Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Month: July, 2018

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.