Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

UBER Scores Huge Win In California Misclassification Lawsuits

by G. Spencer Mynko, Esq.

ALL Trucking Companies Need To Follow Uber’s Lead On This Issue

FINALLY – GOOD NEWS FOR TRUCKING COMPANIES WHO UTILIZE INDEPENDENT CONTRACTOR TRUCK DRIVERS.The Ninth Circuit’s ruling that Uber drivers suing over alleged misclassification must fight it out in individual arbitration makes clear the power of class action waivers in arbitration agreements to shield employers from legal attack

A unanimous three-judge panel of the federal appeals court determined that Uber Technologies Inc.’s arbitration agreements with drivers were valid and enforceable based on the U.S. Supreme Court’s recent Epic Systems ruling (where in a 5-4 decision in May 2018, SCOTUS ruled that companies can compel workers to waive their right to class actions and instead pursue arbitration individually for various workplace disputes, without violating current labor laws), as well as an earlier Ninth Circuit ruling related to Uber’s arbitration agreements. The ruling deals huge blow to the hundreds of thousands of current and former Uber drivers who sought to band together to gain employee status, but will now have to pursue their claims against Uber in individual arbitration. The high court had ruled in May that employers can legally include class waiver provisions in employee arbitration agreements.

The ruling essentially gives trucking companies the right to use work contracts that don’t allow drivers to pursue class actions and force them into arbitration. The court firmly established that businesses aren’t violating the National Labor Relations Act if they force workers to forgo the ability to pursue class actions by including class waivers in arbitration agreements that workers must sign as a condition of employment. The Court held that mandatory arbitration agreements must be enforced under the Federal Arbitration Act according to their terms, even if those terms include individual arbitration. Uber scored the big break it needed to beat scores of class actions stemming from its business practice of considering drivers to be independent contractors rather than employees.

Therefore, Employee Handbooks and Independent Contractor agreements are perhaps among the most critical and important documents a company can have. These documents dictate the relationship between employer and employee, and principal and contractor. Requiring any dispute between the parties to go private arbitration where drivers will now be forced to settle their claims via arbitration one by one.

This case gives further ammunition to trucking companies who are seeking to defend the validity of class-action waivers and the validity of arbitration agreements. When trucking companies have more leverage, they can insist upon arbitration clauses as a condition of employment – and thereby prevent drivers from using the traditional justice system to correct systemic workplace misconduct. Any lawsuit, let alone a class action lawsuit, can place incredible burdens upon trucking companies, but a valid arbitration agreement that requires each individual to use the arbitration process often limits the extent of discovery and has no precedential value for future cases. To put it simply, if you are being sued for wage and hour violations or misclassification, you would much rather defend the matter in an arbitration proceeding, than in Superior Court. The ninth circuit ruling validates Uber’s arbitration provisions and all trucking and transportation companies should utilize a similar provision.

These arbitration agreements make it harder for drivers to assert their rights alleging that the trucking company misclassified them as independent contractors. Indeed, trucking companies will be able to fall back on their arbitration clauses to avoid litigation. The bottom line is, these agreements are still critically important to any company working with subcontractors and still can limit your exposure.

Arbitration agreements:

These documents are usually, but not always, incorporated into any major contract. However, not all arbitration clauses are created equal, and if they’re not enforceable, they’re worthless.

Quickly, here’s a few reasons arbitration can be so beneficial:

Privacy: Arbitration is a private, generally confidential forum to resolve disputes. The court system is public.

Speed. Arbitration can move along quickly.

Decisions are Non-Appealable: there is finality with the decision

Control. Parties can control which rules apply

No Document Dumps. Discovery can limited and manageable in arbitration

No Fishing Expeditions or Discovery Abuses. Endless, costly discovery disputes and abuses can be avoided in arbitration.

Certainty: How the dispute will be handled can be determined before the dispute exists.

Cost: Arbitration can be expensive, but can work to your advantage when dealing with an opponent who can’t afford the costs.

We have State of the Art Arbitration Agreements that will provide maximal protection to your company.

Transportation Attorneys has reviewed the Uber arbitration agreements that were upheld by the 9th circuit and we are ready to help your trucking implement Employee Handbooks and Independent Contractor agreements with similar arbitration provisions that will require your employees and subcontractors to arbitrate most any dipsute (An exception would a Work Comp claim which are not arbitrable).

I cannot stress enough how critically important it is for all trucking companies to implement these arbitration agreements with class actions waivers NOW! The courts have handed trucking companies a huge victory, and if you find yourself battling labor law, wage and hour, or misclassification lawsuits in Superior Court where a jury will decide your fate, you only have yourself to blame.

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Legal Documents All Trucking & Logistics Companies Need

by G. Spencer Mynko, Esq.

Operating With Substandard Documents Is Unnecessarily Risky. IMPORTANT AND WELL DRAFTED LEGAL DOCUMENTS CAN PROTECT YOU FROM EXPENSIVE LAWSUITS, SAVE SUBSTANTIAL AMOUNTS OF MONEY, AND ENABLE YOU TO PROTECT YOUR RIGHTS WHEN OTHERS VIOLATE THEM.

State Of The Art Legal Documents Essential To All Trucking And Logistics Companies

At the heart of any dispute that involves a trucking, transportation, or logistics company, there should be a written document. Preferably, a well written document that maximally protects the unfortunate company mired in a legal dispute. Carefully drafted documents can better resolve (or even avoid) many disputes as long as proper legal documents are in place. In this article, I have created a list of important legal documents all trucking, transportation and logistics companies absolutely need.

EMPLOYEE HANDBOOKS.

Employee handbooks are perhaps among the most critical and important documents a company can have. Also referred to as policy and procedures manuals, these documents dictate the relationship between employer and employee, and most importantly, are actually written contracts. In the event of a dispute between employee and employer, the courts in California will enforce the terms stated in an employee handbook or policy and procedure manual – just like a contract.

In order for the handbook to be enforced in the context of a legal dispute, a copy of the handbook must have been distributed to the employee, the language must be specific, and the terms enforceable.

There are many reasons employee handbooks are important, however, there are two critical reasons employee handbooks are so important: 1) wrongful termination lawsuits, and 2) protection of intellectual property, company secrets, and proprietary information.

The bottom line is any company who has employees, regardless of how big or small, needs an employee handbook drafted by an experienced attorney.

Independent contractor operating agreements:

While I understand that these documents have been much maligned and misunderstood, there still are several important reasons any company who works with independent contractors needs to have a proper independent contractor operating agreement in place.

Even if the “contractor” is determined to be an “employee”, forum selection clauses, venue selection clauses, class-action waivers, mandatory arbitration agreements, may all be enforceable in a dispute. The bottom line is, these agreements are still critically important to any company working with subcontractors and still can limit your exposure.

Lease agreements.

I’m not specifically talking about “lease purchase” agreements that are often used by trucking companies to justify classifying drivers as independent contractors, but rather lease agreements such as when a holding company leases equipment to a trucking company, even if there is common ownership interest in the two companies. Anytime one company is leasing or renting anything to another company, there should be a formalized agreement in place.

Furthermore, if you are leasing office space, yard space or anything else for that matter, you need to be aware of what’s in that document and what all of the fine print means. These agreements should never be discounted or ignored.

Arbitration agreements:

These documents are usually, but not always, incorporated into any major contract. However, not all arbitration clauses are created equal, and if they’re not enforceable, they’re worthless.

Quickly, here’s a few reasons arbitration can be so beneficial:

Privacy: Arbitration is a private, generally confidential forum to resolve disputes. The court system is public.

Speed. Arbitration can move along quickly.

Decisions are Non-Appealable: there is finality with the decision

Control. Parties can control which rules apply

No Document Dumps. See below.

No Fishing Expeditions or Discovery Abuses. Endless, costly discovery disputes and abuses can be avoided in arbitration.

Certainty: How the dispute will be handled can be determined before the dispute exists.

Cost: Arbitration can be expensive, but can work to your advantage when dealing with an opponent who can’t afford the costs.

Non-Disclosure Agreements and Confidentiality/Trade Secret Agreements

Parting should not be “sweet sorrow”, but the last time you will ever have to cross paths with employees or contractors you no longer wish to maintain a relationship with. These agreements can be the perfect way to tie up loose ends so you never have to deal that special someone again.

Corporate By-Laws and all Corporate and LLC documents

This goes without saying: If you are a corporation or LLC, you MUST have all proper corporate documents in place.

Shipper-Carrier, Broker-Carrier, Shipper-Broker and 3PL Contracts

Whatever the situation, state of the art agreements can make or break your company. Also, depending on how these agreements are drafted, they can favor the trucking company, the broker, the shipper or forwarder. Make sure you have an agreement in place that benefits you!

Finally, I can’t stress enough that companies need to consider these documents to be investments in their business. I have numerous clients who have been saved hundreds of thousands of dollars by making sure they had the right documents in place for their business. Don’t get stuck in a dispute with no documents or bad documents in place.

For for information click here

Court Says Dynamex “ABC” Test is Retroactive and Applies to PAGA Claims

by gspencermynko

Superior Court Judge rules “ABC” test can be applied retroactively!

In this two part article, I discuss two matters of major interest to all trucking companies in California. Specifically, the Retroactive application of the Dynamex “ABC” Test for Independent Contractorship and its application to PAGA Claims.

Dynamex Applied Retroactively To Dancers’ PAGA Suit.

While this is the first time I have discussed or mentioned “exotic dancers”  in a trucking law blog, this is definitely a matter trucking companies need to be concerned about, and the news is not good.  A California Superior Court judge ruled the California Supreme Court’s revolutionary Dynamex ruling that carved out a more rigid test for differentiating employees from independent contractors can apply retroactively to a Private Attorneys General Act (PAGA) suit brought by Imperial Showgirls dancers alleging labor code violations.
The IC world changed after the  Dynamex Operations West Inc. v. Superior Court of Los Angeles County decision, where California’s high court rejected a classification test used for almost three decades, and adopted a different standard known as the ABC test that presumes workers are employees instead of independent contractors for purposes of state wage orders – which govern items such as overtime and minimum wage – and places the burden on employers to prove workers aren’t employees.
The dancers alleged that since 2015 that Imperial Showgirls violated wage and hour provisions in the state labor code and asked Judge William D. Claster to clarify whether Dynamex would be applied in deciding their dispute, which involves the issue of whether the dancers are independent contractors. The judge held that Dynamex, which had been going on for 13 years by the time the Supreme Court issued its landmark decision, was intended to apply retroactively because “it did not state that its decision applied only prospectively.” “Given the age of the claims in the Dynamex case, and given the court’s longstanding acknowledgment of its authority to make such a statement … the lack of such a pronouncement suggests that the decision should apply retroactively,” Judge Claster wrote. The Judge went on to say: “Although not necessarily determinative, the court’s later decision to deny requests to modify its decision to state that Dynamex will only be applied prospectively supports this conclusion.”
The employer Imperial Showgirls argued that the Dynamex decision does not apply to PAGA claims since such claims are based on Labor Code violations, not violations of wage orders.
But Judge Claster ruled that the labor code “requires compliance with the wage orders.”

“The court’s holding that the ABC test should be applied to determine employee status under the wage orders can only mean that that test also had to be applied to labor code claims seeking to enforce the wage order requirements,” the judge said. “The court concludes that Dynamex’s ABC test should be utilized to determine the employee/independent contractor issues in this case. The fact that the case is brought under PAGA does not compel a different result.”

The judge went on to note that, for purposes of gratuities, the labor code’s definition of who qualifies as an employee is different, “arguably broader,” than the definition found in the wage orders. As a result, Judge Claster held that “there is no basis to apply the Dynamex analysis in determining issues relating to the gratuities issue in this case.”

In rejecting that argument, the Court concluded that although the PAGA claims in the dancers’ case were all based on alleged violations of the Labor Code (including failure to pay all wages owed, minimum wage violations; failure to provide meal breaks, rest breaks and accurate itemized wage statements; failure to reimburse all expenses; improper deductions from wages; and failure to permit the dancers to retain gratuities), an applicable wage order also covered each of the violations except for the gratuity claim. Because all of the claims except the gratuity claim were “rooted in the wage orders,” the Court ruled that the Dynamex ABC test applies.  The case is Oriana Johnson et al. v. VCG-IS LLC et al., case number 30-2015-00802813, in the Superior Court of the State of California, Orange County.
The ruling could have far-reaching effects in other cases, including a dispute before the Ninth Circuit between online meal delivery service Grubhub Inc. and a former driver. In June, both parties to that case filed dueling letters over whether a lower court’s finding that the driver was an independent contractor should be reconsidered in light of Dynamex. The appellate court said it would consider remanding the driver’s case if the district court indicates it would entertain similar arguments.

Shannon Liss-Riordan of Lichten & Liss-Riordan PC, who represents both the Imperial Showgirls dancers in Orange County and the driver in the Ninth Circuit case said that Judge Claster’s ruling is a good sign for clients like hers.

“The courts are not going to be receptive to these types of arguments, that Dynamex isn’t retroactive,” Liss-Riordan said. “I’m definitely bringing Judge Claster’s ruling to the attention of the Ninth Circuit and the district court in the Grubhub case.”

This is all bad news for trucking companies who have rightly relied on the “Common-Law” or “Borello” test for years, and I fear rulings like this one will only embolden plaintiff’s lawyers to bring misclassification lawsuits against trucking companies.

Why PAGA Claims can be so devastating.

The California labor Commissioner can institute investigations of trucking companies when the Labor and Workforce development agency refers a case following notification of a complaint filed through the Private Attorney Generals Act (PAGA). Investigators can audit a trucking company going back for approximately three years and look for wage, hour and labor law violations.
The labor Commissioner can issue huge citations for millions of dollars. The citations include minimum wage violations, liquidated damages violations, failure to pay overtime, failure to not provide final paychecks as required by law, not paying for rest breaks, not providing proper itemized wage statements, meal. break violations, not maintaining valid Worker’s Compensation insurance, not providing proper or accurate wage statements, and, of course, Misclassifying workers as independent contractors.

For example, A trucking company with 20 drivers could easily end up with a wage theft citation from the Labor Commissioners office for millions of dollars. I’ve seen a trucking company with a citation based on violations against one driver total over $100,000.00.

Enforcement investigations typically include a payroll audit of the previous three years to determine minimum wage, overtime and other labor law violations, and any payments owed and penalties due are calculated. Civil penalties collected are transferred to the State’s General Fund as required by law.

Here’s What The Labor Commissioner Says:

Worker misclassification is the practice of knowingly misclassifying an employee as an independent contractor. It deprives employees of minimum wage and overtime protections, as well as workers’ compensation coverage if injured on the job, and creates an unfair playing field for responsible employers who honor their lawful obligations to their employees. The Labor Commissioner’s Office enforces laws prohibiting the willful misclassification of workers.

When workers are paid less than minimum wage, they are entitled to liquidated damages that equal the amount of underpaid wages plus interest. If a worker quits, final wages are due within 72 hours of the notice. Waiting time penalties are imposed when the employer intentionally fails to pay all wages due to the employee at the time of separation. This penalty is calculated by taking the employee’s daily rate of pay and multiplying it by the number of days the employee was not paid, up to a maximum of 30 days.

The Division of Labor Standards Enforcement, or the Labor Commissioner’s Office, is the division within the Department of Industrial Relations (DIR) with wide-ranging enforcement responsibilities including adjudicating wage claims, inspecting workplaces for wage and hour violations, investigating retaliation complaints and educating the public on labor laws

 

EDD Not Using ABC Test – WSTA Challenging Dynamex

by gspencermynko

EDD sticking with common law test, while WSTA looking to throw out ABC Test

In this two part article, I discuss two matters concerning the test for independent contractorship that should be of major interest to all trucking companies in California.

The California EDD will continue to use the “common law”/ a.k.a. “Borello” test to determine whether drivers are independent contractors.

Recently, in the course of an EDD audit with a client, the EDD auditor advised me that at this time, EDD is going to continue to utilize the Borello or “common law” test to determine whether a driver is an independent contractor. In other words, The California EDD is not utilizing the ABC test as stated in the recent CA Supreme Court Dynamex decision to determine whether a driver is an independent contractor.

The Borello test utilizes a number of factors to determine whether a worker is an independent contractor. Under Borello, the primary consideration is the degree to which the principal has the right to control the manner and means by which the work is accomplished. While the right of control is the most important factor, the following secondary factors are also relevant:

(1) whether the worker is engaged in a distinct occupation or business;

(2) as a matter of local industry custom and practice, whether the type of work performed is typically done under the direction of a principal or by a specialist without supervision;

(3) the skill required in the particular occupation;

(4) whether the principal or the worker supplies the tools and place of work;

(5) the length of time for which services are to be rendered;

(6) whether or not the work is part of the regular business of the principal; and

(7) whether or not the parties believe they are creating the relationship of employer-employee.

The California EDD has developed a handbook that auditors utilize, which is based on the common law test. The EDD handbook focuses on these factors:

(1) Instructions: Are detailed instructions provided to the worker?

(2) Training: Is training provided?

(3) Integration: Is the work integrated into the principal’s business?

(4) Services Rendered Personally: An individual’s right to substitute another’s services without the employer’s knowledge suggests the existence of an independent relationship.

(5) Hiring Assistants: An IC hires, supervises and pays assistants

(6) Continuing Relationship: The existence of a continuing relationship between an individual and the person for whom he or she performs services indicates an employer-employee relationship.The relationship between an
independent contractor and his or her client ends when the job is finished.

(7) Set Hours of Work: An independent contractor is the master of his or her own time.

(8) Full-Time Work: An independent contractor is free to work when he or she chooses and to set his or her daily or weekly schedule. An independent contractor would normally perform services less than full-time for one principal.

(9) Is the work done on the premises: Work done away from the employer’s premises indicates lack of control, especially when the work is free from supervision.

(10) Order or sequence: Does the person have to perform the services in an order or sequence, set by the employer?

(11) Reports: An independent contractor is not required to file reports which constitute a review of his work.

(12) Payments : Payment of an IC is on a job by job basis.

(13) Expenses: An IC is responsible for all of his own expenses.

(14) Tools and materials: A worker furnishes their own tools and materials, especially when a substantial sum is involved, is an indication of independence.

(15) investment: significant investment by the worker in facilities used by him and performing services for another tends to show an independent status.

(16) Profit and loss: if there is a possibility for profit or loss for the worker as a result of their services, this reflects independence.

(17) Works for others: working for other persons or firms indicates independence, because the worker is free to accept or reject jobs.

(18) Offers services to general public: availability of services to the general public usually indicates independence.

(19) Right to fire/right to quit: And IC cannot be discharged as long as he produces a result that measures up to his contract specifications. Also, an independent contractor usually agrees to complete a specific job and cannot quit until the job is completed.

(20) Industry custom: if the work is usually performed by independent contractors, it is an indication of independence.

(21) Required level of skill : a high-level of technical skill is important when combined with other factors such as owning a separate and distinct business.

(22) Belief of parties: do all parties agree that the relationship is one of independence

As most of my reader should know, the common law test is a much more forgiving than the new ABC test, and under the old “Borello”/common law test, owner-operators can legally be classified as independent contractors. Of course, under the Dynamex ABC test, independent contractor/owner-operators simply cannot legally exist.

WSTA looks to overturn Dynamex in the federal courts.

The WSTA has filed a lawsuit against the Department of Industrial Relations, and the Attorney General of California, contending that the ruling in Dynamex is unconstitutional, and is preempted by the federal aviation administration authorization act (FAAAA), and furthermore violates the commerce clause of the United States Constitution, because it discriminates against out of state transportation companies that send trucks into California. Finally, the plaintiffs also contend that the decision is preempted by the regulations of the Federal Motor Carrier Safety Administration (FMCSA). The full complaint can be found here.

The ABC Test (A quick refresher)

The incredibly harsh ABC test requires a company using an independent contractor certify that:

A That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact

B That the worker performs work that is outside the usual course of the hiring entity’s business

C That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

“Most legal analysis of the ruling agrees the A-B-C test sets an impossible standard for most of our members to meet,” WSTA stated to its members back in May. According to Rob Moseley, an attorney with Smith Moore Leatherwood, it’s the “B” part that is problematic. “If you’re in the trucking business, it’s going to be a very difficult fight, because the ‘B’ prong of the A-B-C test basically says… the contractor has to be in a different business. They can’t be in your business.” See the full article here.

OK with EDD, OK with the Feds, Not OK in a CA wage and hour lawsuit

One of the points that is so crazy about the new ABC test and Common Law test being used in different settings, is that an owner-operator truck driver may be an independent contractor in the eyes of EDD, the Federal government, the United States Department of Labor, even the IRS, yet, be considered employees at the California labor board, or in a California wage and hour lawsuit brought by plaintiff’s attorneys who sue businesses alleging labor code violations. Hopefully, the WSTA lawsuit will bring consistency (and sanity) back to the trucking industry.

Mid-Year Truck Law Update

by G. Spencer Mynko, Esq.

While there’s never any shortage of legal issues confronting the trucking industry, there are a few topics that demand discussion. So I’ve picked a few topics that trucking companies need to be paying attention to. In particular, take note of my discussions regarding mandatory arbitration and class-action waivers.

State senator seeks to crack down on wage theft in port trucking industry.

A California state senator is proposing a bill aimed at holding major retailers accountable for using port truck companies that have a history of engaging in wage theft of drivers who are misclassified as independent contractors. Sen. Ricardo Lara (D-Bell Gardens), who represents the Port of Long Beach put forth a bill that would “clean up our port truck driving industry once and for all.”

In this particular case, the Bill has made it through the California state Senate. The Senate voted 22-12 to advance the bill that will deter shippers from using port drayage motor carriers who have not paid wage, tax, and workers compensation obligations. Obviously, the purpose of the bill is to incentivize shippers to avoid trucking companies who misclassified drivers as independent contractors and have gotten into trouble for doing so. Now that the bill has passed through the Senate, it will move to the assembly for further consideration.
As well known to everyone in the industry, California ports have been a notorious hot bed for allegations of misclassification of drivers as independent contractors. According to the bill, approximately 25,000 truck drivers deliver goods between California’s ports and inland distribution centers. Furthermore, according to the bill, more than 40% of United States shipping container traffic flows through the ports of Los Angeles, Long Beach and Oakland.

Prior to the vote, Senator Lara said his bill word “cleanup the port truck driving industry once and for all.”

Earlier this year, the Los Angeles city attorney sued three port truck companies owned by NFI Industries, alleging the firms engaged in schemes to avoid paying minimum wage and employee benefits by classifying hundreds of workers as independent contractors even though they “exert near complete control” over the drivers’ schedule.

And the California Labor Commissioner’s Office has awarded port truck drivers more than $46 million since 2011 in cases in which they contended they were misclassified as contractors.

But Lara’s office said those judgments often aren’t paid – something Lara’s bill seeks to address. The proposal has the support of Los Angeles Mayor Eric Garcetti and Long Beach Mayor Robert Garcia. The California Labor Federation and the Teamsters Public Affairs Council sponsored the bill.

Shawn Yadon, chief executive of the California Trucking Assn., said the bill is simply an attempt to unionize truckers, noting that that there is an exemption to joint liability for retailers who hire union trucking firms.

Michael Soller, a spokesman for Lara, said the exemption applies to companies with union contracts that provide for wages and a mechanism for resolving disputes over pay. Workers and management would also have to agree to waive the retailer liability imposed by the law.

“The real issue here is all of these problems … have involved misclassifications,” said Soller, adding he’s not aware of any wage theft issues with union firms who hire employees, rather than independent contracts.

The bill, SB 1402, Would create joint and several liability for shippers, or any customers, who contract with port drayage carriers who have unsatisfied judgments for unpaid wages, damages, expenses, penalties, and Worker’s Compensation liability. The trucking companies who have failed to pay such final judgments would be blacklisted. This list would allow retailers, shippers, etc., to determine if a trucking company they wish to contract with has unpaid final judgments. Any shipper who would hire port trucking company on the list would be liable for future state labor and employment law violations by those trucking companies. Yikes.

Senator Lara referred to the USA Today investigation which focused on exploitation of port drivers. He specifically referred to the investigation’s findings that “port trucking companies in Southern California have spent the past decade forcing drivers to finance their own trucks by taking on debt they could not afford.” Lara went on to say that some drivers “end up owing money to their employers – essentially working for free.”

The Owner Operator Independent Drivers Association supports the legislation. Mike Matousek, OOIDA’s Manager of government affairs, says many of California port drayage drivers are mistreated. “They work long hours under awful conditions and are utterly undercompensated” he said. “We’ve long considered it to be a modern form of indentured servitude.”

Matousek went on to say that the workers are missed classified through “lease purchase” agreements. He describes the agreements as “schemes were motor carriers lease a truck to a driver with the promise of fair compensation, future ownership of the truck, and “independence” from traditional employer employee requirements. In reality, these indentured servant’s are paid pennies on the dollar, will likely never on the truck, and have zero Independence.”.

OOIDA did inform Senator Lara that there are legitimate owner operator/independent contractors who lease on to motor carriers and that such independent contractors can enjoy success. The ability between those independent contractors and motor carriers to enter into a business relationship should be protected (Tell that to the California Supreme Court – I wonder how California politicians feel about the Dynamex decision).

Matousek stated Lara’s bill would address concerns about lease-purchase agreements without jeopardizing legitimate business agreements between motor carriers and leased owner operators. “SB 1402 would meet both of these goals and hold others in the supply chain accountable for using carriers that are known to misclassify workers.”

The bill has been referred to the assembly labor and enforcement, and judiciary committees.

Considering that the bill easily passed through the state Senate, I think it’s very probable it will pass through state assembly and end up on the governor’s desk for signing. Stay posted.

US Supreme Court Ruling on Arbitration:

The U.S. Supreme Court has made it clear that class-action waivers in employment arbitration agreements are enforceable-but California trucking companies must be sure to carefully draft such agreements so they don’t violate state-law requirements.
The employees in three cases before the high court – including a case originating in California – argued that class-action waivers violated the National Labor Relations Act (NLRA) (Ernst & Young LLP v. Morris). The 9th U.S. Circuit Court of Appeals had sided with the employees in the California case, but the Supreme Court’s majority disagreed, giving employers the green light to require one-to-one arbitration proceedings.

“The NLRA secures to employees rights to organize unions and bargain collectively, but it says nothing about how judges and arbitrators must try legal disputes that leave the workplace and enter the courtroom or arbitral forum,” wrote Justice Neil Gorsuch for the majority.

The Supreme Court’s ruling reinforces a long line of decisions holding that arbitration agreements need to be enforced as they are written and that any changes to the law must come from Congress, Trucking need to seriously decide whether to mandate individual arbitration in their employment and independent contractor agreements. My opinion is that trucking and transportation companies should require binding arbitration and class action waivers in their contracts – especially in the post-Dynamex era.

The Exception: PAGA Claims

I’ve noticed a surge in California Private Attorneys General Act (PAGA) claims and employers may see more “PAGA-only” suits in light of the recent Supreme Court ruling.

In addition to permitting them to bring their own grievances under state law, PAGA allows employees to step into state regulators’ shoes to recover civil penalties on behalf of the state for labor code violations. Seventy-five percent of the penalties recovered go to the state, and 25 percent go to the employees. Plaintiffs can also recoup attorney fees (which is really what drives these lawsuits).

In a 2014 decision, the California Supreme Court found that state PAGA claims can’t be waived in arbitration agreements because such claims are brought for the public benefit (Iskanian v. CLS Transportation Los Angeles, 59 Cal. 4th 348). The U.S. Supreme Court declined to review the decision.
Therefore, PAGA claims can still be brought as class actions even if employees waive their right to bring their own grievances on a classwide basis.

The take home message for trucking and transportation companies is that they
must remain diligent and be careful that their arbitration provisions are drafted in compliance with current law, so their class-action waivers and arbitration agreements are enforceable. Speak to an experienced Transportation Attorney.

CA CDL Renewal Requirements

In the event there is any confusion as to what documents are required to renew your CA CDL, click here. Remember, the requirements went into effect May 10, 2017.

Fallout from the Dynamex Operations Decision and Independent Contractor Classification

by G. Spencer Mynko, Esq.

Unanswered Questions of the Dynamex Operations Decision

Are independent contractor truck drivers driving under a motor carrier’s authority a thing of the past in California? Unfortunately – at least for the time being – the answer seems to be yes.

In case you have just come out of hibernation, I will briefly summarize what happened April 30, 2018 when California became the most hostile jurisdiction in the nation for independent contractor status. In a unanimous ruling, the California Supreme Court in Dynamex Operations West v. Superior Court rejected the decades-old Borello test for determining whether workers should be classified as employees or independent contractors, in favor of a new standard that heavily favors workers being classified as employees under the California Wage Orders. The Court adopted a broad “ABC Test,” which makes it dramatically more difficult – if not impossible – to classify workers as independent contractors. The California Supreme Court seems to have made motor carrier’s use of independent contractor truck drivers impossible.

The California Supreme Court issued a landmark decision in Dynamex Operations West v. Superior Court, No. S222732, in which the Court chose to essentially scrap the nearly 30-year old test for determining whether a worker is an employee or an independent contractor for claims asserted under California’s Wage Orders. This led me to conclude that trucking companies that were in compliance with the law before April 30, are probably acting illegally today. The ruling in Dynamex is so broad and sweeping, that if you are a motor carrier and you have hired a truck driver, that truck driver is your employee. Period. No exceptions.

The ABC Test:

“The ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

Nonetheless, this left us with unanswered questions about the implications of the decision.

Does Dynamex Only Apply to Wage and Hour matters?:

According to the court, this new test was only applied to classification as an employee for purposes of the Wage Orders. However, the Wage Orders set standards for employment, including minimum wage, overtime, meal and rest breaks, exempt status, record-keeping requirements and basic working conditions. Accordingly, this new test will apply to a number of employment claims, including minimum wage, overtime and meal and rest breaks. Indeed, Plaintiffs’ lawyers who practice Employment Law have wasted no time citing Dynamex in their complaints. However, the court did leave open the possibility that the ABC test could be applied in other circumstances.

Based on the Court’s decision, there is no indication that it changed the tests to determine employee status under other employment statutes related to taxes, unemployment benefits, entitlement to benefits, including workers’ compensation insurance, or other state and federal laws relating to wages, hours and working conditions. It seems for now, the common law employment test or the Borello test – which are arguably more favorable for employers – would still apply to most claims brought under those other statutes.

This means that a driver could be an independent contractor with respect to some laws, but an employee with respect to other laws. However, from a practical perspective, if there is a determination the worker should be an employee under the Wage Orders “ABC Test,” the worker will likely be treated as an employee for all purposes. Furthermore, it is not clear how a motor carrier would treat a driver as an employee for some purposes and not for others: How does an carrier pay someone who is both a contractor and an employee? Who withholds and pays taxes? Would benefits be provided? You can see how confusing this can get.

Another issue is whether the Dynamex decision applies to other California labor laws. The plaintiffs in the Dynamex case also brought claims for expense reimbursement under the California Labor Code. However, the court stated in footnote 5 of the opinion that it was not deciding whether expenses would be reimbursable. This leaves open the question as to whether the ABC test applies to expense reimbursement claims, or whether the courts will have to specifically address that issue in later decisions. Another issue is whether the ABC test applies to claims brought under the California Private Attorney General Act (PAGA)

Does Jurisdiction extend to the California EDD and California Worker’s Compensation Appeals Board?

A big question is whether the California Employment Development Department (EDD) will continue to apply their current test to determine whether someone is an independent contractor, or will they apply the Dynamex ABC test. Similarly, will the California Worker’s Compensation appeals Board continue to rely on the Borello test (as discussed in my prior article), or will the Workers’ Compensation courts follow the Dynamex ABC test? Stand by for this as more shall certainly be revealed.

Will Dynamex apply retroactively?

Another big question is whether Dynamex will be applied retroactively, or only prospectively. Personally, I think the retroactive application of Dynamex would be incredibly unfair and violate the due process of employers who have relied on the Borello test as the law in California. Again, my strong opinion is that Dynamex and the ABC test should only be applied prospectively, because of the incredible unfairness to employers who relied upon Borello for many years.

Nonetheless, I’m sure this will end up being litigated, as I have already seen complaints filed by plaintiffs’ attorneys against trucking companies applying the Dynamex ABC test to conduct that predates the April 30, 2018 decision. This will undoubtedly be extensively litigated.

WSTA Executive Committee Approves Legal Response To CA Supreme Court Ruling

The Western States Trucking Association plans to challenge the California Supreme Court ruling that it says will effectively end the use of trucking owner-operators in the state. “As a result of the recent CA Supreme Court ruling that established a new test to determine whether someone is an independent contractor (owner-operator), many members have been inquiring what action the association would take. Most legal analysis of the ruling agrees the ABC test sets an impossible standard for most of our members to meet. On Wednesday night (5/23) the WSTA executive committee voted to approve allowing association legal counsel to pursue a legal strategy and protect the ability of owner-operators to be a viable choice for the trucking industry. Very shortly we will be making a further announcement.” Western States Trucking Association Transportation News May 29, 2018.

Will the Federal Government take control and take on the states in trucking jurisdiction matters?

Dynamex ushers in new challenges to independent contractor classifications, and will most likely generate class or PAGA actions, with significant exposure for damages and penalties. Notably, independent contractors do not sign class arbitration waivers, meaning that even those employers who have protected themselves from class actions through these waivers may be left unprotected.

Therefore, Federal intervention may be necessary for the use of Owner-Operators who contract with so-called “Non-asset based” motor carriers continue to operate in California.

Independent Contractor Alert! CA Supreme Court Drops a Bomb on the IC Business Model

by gspencermynko

Using Independent Contractor Drivers May Now Be Impossible In CA. California Trucking Companies Who Use Independent Contractor Truck Drivers Are Probably Now Breaking the Law. Here’s what California Trucking Companies must know about the CA Supreme Court’s bombshell ruling on independent contractors.

California is now probably the most hostile jurisdiction in the nation for independent contractor status. The California Supreme Court abandoned decades of common law jurisprudence, literally throwing it in the trash, and adopted the so-called “ABC” test as used in Massachusetts (A state known to be very hostile toward the use of independent contractors). Despite the fact that other jurisdictions are moving toward a more commonsense approach regarding the independent contractor business model, The California Supreme Court seems to have made motor carrier’s use of independent contractor truck drivers impossible.

The California Supreme Court issued a landmark decision in Dynamex Operations West v. Superior Court, No. S222732, in which the Court chose to essentially scrap the nearly 30-year old test for determining whether a worker is an employee or an independent contractor for claims asserted under California’s Wage Orders.

Indeed, trucking companies that were in compliance with the law before April 30, are probably acting illegally today. The ruling in Dynamex is so broad and sweeping, that if you are a motor carrier and you have hired a truck driver, that truck driver is your employee. Period. No exceptions.

Perhaps you are wondering what this means. Consider these points:

They own their own equipment: doesn’t matter

They have been working as Owner-Operators for years: doesn’t matter

They can accept or reject loads as they please: doesn’t matter

They can drive for other companies whenever they want to: doesn’t matter

They are responsible for their insurance, maintenance, and fuel: doesn’t matter

They are paid on load per load basis, with no guarantee of a minimum number of loads: doesn’t matter. Even if the driver only hauls one load and you never work with that driver again, that driver was your employee for that one load.

They have their own authority: doesn’t matter, if they’re using your authority to haul the load.

They are a corporation or LLC: doesn’t matter. Whoever is in the driver’s seat is your employee.

The owner operator is a professional truck driver who saw an opportunity to make money in trucking, and went out and purchased a truck: doesn’t matter

The owner operator can enjoy profits or suffer losses depending on how hard and efficiently he or she works: doesn’t matter

The Owner-Operator wants to be an independent contractor: doesn’t matter. What the driver wants is not relevant.

The Owner-Operator and Motor Carrier have in place a written contract where they refer to each other as independent: doesn’t matter

Let me explain the nature of this armageddon.

The Facts:

“Dynamex is a nationwide same-day courier and delivery service that operates a number of business centers in California. Dynamex offers on-demand, same-day pickup and delivery services to the public generally and also has a number of large business customers-including Office Depot and Home Depot-for whom it delivers purchased goods and picks up returns on a regular basis. Prior to 2004, Dynamex classified its California drivers as employees and compensated them pursuant to (CA) wage and hour laws. In 2004, Dynamex converted all of its drivers to independent contractors after management concluded that such a conversion would generate economic savings for the company. Under the current policy, all drivers are treated as independent contractors and are required to provide their own vehicles and pay for all of their transportation expenses, including fuel, tolls, vehicle maintenance, and vehicle liability insurance, as well as all taxes and workers’ compensation insurance.” Dynamex Operations West, Inc. v. Superior Court, 2018 Cal. LEXIS 3152.

The (New) Law:

The California Supreme Court has rejected the independent contractor test as laid out in the case S. G. Borello & Sons, Inc. v. Department of Industrial Relations. As many of my readers know, the “Borello factors” were used by courts to determine whether a worker was an employee or independent contractor. The Borello control test, which applied multiple factors to the determination of whether a worker qualifies as an independent contractor. This multi-factor test, where no single factor controlled the determination of IC status, has been rejected and the California Supreme Court adopted a rigid “ABC” test for California courts to use when determining IC status.

Here’s what the court said:

The Burden is on the Employer.

The Court interpreted California’s wage precedents and policy as placing the burden on the business to prove that a worker is an independent contractor rather than an employee, otherwise the worker will be presumed to be an employee.

The ABC’s of Misclassification.

“The ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

If the hiring business fails to prove any one of the three elements, a worker will be determined to be an employee and not an independent contractor as a matter of law. The Court’s ruling specifically applies to claims stemming from California’s Wage Orders, but the Court left open whether this test would also apply to other statutes.

Under the ABC test, a worker can properly be treated as an independent contractor “only if the worker is the type of traditional independent contractor-such as an independent plumber or electrician-who [c]ould not reasonably [be] viewed as working in the hiring business.” This kind of truly independent contractor would be “realistically understood, instead, as working only in his or her own independent business.”

Part “A” of the test is similar to the “Right of Control” test used in Borello.Factor “A” of the ABC Test, which requires that the worker must be “free of the control of the hiring entity in the performance of the work,” is more or less a restatement of part of the Borello control test, and can be based on a myriad of related factors evidencing control of the employer over the worker’s performance of work, including whether the worker supplies his own tools or controls the specific details of his work, without interference by the hiring entity.

Part “B” of the ABC Test, mandates that in order to be considered an independent contractor, a worker must “perform work that is outside the usual course of the hiring entity’s business.” To illustrate the meaning of the “usual course of business,” the Supreme Court gave the example that “when a retail store hires an outside plumber to repair a leak in a bathroom on its premises or hires an outside electrician to install a new electrical line, the services of the plumber or electrician are not part of the store’s usual course of business and the store would not reasonably be seen as having “suffered or permitted” (the California law definition of employment) the plumber or electrician to be working as its employee.

“On the other hand,” the Court said, “when a clothing manufacturing company hires work-at-home seamstresses to make dresses from cloth and patterns supplied by the company that will thereafter be sold by the company,” or “when a bakery hires cake decorators to work on a regular basis on its custom-designed cakes,” the workers are part of the hiring entity’s usual business operation and the hiring business can reasonably be viewed as having suffered or permitted the workers to provide services as employees” and not as independent contractors.

I think its clear how Part “B” will be extraordinarily difficult for trucking companies to satisfy.

Part “C” of the ABC Test, which requires that the workers “must be customarily engaged in an independently established trade, occupation or business of the same nature as the work performed,” requires a showing that the worker has “independently made the decision to go into business for himself or herself.” Such workers would be expected to have taken “the usual steps to establish and promote his or her independent business,” for example through “incorporation, licensure, advertisements, routine offerings to provide the services of the independent business to the public or to a number of potential customers, and the like.”

Parts A and C are not particularly challenging, but Part B may represent an insurmountable hurdle for trucking companies to satisfy. Trucking companies may try to claim that they don’t actually do any trucking, and rely on independent contractors to handle the actual delivery of freight – in other words, trucking companies may try to make the pitch that when dealing with owner operators, they are acting more like brokers than trucking companies. But I think that argument has about a snowball’s chance in hell in California. For example, I can see Uber trying to make the case that they are simply a technology company connecting willing drivers with willing passengers. The problem is that “riding” is the core of their “ride-share” business, just like “trucking” is the core of a trucking company’s business.

Will the Federal Government take control and take on the states in trucking jurisdiction matters?

Current legislation in the US Congress, known as the Denham Amendment, offered by Rep. Jeff Denham (R-Calif.) and two other lawmakers, would exempt carriers from complying with state laws that require employers to provide paid meal and rest breaks to employees. It also would preempt state rules on misclassification of truck drivers. Most of the attention on the Denham Amendment is focused on California state laws, and court decisions stemming from California-centered litigation. The bill has passed in the House of Representatives, and will move on to the Senate for consideration.

Unless the U.S. Congress and President Trump take control of interstate trucking, via the Denham Amendment (possible), or the California legislature and Governor step in and exempt the trucking industry from the ABC test (uhhh…not so possible), Dynamex is now the law of the land in California. Stay tuned.

UBER is Victorious in Independent Contractor Misclassification case and Trucking Companies should care

by G. Spencer Mynko, Esq.

Trucking Companies need to take note of this important case!

As many of you know, Uber technologies, the rideshare company, has been fighting numerous lawsuits and claims that their drivers are misclassified as independent contractors. Well, on April 11, a federal district court in Pennsylvania ruled in favor of Uber concluding that the Uber Black limousine drivers are independent contractors, and not employees. The importance of this decision, is that it is supportive of the independent contractor business model, and, If the reasoning for the decision is adopted by other courts, including the United States Supreme Court, trucking companies may benefit greatly. And that is the reason I am so interested in this decision.

The FLSA Test for Independent Contractors (adopted by the US Supreme Court)

The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA. The Court has held that it is the total activity or situation which controls. Among the factors which the Court has considered significant are:

1.The extent to which the services rendered are an integral part of the principal’s business.
2. The permanency of the relationship.
3. The amount of the alleged contractor’s investment in facilities and equipment.
4. The nature and degree of control by the principal.
5. The alleged contractor’s opportunities for profit and loss.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
7. The degree of independent business organization and operation.

As most of my readers know, The last decade has been tough on trucking companies utilizing the independent contractor business model for drivers. Almost all of the decisions that have gone in front of the courts have concluded that the drivers were common-law employees.

However, Uber’s big win could easily help trucking companies make the case that their drivers are independent contractors. Indeed, this decision is encouraging because if drivers are in business for themselves, have considerable investment in expensive equipment, provide services to a competitor or have their own customers, they would meet their burden of proof that the drivers are independent contractors.

This is particularly important where enemies of the Independent Contractor model are disregarding whether driver’s own their own equipment, drive for other companies, can accept or reject loads and are under no significant control of the trucking company – and still claiming such drivers are employees. The judge in this case examined six factors which led to his conclusion that the Uber drivers are independent contractors.

In Razak v. Uber Technologies, Inc., No. 16-cv-573 (E.D. Pa. Apr. 11, 2018). The judge looked at six major factors.

1. Right to control: the first factor involves “the degree of the alleged employers right to control the manner in which the work is performed”. Notably, California courts rely heavily on the “right to control” test.

In this case, the plaintiff claimed that Uber controlled him by being able to terminate his Uber app, deactivate him for canceling trips, block drivers from manipulating lines at major transportation hub, and limit the number of consecutive hours that a driver may work. But the court found that these activities by Uber were “generally geared toward ensuring Safety and
Quality control”.

The Court went on to state that there was evidence that Uber does not exercise substantial control over the drivers, including the right of the drivers to hire subcontractors or helpers, to work for competing companies, to determine their own hours, to accept or reject rides offered to them, to wear anything they want, and to work anywhere they choose. Sounds a lot like an independent contractor truck driver doesn’t it?

The court concluded that this factor weighs heavily in favor of independent contractor status.

2. Opportunity for profit or loss: The judge examined “the alleged employees opportunity for profit or loss depending on his managerial skill”. The court concluded that this factor “strongly favors a conclusion that Uber black drivers are not employees”

The judge noted that the plaintiffs have taken advantage of such opportunities through their own respective companies, but that they also have the right not to accept trip requests, and are “free to make money elsewhere”, and these facts strongly indicate that plaintiffs are independent contractors pursuing their own entrepreneurial opportunities in search for profit.”

Even though Uber set the price for the trip, that did not change the “profit and loss” factor that the court looked at.

Again, you can see how this could be very beneficial to independent contractor truck drivers – the arguments are probably even stronger for IC truck drivers.

3. Investment: The third factor looked at by the court was “the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers”. Here, though plaintiffs did purchase or lease expensive vehicles, which was “strong evidence that they are not employees” they argued that Uber deduct money from the drivers for “vehicle finance payments” however, the court stated “just because a driver chooses to lease a vehicle from Uber does not convert Uber into an employer under the FLSA”.

I find this particular part of the decision to be amazing, because if this were to spread and be adopted by higher courts, including United States Supreme Court, California trucking companies could actually get a break if they lease trucks to drivers. I’m not saying that lease-purchase agreements will return to acceptance anytime soon, however, the judge’s reasoning is encouraging, and this could be adopted by higher courts, including the US Supreme Court which, of course, trumps all.

4. Special Skills: the fourth factor was “whether a service rendered requires special skill” and court concluded that driving is not a special skill, but ultimately held it doesn’t carry much weight. Interesting, because there are other cases that hold that professional truck driving is a special skill, and I think truck drivers have the advantage here in making the case that they are independent contractors. In other words, if this factor is neutral for Uber drivers, I think it could be positive for professional truck drivers.

5. Relationship permanence: The next factor that court looked at was “the degree of permanence of the working relationship”. Here, the court concluded that the Uber Black drivers “have basically complete freedom regarding how long they wish to serve in this capacity and the hours in which they serve.” As a result, the court found that “there is no permanence of the working relationship whatsoever unless a driver wants it” and therefore, this factor “weighed heavily in favor of independent contractor status”. Again, this could easily be argued to support the trucking company use of independent contractors.

6. Integration of service: The final factor the court looked out his “whether the service rendered is an integral part of the alleged employer’s business.” The court did note that Uber could not conduct its business without the drivers, however, this “only favors employee status to a slight degree”.

I know some state agencies like EDD and the labor board like to use this factor to beat trucking companies over the head, but hopefully this represents a turning point in rejecting that argument as de facto proof of an employer- employee relationship. My counter argument to that analysis is if the driver is free to accept or reject loads as he pleases, and is free to work for other companies as he pleases, you can hardly say that the driver is “an integral part of the alleged employer’s business”.

I will be watching this decision carefully as it makes its way through the appeals court. While things remain bleak here in California, perhaps this case represents a shift in the pendulum which has swung wildly out of control against the IC business model. Talk to an experienced Transportation Attorney about misclassification.

Corporation Vs. LLC in Trucking and Transportation

by G. Spencer Mynko, Esq.

Should Your Trucking, Transportation, or Logistics Company Be A Corporation or Limited Liability Company (LLC)? 

A major decision for anyone involved in transportation is what business form they should choose. Almost without exception, I advise clients to form a business entity that will protect the owners from being personally liable for the business’s debts. In this article, I will focus on “S” Corporations vs. LLCs.

I’m specifically not discussing C-Corporations and Sole Proprietorships. Many business owners choose S Corps because they’re generally exempt from income tax and there is no double taxation. A C Corp is taxed as a separate entity from the shareholders. Shareholders report and pay taxes on what the corporation pays them. An S Corp is taxed like a partnership with a “pass-through” structure. It’s not doubly taxed because the corporate entity can pass corporate income, losses, deductions and credits to its shareholders for federal tax purposes, hence simplifying accounting.

One drawback of the sole proprietorship is that the owner is personally liable for all debts, obligations, and liabilities of the business, so the sole proprietorship is discouraged as a form of business. A sole proprietorship may have low start-up costs and may have an advantage with lenders because the owner is personally liable for business debts, but this personal liability may create difficulty in raising capital. I almost universally advise anyone in transportation operating as a sole prop.

So let’s focus on S-Corp. vs. LLC, because this is the choice the vast majority of transportation related businesses will make.

Ownership Requirements:

S-Corp.:

One to 100 shareholders. With limited exceptions, only US individuals (citizens or residents) and certain trusts and tax-exempt organizations can be shareholders. Only eligible US entities can make an S-corporation election. Only one class of shares.

LLC:

One or more members. Two or more members required if an LLC wants to be taxed as a partnership. Separate entity from its members (Cal. Corp. Code § 17701.04(a)). No restrictions on the types of owners.
May become a member without making or being obligated to make a contribution (Cal. Corp. Code § 17704.01(d)).

 

Form of Equity and Restrictions:

S-Corp.:

Shares are held by one or more shareholders. Only one class of shares is permitted (common shares). Differences in voting rights among shares are permitted. Shares are generally transferable unless restricted in the articles of incorporation, bylaws, or a separate shareholder agreement or by securities laws

LLC:

Membership interests are held by one or more members. Articles of organization or operating agreement may provide for more than one class of members. Unless otherwise provided by the operating agreement:
The right to receive distributions (transferable interest) is transferable (Cal. Corp. Code § 17701.02(aa)).
The transfer of a transferable interest does not entitle the transferee to vote or otherwise participate in the LLC’s management.
After formation, a person may become a member:
As provided in the operating agreement.
By unanimous member consent.
As a result of a merger or conversion.
If designated (and consented to) by the last person to have been a member (or the member’s legal representative), within 90 days after the LLC no longer has members.

Formation Document & Filing Fees:

S-Corp: Articles of incorporation filed with the SOS for $100. An eligible US entity makes a timely S-corporation election on Internal Revenue Service (IRS) Form 2553, no more than two months and 15 days after the beginning of the tax year.

LLC: Articles of organization filed with the SOS for $70.

Governing Documents:

S-Corp.: Articles of incorporation and bylaws Initial bylaws are typically adopted by incorporators or initial directors. The shareholders or board of directors may adopt, amend, or repeal bylaws, but the board’s authority may be restricted by the articles of incorporation or bylaws.Shareholders of a close corporation may enter into a shareholders’ agreement as a governing document (Cal. Corp. Code § 300(b)).

LLC: Articles of organization and operating agreement, which may be written or oral.

Liability:

S-Corp.: Shareholder liability is generally limited to the amount of consideration agreed to be paid for shares Shareholders are typically not responsible for the corporation’s liabilities. But beware Piercing the Corporate Veil.

LLC: Unless otherwise provided by the operating agreement, a member or manager is not liable for the LLC’s debts, obligations, or other liabilities solely by reason of acting as a member or manager. A member will be personally liable under the common law governing alter ego liability.

Management (Governing Authority):

S-Corp:
An S-corporation is typically governed by a board of directors. Corporation must have a chairperson of the board or a president (or both), a secretary, and a chief financial officer and may have additional officers as set out in the bylaws or determined by the board.

LLC:
An LLC is managed by its members unless the articles of organization contain a statement that it is manager-managed.
There are important differences between Member Managed and Manager Managed LLCs.

Fiduciary Duties:

S-Corp.: Directors owe a fiduciary duty of care and duty of loyalty. Directors must perform their duties in good faith, in a manner believed to be in the best interests of the corporation and its shareholders.

LLC: Members in a member-managed LLC and managers in a manager-managed LLC owe the fiduciary duties of loyalty and care to the LLC and the other members.

 

Employee Incentive Considerations:

S-Corp.: Stock options can be granted to employees

LLC: Profits, interests, or non-qualified options (to acquire a membership interest) can be granted to employees.

Distributions:

S-Corp: Distributions to shareholders are typically dividends paid in cash or in property (other than the corporation’s own shares).

LLC: Members are not entitled to demand or receive distributions in any form other than money (Unless provider for in the Operating Agmt.).

Other Considerations:

S-Corp.: More regulated and more record keeping requirements than LLCs.There is a well-developed body of corporate case law and statutes that provides greater certainty but less flexibility than other entity forms. In California, you can use a relatively new, simplified procedure that allows you to convert your business from a corporation to an LLC largely by filing a single document with the Secretary of State.

LLC: Has benefits of partnership regarding flexibility in management structure, fewer record keeping requirements, and the option for pass-through taxation, and also the benefits of a corporation regarding limited liability. Easily converted to an S-Corp. in CA

My “Top-Ten” Terms and Clauses for Transportation Contracts

by gspencermynko

Drafting and advising clients on contracts is a substantial part of my practice. Unfortunately, too often, I work with clients whose rights are not adequately protected because the written documents which control or govern the dispute they are faced with, are either inadequate or simply don’t exist. I continue to be surprised at how often the players in the transportation industry operate with either oral agreements, poorly drafted documents or shoddy written contracts.

And interestingly enough, the problems often do not stem from some highly technical transportation specific matter, but simple standard contract clauses which should be utilized by anyone in business, let alone trucking and transportation.

Therefore, I created a list of 10 ingredients that should be at least considered, if not included, in any agreement involving transportation transactions.

And when I refer to “contract” I am talking about anything from shipper-broker agreements, broker-carrier agreements, independent contractor agreements, employment contracts, to bills of lading and simple invoices. These critical terms and clauses can make a world of difference in the event a dispute arises

1. Forum selection clauses

The potential advantages of a forum selection clause are numerous. For example, a forum selection clause can prevent having to litigate far from one’s home court, help keep litigation costs down, and minimize the inconvenience to employees who are witnesses in the litigation. Any party entering into a contract should pay close attention to what forum is chosen in the contract because it is now highly likely that any dispute will end up in the contractually chosen forum.

2. Arbitration clauses

Requiring arbitration has benefits: Cost: arbitration has often been seen as a cheaper way to resolve disputes than litigating in court. Speed:, arbitrations tend to follow more specific and defined timelines toward resolving a dispute, and arbitrators do not always face crowded work and caseloads, resulting in quicker final decisions. Fairness: Often arbitrators are selected by agreement of both parties. Finality: For the most part, it is very difficult to appeal arbitration rulings. This finality can be a positive factor in relation to ending a dispute.
Simplicity: Litigation can involve mounds of paperwork, multiple hearings, depositions, subpoenas, and similar processes. An arbitration may eliminate some or many of those time-consuming and expensive tools of litigation.
Confidential:Arbitration hearings do not take place in open court and transcripts are not part of the public record.

3. Attorneys fees and costs

Awarding Attorneys fees and costs to the prevailing party really puts teeth in any agreement. Lawsuits are expensive. Litigation is expensive. Too often, cases simply are not worth pursuing because they will cost more than you can recover. Ensure your right to attorneys fees and costs by having a proper clause included on any document that governs any transaction, from a complicated contract to a simple invoice or bill of lading.

4. Liquidated damages and consequential damages.

Sometimes it’s difficult to determine what your actual damages may be in a given dispute. Therefore, a liquidated damages clause can be very beneficial to the aggrieved party. As long as it is reasonable (i.e. not excessive) these clauses will usually be upheld by courts. Similarly, a breach of contract can result in all sorts of consequential harm. Therefore it’s a good idea that a contract specifies the right to be compensated for consequential damages arising from a breach.

5. “Entire agreement” or integration clause.

If you go to the trouble of entering into a written agreement, then the written agreement should represent the entire contract between the parties. Simply put, you do not want oral agreements and representations, or other external terms to affect or complicate your business dealings.

6. Opportunity to review by a lawyer.

Inserting a clause into the contract that states the parties had an opportunity to review the document with an attorney and they enter into the contract freely and fully informed emphasizes that the contract was entered into at “arm’s-length” by two parties on equal footing.

7. Governing Law.

These clauses go hand-in-hand with your venue selection clause and forum selection clauses. Generally speaking, you will want to select the laws of the state in which you reside to govern and control any dispute between you another party. However, there may be exceptions to this general rule and as long as there is a reasonable basis for choosing the laws of a particular state, these clauses will tend to be upheld by courts.

8. Confidentiality.

Trade secrets, intellectual property and customer lists are a few examples of property that you’ve worked hard to develop and which deserves protection. In order to be most effective, a confidentiality agreement must be specific and detailed.

9. Indemnification.

Indemnification or “hold harmless” clauses are a must, especially in transportation where Life and valuable property is always great risk. Contractual indemnification is defined as a provision in an agreement where one party (or both with a mutual indemnification provision) agrees to compensate the other for loss or liability arising out of the contract.The type of loss is usually described in broad terms in the indemnity provision, and can include all forms of litigation (claims, counterclaims, cross claims, grievances and appeals),all harm, bodily injury, property damage, liens, fees, judgments, attorney costs and any other fees and costs arising out of litigation related to the contract. Put another way, the indemnifying party (indemnitor) is managing the financial risk attendant to the contract for the indemnified party (the indemnitee).

10. Class-action waiver.

Class-action litigation can be devastating, and when appropriate, class-action waivers are a must to protect the company against such lawsuit. However, Be aware that these clauses are highly technical and should be drafted by an experienced attorney. This is especially true in California, where courts tend to view these terms with disfavor.

11. Bonus!

This is not a term or clause but simply a good idea: include an initial line at the bottom of each page of every contract. You’d be surprised as to how often lack of an initial line created all sorts of headaches.

While this list is by no means comprehensive, it should provide food for thought about the quality of your agreements and documents. The bottom line is that trucking companies need to have all of their contracts and any document governing any transcation reviewed by a Transportation Attorney for meaningful legal advice. This simple, cost-effective step can literally save your company a fortune – the cost of prevention is far cheaper than the cost of the cure