third party labor contractors to share liability for certain labor violations

such as failure to pay wages and workers’ compensation.

SB 459 (Corbett) Chapter 706, Statutes of 2011 prohibits willful misclassification of individuals as independent contractors, prohibits charging individuals who have been mischaracterized as independent contractors a fee or making deductions from compensation, where those acts would have violated the law if the individuals had not been mischaracterized, and authorizes the Labor and Workforce Development Agency to assess civil damages and take disciplinary action against persons or employers violating these prohibitions.

REGISTERED SUPPORT / OPPOSITION:

Support

California Teamsters Public Affairs Council (Sponsor)

Opposition

Agricultural Council of California
Agriculture Transportation Coalition – Agtc
AGTC - Agriculture Transportation Coalition
Associated California Loggers
California Association of Winegrape Growers
California Building Industry Association
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Cotton Ginners & Growers Association
California Farm Bureau
California Forestry Association
California Fresh Fruit Association
California League of Food Producers
California Manufacturers & Technology Association
California Moving & Storage Association
California Retailers Association
California Tomato Growers Association
California Trucking Association
Carmax
Civil Justice Association of California
Gemini Shippers Association
Harbor Trucking Association
Industry Business Council
Los Angeles County Business Federation
Los Angeles Customs Brokers and Freight Forwarders Association
NAIOP California
National Federation of Independent Business
National Industrial Transportation League
San Gabriel Valley Economic Partnership
Southern California Leadership Council
Truck Renting and Leasing Association
U.S. Forage Export Council
Western Agricultural Processors Association
Western Growers Association
Western States Trucking Association

Analysis Prepared by: Erin Hickey / L. & E. /

1. “Local Freight Trucking in California.” Market Research Report. IBISWorld, January 2019. https://www.ibisworld.com/industry-trends/market-research-reports/california/transportation-warehousing/local-freight-trucking-in-california.html. ↑

2. Monaco, Kristen, and Lisa Grobar. “A Study of Drayage at the Ports of Los Angeles and Long Beach.” METRANS, December 15, 2004. https://www.metrans.org/sites/default/files/research-project/AR%2004-01_final_draft_0_0.pdf. ↑

3. Smith, Rebecca, Paul Marvy, and Jon Zerolnick. “The Big Rig Overhaul: Restoring Middle-Class Jobs at America’s Ports Through Labor Law Enforcement.” National Employment Law Project, Change to Win, Los Angeles Alliance for a New Economy, February 2014. https://www.nelp.org/wp-content/uploads/2015/03/Big-Rig-Overhaul-Misclassification-Port-Truck-Drivers-Labor-Law-Enforcement.pdf; ↑

4. USA Today, 2017 “Retail giants enable trucker exploitation,” https://www.usatoday.com/pages/interactives/news/rigged-retail-giants-enable-trucker-exploitation/ ↑

5. “The Big Rig Overhaul: Restoring Middle-Class Jobs at America’s Ports Through Labor Law Enforcement.” ↑

6. California Department of Industrial Relations, 2019, “Labor Commissioner Posts List of Port Trucking Companies with Unsatisfied Judgments for Labor Violations” https://www.dir.ca.gov/DIRNews/2019/2019-01.html ↑

7. Chen, Guang, Karl Sieber, and Jennifer Lincoln. “NIOSH National Survey of Long-Haul Truck Drivers: Injury and Safety.” Accident Analysis & Prevention 85 (December 2015): 66–72. ↑

8. UNITED STATES CENSUS BUREAU, NONEMPLOYER STATISTICS (NES) (1997–2016), https://www.census.gov/programssurveys/nonemployer-statistics/data/datasets.htm ↑

9. UC Berkeley Labor Center, 2019, “Truck Driver Misclassification: Climate, Labor, and Environmental Justice Impacts,” https://laborcenter.berkeley.edu/truck-driver-misclassification/ ↑