Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Month: May, 2016

Non-Solicitation Clauses in broker carrier agreements – void in California or not?

by gspencermynko

Non-Solicitation Clauses in broker carrier agreements – void in California or not?
 

A common clause in your typical broker-carrier agreement restricts a carrier from dealing directly with the shipper/customer. These contracts will have a clause which typically says something like this: “carrier shall refrain from directly soliciting freight business during the term of this agreement, or for 12 months thereafter, from any entity which: 1) was not solicited by carrier prior to the effective date of the contract and, 2) actually tenders at least ______shipments to carrier during the term of this agreement.” The question I want to address is whether these clauses are enforceable.  Based on my informal observations, I believe most Brokers think they can contractually prevent back solicitation. And most Carriers and Owner-Operators probably think they are legally required to abide by an agreement not to back solicit the Broker’s customers.

Back solicitation is understood to mean a practice where a delivering Carrier obtains freight business from a broker and then uses the information obtained from the broker to determine who the customer is and then solicits the business of the customer directly. The question I have is whether Non-solicitation clauses designed to prohibit such behavior are valid and enforceable, or void and unenforceable.  In other words, if you are a Carrier or Owner-Operator, could a Broker successfully enforce the non-solicit provision? If a Carrier or Owner-Operator started doing business directly with a Shipper who was introduced to the Carrier or Owner-Operator by the Broker, could the Broker go to court and 1) stop the back-solicitation, and 2) sue the Carrier or Owner-Operator for damages?
California is one of very few states in which Non-compete agreements are void as against public policy. Business and Professions Code section 16600 provides that “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The exceptions to this rule are very limited, and they deal mainly with the sale of a business or dissolution of a partnership, or protection of “trade secrets”. The California Supreme Court has made clear that even narrow restraints on competition are invalid under section 16600.  Hence, even “non-solicitation” clauses have been deemed invalid by the California Supreme Court as an illegal restraint on trade.
The California Supreme Court in Edwards v. Arthur Andersen L.L.P., 44 Cal. 4th 937 (2008) ruled that all restrictive covenants, except those covered by express statutory exceptions, are invalid and void as against public policy. (holding that noncompetition agreements are invalid unless expressly permitted by statute). The Edwards court said Business & Professions Code § 16600 “protects ‘the important legal right of persons to engage in businesses and occupations of their choosing'” (Edwards (2008), 44 Cal.4th at p. 946 quoting Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1520). The Court went on to state: “Noncompetition agreements are invalid under section 16600 in California even if narrowly drawn, unless they fall within the applicable statutory exceptions of section 16601, 16602, or 16602.5. Every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.”  Another court observed that “any attempt to restrict competition by the former employee by contract appears likely to be doomed under section 16600”
The California Supreme Court decision in Edwards was expected. Many appellate court cases had declared “non-competes” void, and, in the years prior to Edwards, several decisions found that non-solicitation of customer clauses were also void and unenforceable under section 16600.10.  What was notable about the decision in Edwards was the absolute invalidation of Non-solicitation agreements. Section 16600 states that any restraint is void and that section “represents a strong public policy of the state which should not be diluted by judicial fiat.”
Unfortunately, for those of us involved in trucking, I was not able to find a case directly on point where the validity of a Non-solicitation clause in a Broker-Carrier agreement was addressed by either the California Court of Appeals or the California Supreme Court. However, the case law that is out there covers a wide variety of professions and businesses, and the issues and arguments in those cases are relevant and applicable to trucking.
So, back to our question: Are Non-solicitation clauses in Broker-Carrier agreements void and unenforceable? Well – I say maybe, because until you actually put a legal question to the test, you can’t be sure. That said, It’s my opinion that the stronger argument is that non-solicitation clauses are void and unenforceable, and I have not found any authority that states otherwise. So should Carriers simply back-solicit Broker’s customers to their heart’s desire? Should Broker’s give up on preventing carrier’s from directly dealing with their customers? I won’t say that, but I will say this: stay tuned because Transportation Attorneys is currently litigating a case regarding the enforceability of non-solicitation agreements in Broker-Carrier agreements.
I will give a warning to any company that puts a Non-solicit clause in their contracts: Be careful! If your non-solicit agreement is determined to be void and unenforceable, it could also be illegal under California Business & Professions Code section 17200 and thereby expose your company to further negative consequences.
If you have any questions about Non-solicitation agreements in particular or contracts in general, call Transportation Attorneys today and set up a consultation.

Proving ICs are ICs

by G. Spencer Mynko, Esq.

Because misclassification of Truck Drivers as Independent Contractors is a serious and ongoing issue, I’m writing again about this chronic problem, but with a new twist: I want to discuss practical, nuts and bolts ways for companies to claim Independent Contractors are truly independent.

As I am sure most of my readers realize, if a trucking company classifies drivers as independent contractors, the burden of proof falls on them to establish the independence of the drivers. “The party asserting independent contractor status has the burden of proving it”. See Green Fleet Systems, LLC, NLRB ALJ, NO. 21 – CA – 100003, 4/19/15 quoting FedEx Home Delivery, 361 NLRB NO. 55 (2014). Courts will look to well known common law factors, such as those set forth in the Restatement (Second) of Agency Section 220:
(a) The extent of control which, by the agreement, the master may exercise over the details of the work.
(b) Whether or not the one employed is engaged in a distinct occupation or business.
(c) The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.
(d) The skill required in the particular occupation.
(e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.
(f) The length of time for which the person is employed.
(g) The method of payment, whether by the time or by the job.
(h) Whether or not the work is part of the regular business of the employer. (i) Whether or not the parties believe they are creating the relation of master and servant.
(j) Whether the principal is or is not in the business.
Courts will also consider whether the individual is, in fact, providing services as an independent business, i.e., whether the individual has a significant, actual(as opposed to theoretical) entrepreneurial opportunity to enjoy profits or suffer losses, a realistic ability to work for other companies, a proprietary or ownership interest in the work, and an ability to control important business decisions such as scheduling, hiring, selection, and assignment of employees, purchase and use of equipment, and commitment of capital.
The matter of whether Truck Drivers are actually in business for themselves, have invested their own money, and have entrepreneurial opportunity for gain or loss is scrutinized by courts as much as, if not more than, the “Right of Control” doctrine.
So with these time tested principles in mind, here’s what I suggest companies do:
Work with owner-operators that actually own their own trucks.  Even better, work with companies that own their own trucks; i.e.: work with owner-operators who have incorporated or formed an LLC, and the corporation actually owns the truck.
A lease better be a true lease. If you choose to lease trucks to independent contractors, be prepared for a high level of scrutiny and skepticism. So if you lease a truck to an independent contractor, make it look like a true lease. First of all, the truck should be registered in the owner-operator’s name, with a lien held by the company. Make the lease payment independent of the independent contractor’s income. I advise clients to not to deduct lease payments from their settlements, but instead require the independent contractor to make monthly lease payments from their own business accounts. Of course, if the IC can lease a truck from a leasing company that is truly independent from the carrier, that is the best way to go.

The IC decides how, when, and for what purposes the equipment is used for.If the driver is truly an independent contractor leasing a truck, then he or she should be able and entitled to to use that truck as he or she pleases: that means driving for other companies if the contractor wishes to. Furthermore, the independent contractor can put his own employee drivers in the truck if he wishes to. If the carrier exerts heavy control over the use of the truck, they are simply courting disaster.

Option to buy. Make sure the independent contractor is in a lease-to-own contract with an option to purchase or one that has a defined buy-out payment at the end. In other words, I like it when the IC is actually gaining equity in the truck.

Fuel, Maintenance, Insurance are the IC’s responsibility. Make it clear that the independent contractor pays for his fuel, maintenance, and insurance.

No exclusivity. Work with owner-operators that drive for other companies.

Don’t work with individuals, work with companies. Work with owner-operators who are incorporated and have a federal EIN number. Remember: a corporation can’t file for unemployment, can’t claim disability, and can’t file a workers’ compensation claim.

An Independent Contractor is a business, not an person.  Work with IC’s that look like an actual business. I recommend that companies work with owner operators who have their own authority, a business license, business cards, a website, business email, business fax numbers, and anything else that makes them look like an independent business. If possible, work with ICs that have their own place to park the truck when it’s not in use.

Don’t pay John Smith: pay John Smith Trucking Inc.  Cut checks to the business, not the individual. This obviously makes it clear that you’re dealing with a business and not an individual, and makes it more likely that the money will be deposited into a business account instead of a personal account. And always only pay per job, with no guarantee that another job is forthcoming.

Remember the Aflac duck (sorry – I couldn’t resist). This is serious: Work with owner operators that carry occupational accident insurance. I can’t stress this enough. God forbid a driver gets hurt, but if they do, you will be relieved if their Occupational Accident Insurance Carrier picks up the tab for their medical bills and lost wages.

Let Go. Don’t micromanage the independent contractor: as far as you’re concerned it’s the independent contractor’s responsibility to get from point A to point B. I advise clients to not require independent contractors to check in or track independent contractors with GPS devices, follow company policies, be required to sign off on an employee hand book, or follow company protocols.  I have seen authorities interpret such actions as exerting control over the drivers . Again, remember that the independent contractor should appear to be engaged in a distinct and separate business – not your business.

Talk to a knowledgeable lawyer about contracts. Don’t use contracts that give your company unnecessary and over-burdensome control over the independent contractor and the ability to direct the results and the method of the work or services of the independent contractor. This requires a contract that is artfully and carefully drafted. I’ve seen bad contracts be the final nail in the coffin of misclassification cases that go bad for the carrier.
While I realize some of this may be difficult to accept, this is reality trucking companies face if they wish to continue using an Independent Contractor business model.
We hope that once you utilize Transportation Attorneys to help you get your IC agreements and business model set up, you’ll enjoy many miles of trouble-free trucking. Worker misclassification is a big deal in California.  Trucking companies who use independent contractors should carefully review their contracts and practices in order to comply with the law.  We are one of the few law firms that focuses on trucking, transportation and logistics with the knowledge and experience to competently guide you through these ever present hazards.  We are very experienced in dealing with the distinctions between independent contractors and employees.

What are the consequences of a misclassified Independent Contractor Truck Driver getting hurt on the job?

by G. Spencer Mynko, Esq.

What are the consequences of a misclassified Independent Contractor Truck Driver getting hurt on the job?
Over the last several weeks, I have had the privilege of working with trucking companies who are dealing with the unfortunate situation of having an Independent Contractor driver file a claim for Workers’ Compensation Benefits. Obviously, this particular situation is only made worse if the driver is really an employee who has been misclassified as an Independent Contractor. So today I am revisiting the disastrous consequences that can occur when a

Misclassified Independent Contractor truck driver sues a trucking company for Worker’s Compensation Benefits.
Failing to have workers’ compensation coverage is a criminal offense. If the Division of Labor Standards Enforcement (DLSE) determines that an employer is operating without workers’ compensation coverage, a stop order will be issued. This order prohibits the use of employee labor until coverage is obtained, and failure to observe it is a misdemeanor punishable by imprisonment in the county jail for up to 60 days, a fine of up to $10,000, or both. The DLSE will also assess a penalty of $1,000 per employee who is on the payroll at the time the stop order is issued and served, up to $100,000 (California Labor Code Section 3722(a)).  If an employee gets hurt or sick because of work and the employer is not insured, that employer is responsible for paying all bills related to the injury or illness. Also, if an employer is illegally uninsured and an employee gets sick or hurt because of work, that employee can file a civil action against the employer in addition to filing a workers’ compensation claim.
Additionally, if an injured worker files a Workers’ Compensation claim that goes before the Workers’ Compensation Appeals Board and a judge finds that the employer had not secured insurance as required by law, when the dispute is resolved the uninsured employer may be assessed a penalty of $10,000 per employee who was on the payroll at the time of injury, if the worker’s case was found to be compensable, or $2,000 per employee who was on the payroll at the time of injury, if the worker’s case was noncompensable, up to a maximum of $100,000 (Labor Code Section 3722(b))
The risks to an uninsured trucking company are many, and can threaten the continued existence and viability of the trucking company. These risks include:
  1. Possibility of business closure
  2. Large fines imposed by the California Labor Commissioner ($2,000-$10,000 per Employee)
  3. Presumption of negligence
  4. Exposure to civil suits by injured workers
  5. Criminal conviction and personal fines
  6. Imposition of a 10% surcharge in addition to the disability claim, plus attorney’s fees for the worker
The reason I emphasize attorney’s fees is because that is what drives lawsuits.
California has a strong “pro-employee” public policy, and that encourages plaintiff’s lawyers to take on cases where the damages may be small: the employee’s lawyer will ask the court to have the employer pay for his fees (often at $400-$600 per hour), so even a “small” case is a moneymaker for the lawyer.

The implications here are big penalties and fines for the Trucking Company: 
Sections 226.8 and 2753 of the California Labor Code authorize California’s Labor and Workforce Development Agency to assess civil penalties of not less than $5,000 and not more than $15,000 for each violation in addition to those civil penalties already permitted by law. The civil penalties increase to$10,000 to $25,000 for each violation if the Agency determines that the employer has engaged in a pattern, or practice, of willful misclassification of its employees as independent contractors. The worker can file a complaint with the Labor Commissioner and the Labor Commissioner can assess the above-mentioned civil penalties against the employer if the Labor Commissioner determines that the employer has in fact misclassified the employee.
 
The misclassified employee can seek up to three years worth of unpaid wages (including overtime and meal and rest break violations), unreimbursed businesses expenses, and penalties for violating various California Labor Code provisions (Labor Code §203, §210, §226.3, §2802 and §3710.1; California Unemployment Insurance Code §§1112, 1113.2, and 2118).  California business owners may also face exposure to tort liability for injuries suffered by employees when workers compensation insurance was not secured (Labor Code §3706), for unfair business practices (Business and Professions Code §17200), and even potential criminal liability under Labor Code §3700.5
Pursuant to California Labor Code § 226.3, a misclassified worker may claim that the business violated the statutory obligation to provide itemized wage statements each pay period. If the Court determines the worker was in fact an employee, the court may award additional civil penalties in the amount of$250 per employee for the first citation and $1,000 per employee for each subsequent citation. It should also be noted that under California Labor Code §226.6, a knowing and intentional violation of these requirements is amisdemeanor.
Pursuant to California Unemployment Insurance Code §§1112 and 1113.2, if a court determines that a worker was misclassified, the employer will be assessed amounts due for state income tax withholding, unemployment insurance contributions, and disability insurance contributions, unless the employer can show the income was reported and all taxes due were paid by the employee. Employers who fail to pay for unemployment insurance benefits and/or state disability insurance benefits are not only required to pay the unwithheld amounts, but may also be assessed a 10% penalty and interest on the unpaid contributions
We hope that once you utilize Transportation Attorneys to help you get your IC agreements and business model set up, you’ll enjoy many miles of trouble-free trucking. Worker misclassification is a big deal in California.  Trucking companies who use independent contractors should carefully review their contracts and practices in order to comply with the law.  We are one of the few law firms that focuses on trucking, transportation and logistics with the knowledge and experience to competently guide you through these ever present hazards.  We are very experienced in dealing with the distinctions between independent contractors and employees.

Port Trucking Company Ordered to Court Over Unfair Labor Practices – TopNews – Drivers – TopNews – TruckingInfo.com

by G. Spencer Mynko, Esq.

Source: Port Trucking Company Ordered to Court Over Unfair Labor Practices – TopNews – Drivers – TopNews – TruckingInfo.com