Truck Law

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Federal Court Rules Dynamex “ABC Test” Preempted by Federal Law!

by gspencermynko

FAAAA Preempts use of “ABC Test” to Determine if Owner-Operators are Independent.

FAAAA Preempts Application of Dynamex ABC Test to Motor Carriers according to a recent California Federal District Court Decision

California District Court Finds Dynamex ABC Test Preempted By FAAAA

Since April 30, 2018, when the California Supreme Court issued its decision in Dynamex Operations West. v. Superior Court, California motor carriers have been struggling to deal with the unexpected new “ABC test” for deciding who is an independent contractor and who is an employee. According to the “B” part, the new Dynamex ABC test requires that for a person to be an independent contractor the work he or she does must be outside the usual course of the hiring entity’s business. For a motor carrier, the practically impossible challenge is arguing that a truck driver is performing a service outside the usual course of the motor carrier’s business. However, a significant ruling by a Federal court – the Central District Court for California – has found that federal law preempts Dynamex for determining the classification of truck drivers.
The practical effect of this ruling is that motor carriers will be able to rely on the decades old common law test to determine if an owner-operator is an Independent contractor.

On November 15th, the United States District Court for the Central District of California held that the Federal Aviation Administration Authorization Act (“FAAAA”) preempts the application of the “Dynamex” ABC Test to a motor carrier for purposes of determining whether owner-operators are considered employees under California’s Wage Orders. See Alvarez v. XPO Logistics Cartage, LLC, 2018 WL 6271965, at *5 (C.D. Cal. Nov. 15, 2018). The court distinguished the Ninth Circuit’s decision in Dilts v. Penske Logistics, LLC, reasoning that Dilts addressed the preemption of “parts of the California Labor Code itself,” not “whether the ABC test-used to interpret wage orders-is preempted.”

As Dynamex has left motor carriers uncertain about their long-established business models, courts have also been struggling with this new decision in cases pending in state and federal courts. Some of those cases have been brought specifically to challenge the application of Dynamex to motor carriers such as those filed by the California Trucking Association and Western States Trucking Association. These cases squarely present the argument that the Dynamex test compels the use of employee drivers and is incompatible with the Federal Aviation Administration Authorization Act (FAAAA) which provides that states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.” Because federal law preempts state law (meaning when Federal and State law conflict, Federal law controls and state law is invalidated), if the Dynamex/ABC test affects a price, route, or service of any motor carrier, then under the federal preemption doctrine, the Dynamex test may not be enforced. In other words, if forcing California trucking companies to classify all drivers as employee affects prices, routes, or services of motor carriers, the Dynamex ABC test cannot be applied to determine if a driver is an Independent Contractor.

While the CTA and WSTA cases were specifically brought to challenge Dynamex and the ABC test, other worker classifications cases were working their way through the courts when the Dynamex decision was issued. The trucking companies and courts in those cases have had to respond to this sudden change in the law. One of those cases was Alvarez v. XPO Logistics Cartage, LLC, pending in the United States District Court for the Central District of California. In that misclassification case, application of the Dynamex ABC test was challenged by XPO, a motor carrier treating truck drivers as independent contractors. The Alvarez court held that the FAAAA preempts the application of the Dynamex ABC Test to a motor carrier for determining whether owner-operators are considered employees under California’s Wage Orders. This means that determining whether a truck driver is an independent contractor or employee would be determined under the older multi-factor standard created by S. G. Borello & Sons, Inc. v. Department of Industrial Relations (a.k.a. the “common law” or “Borello” test) which has been around for nearly 30 years. Because Borello has been around so long and is so well understood, properly operating motor carriers have been able to safely use independent contractor truck drivers for many years.

The XPO Logistics decision generally comes as welcome news to motor carriers facing misclassification claims under wage orders in California, where once again the multifactor Borello test should apply. The owner-operator plaintiffs at issue scored a few wins in this case too. For example, the court also found the FAAAA does not preempt misclassification claims brought under California’s Unfair Competition Law. Perhaps more importantly, the court found the Federal Leasing Regulations preempt only the owner-operator plaintiffs’ claims for reimbursement of their truck lease payments, not the plaintiffs’ claims for reimbursement of various other business expenses (including, e.g., insurance coverage costs). The court’s conclusion in this regard is key, as other courts applying California law have found the Leasing Regulations preempt a wider range of expense reimbursement claims.

For now, trucking companies need to carefully watch if the District Court decision gets appealed to the US Ninth Circuit Court of Appeals. Unfortunately, it may not be the final word on Dynamex’s application to the transportation industry. However, the judge’s careful and thoughtful decision should give hope to motor carriers using Independent Contractors. And, as the Alvarez court noted, “while the Ninth Circuit in California Trucking Assoc. v. Su, … declined to affirmatively address whether the ABC test was preempted by the FAAAA, it nevertheless distinguished the two standards, noting that ‘the ABC test may effectively compel a motor carrier to use employees for certain services because, under the ABC test, a worker providing a service within an employer’s usual course of business will never be considered an independent contractor.’ Su, 903 F.3d at 955.” Again, the inescapable conclusion is that the ABC Test affects “Prices, Routes and Services” when applied to real world trucking scenarios. Eventually, the Ninth Circuit Court of Appeals will likely have to rule whether Dynamex is preempted by the FAAAA. While the outcome is not certain, the Ninth Circuit does seem to understand Dynamex would compel the use of employee truck drivers. And, back in 2011, when the Ninth Circuit considered a regulatory rather than judicially-created mandate for the use of employee drivers in Am. Trucking Ass’ns v. City of L.A, it found that such a mandate was preempted by the FAAAA.

This ruling breathes new life into the Independent / Owner-Operator Business Model

The independent contractor business model in trucking has been under attack for many years in California. However, by carefully following the law, Motor Carriers could still utilize independent contractor truck drivers legally. That all changed when the Dynamex decision was handed down, because it appeared to make the use of independent contractor truck drivers in California impossible.

This federal court decision however makes it clear that the Dynamex “ABC” test, by prohibiting the use of independent contractor truck drivers, directly affects “price, route, and service” and therefore is unenforceable due to federal preemption by the FAAAA.

While many commentators, including myself, we’re concerned that the Dynamex case was the deathblow to the independent contractor business model, The federal court seems to have made it clear that, at least as far as trucking is concerned, The Dynamex ABC test has gone too far and flies in the face of well-established federal law.

Therefore, this is a good time for trucking companies to reevaluate their procedures and policies, their independent contractor contracts, vehicle lease agreements, and other corporate paperwork to confirm that they are operating in a legally defensible manner.


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.

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.

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

New DOT Drug Testing Rules for 2018 and ELD Update

by gspencermynko

Drivers and Trucking Companies Need to Know about the New DOT Regulations regarding drug testing.

On November 13, 2017, the Department of Transportation (DOT) published a final rule that changes its drug testing rules and regulations. The rules were added to meet new Health and Human Services (HHS) drug testing guidelines, and to help combat the opioid epidemic.

The DOT amended its drug testing program regulation to add four semi-synthetic, specific opiates hydrocodone (brand name Vicodin, Lortab, Norco), hydromorphone (brand name Dilaudid), oxymorphone (brand name Opana), and oxycodone (brand name Percodan, Percocet, Oxycontin) to its drug-testing panel; add methylenedioxyamphetamine (MDA); and remove methylenedioxyethylamphetamine (MDEA). The revision of the drug-testing panel harmonizes DOT regulations with the revised HHS Mandatory Guidelines established by the U.S. Department of Health and Human Services for Federal drug-testing programs for urine testing.

The addition of the synthetic opioid drugs is intended to address the nationwide epidemic of prescription painkiller abuse. Here are the highlights of what trucking companies and truckers need to know about the new testing procedures:

1. The new testing standards go into effect January 1, 2018

2. Four new drugs are being tested: Hydrocodone, hydromorphone, oxycodone and oxymorphone are Schedule II controlled substances for commonly known by their brand names listed above.FMCSA still refers to its drug testing panel as a 5-panel, but “opiates” is being changed to “opioids” and now will include these four semi-synthetic substances in addition to heroin, morphine and codeine.

3. The DOT removed MDEA from the drug test panel and added MDA in its place. What is MDA you ask? 3,4-Methylenedioxyamphetamine (MDA) is a psychostimulant and psychedelic drug of the amphetamine family that is encountered mainly as a recreational drug. Interestingly, MDA is rarely used as a recreational drug. However, what is most important about MDA is that MDMA (Street name Ecstasy) is metabolized by the liver into MDA. So an Ecstasy user will likely have MDA in their urine, and a positive urine test for MDA is highly suggestive of recent Ecstasy use.

4. What medications disqualify a CMV driver? A driver cannot take a controlled substance or prescription medication without a prescription from a licensed practitioner. However, if a driver uses a drug identified in 21 CFR 1308.11 (391.42(b)(12)) or any other substance such as amphetamine, a narcotic, or any other habit forming drug, The driver is medically unqualified. Therefore, even if you have a prescription and a legitimate reason for taking the above semi-synthetic opioids, you cannot drive a semi-truck.

5. There is an exception to item #4: the prescribing doctor can write that the driver is safe to be a commercial driver while taking the medication. In this case, the Medical Examiner may, but does not have to certify the driver. The Medical Examiner has 2 ways to determine if any medication a driver uses will adversely affect safe operation of a CMV: 1. Review each medication – prescription, non-prescription and supplement, or 2. Request a letter from the prescribing doctor.

One opioid that is a major driver of opioid overdoses is NOT tested for in DOT regulated tests and is undetectable in routine urine testing.

Fentanyl is an opioid which is used as a pain medication and together with other medications for anesthesia. Fentanyl is extremely potent (about 100 times more potent than morphine, and 50 times more potent than heroin). Fentanyl is now being produced in illicit labs, is flooding the streets, and is responsible for thousands of opioid overdoses. Only highly specialized testing will detect fentanyl – it will not be picked up on any DOT approved urine test.

While the purpose of this article is not to discuss drug abuse (I think that’ll be another article), I mention this to remind everyone that no drug test is perfect and people who are actively using drugs can have “clean” tests.

ELD enforcement to be ‘phased in’ through April 2018

I’m sure most, if not all, of you are aware that the December 18, 2017 deadline for compliance with the federal electronic logging device mandate is now reality. However, I want to remind my readers that the 10-hour out-of-service order associated with non-compliance with the mandate will begin April 1, 2018

“Beginning April 1, 2018, inspectors will start placing commercial motor vehicle drivers out of service if their vehicle is not equipped with the required device,” the Commercial Vehicle Safety Alliance (CVSA) said in a statement. The April 1 “effective date” for applying electronic logging device (ELD) out-of-service criteria will give truckers and shippers time to adjust to the rule with “minimal disruption to the delivery of goods. In short, truckers may receive a citation (and associated fine) if they do not have ELDs installed and operating Dec. 18, but they will not be ordered off the road and out-of-service. Information on companies and drivers that receive citations could be used by regulators to identify and investigate carriers suspected of not complying with the mandate. Starting April 1, however, truck drivers that do not have ELDs will not drive away from a roadside inspection. They will be placed out-of-service by the state regulatory officials, roadside inspectors, and police officers represented by the CVSA, using its North American Out of Service Criteria. Someone else will have to pick up the freight being hauled by that out-of-service driver. “CVSA member jurisdictions have used this phased-in approach in the past when implementing a significant change in regulatory requirements”. The CVSA board and FMCSA agreed the two-phase enforcement strategy would be the best approach and would “promote a smoother transition to the new ELD requirement.” However, truckers, fleet operators, brokers, and shippers should not delay compliance plans. Those that do not take advantage of the “wiggle room” the phased-in approach affords may find themselves in a tight spot April 1.

The Federal Motor Carrier Safety Administration confirmed CVSA’s enforcement plans. FMCSA also confirmed that the delay in out-of-service enforcement does not affect the the date by which truckers must adopt an automatic onboard recording device (AOBRD – a form of electronic logging system with more limited functionality than an ELD) if they want to extend their ELD compliance to December 2019. “After Dec. 18, 2017, if you don’t have an AOBRD or ELD the violation will be cited, and a driver could be fined, but they won’t be put out of service. Companies that continually violate the rule could be subject to federal investigation as well,” says FMCSA spokesperson Duane DeBruyne.

Violations related to ELDs will, in a way, be considered hours of service violations, such as not having a logbook, having false logs and not maintaining previous seven days of duty status. For instance, a driver or carrier not using a logging device that fits with federal requirements will be “considered to have no record of duty status,” according to updated out-of-service criteria issued by CVSA earlier this year.

Contact today for all of your Transportation Law related questions or concerns.

The Latest News from the IC Misclassification Front.

by gspencermynko

I want my readers to know I was hesitant to write another article about independent contractor misclassification in the trucking and transportation world. This is a topic I have written about extensively. On one hand, I don’t want to beat a dead horse. There is a well-established and large body of law analyzing whether truck drivers are independent contractors.

On the other hand, new cases with new facts continue to result in new court and administrative opinions. In other words, the body of law regarding independent contractor misclassification in trucking continues to evolve. And because new decisions and new opinions from our administrative and appellate courts continue to be handed down, I feel it’s my obligation as a transportation lawyer to stay on top of the latest legal developments and share this information with my readers. So let’s take a look at these recent developments.


Truck and moving drivers for Atlas Van Lines, Inc. have sought preliminary approval of a $1.48 million settlement in California case alleging Independent Contractor misclassification. This case was originally filed on October 25, 2016 in the Superior Court of California, County of Los Angeles; it was later removed to federal court. I find it interesting that the trucking company, Atlas Van Lines, was successful in getting the case moved from a very “plaintiff friendly” venue (Los Angeles Superior Court) to a Federal Court more favorable to the defendant trucking company. This is particularly interesting since most of the questions and issues surrounding the case deal with State, not Federal, law. The complaint alleged that in misclassifying the drivers, Atlas Van Lines violated California law by failing to provide meal and rest breaks, failing to pay minimum and overtime wages, failing to pay all wages due at separation, failing to reimburse business expenses, violating California’s Unfair Competition Act, and failing to furnish timely and accurate wage statements. The settlement agreement provides that each of the approximately 494 class members will receive about $2,000; up to 30% ($440,000) will be allocated to attorneys’ fees; $25,000 for claims under the California’s Private Attorneys General Act; $11,000 towards settlement administration; and $15,000 for the class representative’s service award. Leitzbach v. Atlas Van Lines, Inc., No. 16-cv-08790 (C.D. Cal. Nov. 27, 2017)

Two Important Take Home Lessons:

Obviously Atlas realized that fighting a class action like this could expose them to huge damages and therefore opted to pursue settlement. However, this case provides us with two very important lessons. The First Lesson is that, if a plaintiff truck driver is successful in establishing that a defendant trucking company is guilty of misclassifying drivers, a domino effect occurs and the trucking company can be held liable for all sorts of labor code violations. If a plaintiff can prove that a defendant misclassified him or her as an independent contractor, the defendant employer can be liable for huge damages, including massive attorney fees awards, because once misclassification is established, then the employer will be found guilty of violating numerous labor code statutes. The worker friendly California Labor Code provides for huge damage awards and generous attorney’s fees. Independent contractor misclassification is the linchpin which makes these cases highly valuable and aggressively pursued by plaintiffs’ attorneys.
The Second Lesson regarding this case is apparently Atlas Van Lines did not have a valid class-action waiver incorporated into an arbitration agreement in their contracts with the drivers. Whether an agreement that requires an employer and an employee to resolve employment related disputes through individual arbitration, and waive class and collective proceedings, is enforceable continues to be hotly contested. There is little doubt that California state courts and the ninth circuit courts will remain hostile toward the enforcement of class action waivers not contained in an arbitration provision. However, because the FAA is a federal law which favors strict enforcement of arbitration agreements across the nation, every court in the United States is bound by well-settled law as decided by the U.S. Supreme Court. Therefore, arbitration agreements containing bilateral class action waivers are critical for trucking companies who wish to guard against the proliferation of such lawsuits.


A National Labor Relations Board judge on Friday ruled that delivery drivers for Menards are not employees of the home improvement retailer, tossing claims the company violated federal labor law by classifying the drivers as independent contractors and maintaining mandatory arbitration policies. The NLRB has found that drivers/haulers who make deliveries to customers of home improvement retailer, Menards Inc., are independent contractors and not employees.

The complaint alleged that Menards violated Section 8(a)(1) of the National Labor Relations Act by misclassifying the drivers as independent contractors The basis of the alleged violation was that Menards’ delivery drivers were misclassified as ICs rather than employees and that the hauling contracts contained mandatory arbitration clauses limiting the putative employees from filing class actions and/or claims for unfair labor practices with the NLRB. In determining whether the drivers were independent contractors or employees, the NLRB evaluated a list of common law factors and also considered whether the driver had actual entrepreneurial opportunity for gain or loss, e.g. whether the drivers can work for other clients, can hire their own employees, and have a proprietary interest in the work.

In finding that the drivers were Independent Contractors, the NLRB concluded that the drivers had more control, on balance, than did Menards over the details of the work (particularly where the drivers are free to work for other clients, determine what equipment to use, hire and train their own staff, select and purchase their own trucks, decide upon the routes they will use to make deliveries, and choose how to perform the hauling services), the drivers were engaged in the distinct business of providing hauling and delivery services while Menards is in the business of retail sales of home improvement merchandise; the drivers supplied the instrumentalities needed to do the work; the contracts entered between Menards and the drivers were for relatively short periods of time; the drivers were paid “by the job;” the parties believed they were creating an independent contractor relationship; and there was significant entrepreneurial opportunity for gain or loss. Only one factor, the level of skill required to provide the services, weighed in favor of employee status. The NLRB also found that Menards did not violate Section 8(a)(1) by maintaining a mandatory arbitration clause in its delivery service agreements with the drivers because as independent contractors, the drivers do not fall within the protections of the Act. Menards Inc., No. 18-CA-181821 (NLRB Nov. 17, 2017).

A Victory For The IC Business Model

The ruling in this decision is a win for the IC model which has been continuously under fire by unions, and state and federal agencies attempting to undermine the long-established business model. The decision took into account several facts/factors common to motor carriers operating with ICs. The analysis by the Administrative Law Judge provides a road-map for others to compare against their IC agreements and more importantly, their operational actions.

I specifically mention this case because many port cases are winding up in front of Administrative Law Judges at the NLRB and arbitration clauses were at issue

Pacer Cartage loses its appeal to overturn $2M Labor Commissioner Award

In a recent article, I wrote about how Pacer Cartage was hit with a $2,000,000 award by a California Labor Commisioner. Plaintiffs filed claims with the California Labor Commissioner, alleging Pacer misclassified them as independent contractors. They requested reimbursement for their business expenses under Labor Code section 2802. As most of you probably know, Pacer Cartage, Inc. is an intermodal logistics provider, facilitating the movement of goods using various modes of transportation.

After the Labor Commissioner found in favor of Plaintiffs and awarded them more than $2,000,000, Pacer appealed to the superior court. The superior court held a trial and entered judgment in favor of Plaintiffs, finding they were independent contractors and were entitled to reimbursement. Pacer appealed to the California Court of Appeal and lost – the Court of Appeal upheld the trial court’s verdict. Miranda v. Pacer Cartage, Inc., 2017 Cal. App. Unpub. LEXIS 5966.

This case is instructive because Pacer hired terrific lawyers who thought up clever arguments as to why the drivers were independent contractors, and yet they lost big time.

Is You Is or Is You Ain’t Misclassifying Drivers?

Excuse me for stealing a line from one of my favorite movies, “O Brother, Where Art Thou”, but the above three cases make it clear that trucking companies need to sit down with competent and experienced transportation attorneys to determine if they are misclassifying drivers as independent contractors. The stakes are too high to do business on a hope and a prayer that you will never get in trouble.

Contact today for all of your Transportation Law related questions or concerns


Transportation Law and Default Judgments

by gspencermynko

I am writing about Default Judgments because I have represented clients seeking to have a Default Judgment entered and, on the other side, seeking to have a Default Judgment set aside (or as we say in the law, “vacated”). Simply put, a default judgment is a judgment against a defendant who fails to answer a lawsuit. If a entity is sued and ignores the lawsuit entirely, the entity suing has the ability to get a judgment upon meeting certain criteria. Default judgments can be obtained in both Federal and California state courts provided certain criteria are met.

The default judgment allows parties to obtain judgments for significant damages without a trial. Because of this, the requirements necessary for obtaining default are substantial. Judges insist on strict adherence to each requirement and routinely reject default requests on technical grounds. The strict requirements are designed to provide defendants due process. On one hand, California or Federal law provides plaintiffs a mechanism to seek damages where the defendant ignores a lawsuit. On the other hand, California and Federal law ensure that basic procedures for fairness are in place. Of course, if you ever are sued, don’t ignore it! 

Basic Requirements for Obtaining a Default Judgment

Defendant must be served with the summons and complaint. In most cases, defendants (including a company or business) must be personally served. However, where a defendant cannot be physically served, service may be accomplished by publication (by obtaining court approval to publish service in a newspaper).
The time for a defendant to answer the complaint (thirty days in most cases) has passed and the defendant has not filed an answer or other responsive pleading to the complaint with the court.
Defendant must be served with a Statement of Damages stating the amount of damages sought. This serves as a final reminder of how much the defendant will be on the hook for if a default judgment is entered against it. The Statement of Damages must be served in the same manner as the summons and complaint.

Once the prerequisites are satisfied, a plaintiff may pursue a default judgment immediately. However, default judgments are time-consuming and complicated and require significant amount of attorney time. Indeed, pursuing a default judgment to its conclusion is expensive and can usually approach or exceed $10,000 in attorney’s fees alone. Furthermore, it is common for defendants to move to set aside default judgments, which efforts are often successful, and which puts the plaintiff back at square one.

Federal Law and Default Judgments

A default judgment is a mechanism within the Federal Rules of Civil Procedure that allows a claimant to win a judgment when the other side does not show up.
(Fed. Rule Civ. Proc. 55.) As long as the claimant in a case can meet certain requirements after filing a lawsuit, the court is required to issue a default judgment and the claimant will win the case. Because it is a claim based on federal law filed in the federal court system, these rules about default judgment also apply to Carmack Amendment claims

The Carmack Amendment and Default Judgments

The Carmack Amendment creates a uniform system of liability for damaged or lost goods shipped from one state to or through another (it applies to goods shipped in interstate commerce). It is a nationwide policy that was created to eliminate the need for trucking companies to be aware of and plan for different state liability laws: Carmack preempts preempts any state laws regarding cargo liability. The policy itself is harsh to carriers who do the actual work of shipping goods because it makes them a de facto insurer of cargo.

Under the Carmack Amendment, a carrier is one hundred percent liable for loss and damage of shipped goods. Once a shipper shows that they delivered the goods in good condition, the burden is then on the carrier to explain why the goods were damaged, and there are only a few exceptions to making the carrier responsible for lost, damaged, or stolen goods.

Because of this policy, most Carmack Amendment cases are fairly straightforward, and come down to fighting over what the number should be regarding damages. However, sometimes the carrier does not even show up to contest the allegations and their default is sought.

In Travelers Property Casualty v. ASF Intermodal, LLC, the case involved the loss of over $90,000 worth of aluminum can tops. According to the complaint, one of the carrier’s trucks backed into the trailer carrying the aluminum, and caused the can tops to be environmentally contaminated. Minus the value of the aluminum on the secondary market, the shipment was a complete loss.

The insurer paid off the shipper, and then went after the carrier for the balance of its losses. They sued, and the carrier simply did not contest the results, so the case went to the federal judge on a motion for default judgment. Default judgment means that because the defendant does not answer the claim, the plaintiff automatically wins with no contest over the claims.

Legal Standard on Default Judgments

One important aspect to any Carmack Amendment case is showing up to defend a case. If a company is properly served with a Carmack Amendment claim and fails to show up and defend it, that company runs the risk of losing the case on a default judgment. Courts do not like to grant default judgments, and they are disfavored under the law. Both Federal and California courts have a strict policy that cases be tried on their merits and not decided on technicalities. Before a judge can rule on a default judgment, they have to make several findings, and establish the following standards:
Conduct an accounting of the case;
Establish what the damages are;
Ensure that all allegations are supported by evidence;
Investigate other matters that would affect dispensing justice in the case.
Moroccanoil, Inc. v. JMG Freight Group, LLC, No. 14-5608 (D.N.J. 2015) is another recent Federal Carmack claim that involved default. Before the court could enter a default judgment on the Carmack Amendment claim, it had to establish four things:
that the court has jurisdiction over both the claimant and the defendant;
that the defendant was properly served under the rules;
that the complaint sufficiently establishes a cause of action; and
that the plaintiff has adequately pleaded damages.
These are the four basic requirements that a court must run through before granting a default judgment.

While these standards are high, it is not difficult for a plaintiff (the suing party) to establish them when the defendant doesn’t show up and challenge what happened in the case. That’s why defaults are unusual and why courts regularly grant motions to have them set aside. Most cases involving the Carmack Amendment have two different business fighting over how much is owed, so both businesses have a vested interest in the outcome. It is understandable why the law disfavors default judgments, because of the burden it puts on judges, and basic lack of a hearing from the party who will face paying the judgment

A Default Judgment is Better Than No Judgment

There are other aspects to a default judgment under federal or state rules, but these are the basics. Of course having a default judgment is not usually as good as a typical judgment. Unfortunately, if a company or individual does not have the means or interest in defending an action in state or federal court, that means they may not have the means to pay for a judgment. But that should not deter anyone from seeking out a default judgment because there are creative ways to collect on a judgment.

What Can Happen When Misclassified Or Uninsured Drivers Get Hurt or Killed

by gspencermynko

I am revisiting this issue because of a number of recent consultations and phone calls I have received from trucking companies illegally operating without Worker’s Compensation insurance. Therefore, let’s discuss w hat are the consequences of a misclassified or uninsured Truck Driver getting hurt or killed on the job?

A recent conversation:

I recently received a phone call that bears repeating:

Caller: “Do you deal with Worker’s Compensation”

Me: “I know a fair amount about Worker’s Compensation, can you be more specific?”

Caller: “I have a Worker’s Compensation problem, can you help me?”

Me: “Well, what is the problem?”

Caller: “I had a driver who was a 1099 Contractor, and his family is asking for my workers compensation information.”

Me: “Was the driver hurt?”

Caller: “He was killed.”

Me: “He was killed? Was he driving your truck?”

Caller: “Yes.”

Me: “OK, so was the truck registered to your company and was he driving under your authority?

Caller: “Yes,Yes, but he wanted to be treated as an independent contractor.”

At this point in time I was thinking “You’re probably screwed”. That is a crass way of putting things, but if a misclassified or uninsured Driver gets hurt or killed while driving for your company, the consequences for the company, and the owners of the company, are devastating. And this is true whether you are dealing with a misclassified driver or a properly classified employee driver, either of which are not covered by workers’ compensation insurance. Because many companies continue to illegally operate operate without Workers’ Compensation insurance, I am revisiting the disastrous consequences that can occur when a Misclassified Independent Contractor or Uninsured 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:

Possibility of business closure
Large fines imposed by the California Labor Commissioner ($2,000-$10,000 per Employee)
Presumption of negligence
Exposure to civil suits by injured workers
Criminal conviction and personal fines
Imposition of a 10% surcharge in addition to the disability claim, plus attorney’s fees for the worker
Personal Liability of the Owners of the Company for injuries or death of a driver.

The California Labor Code has a specific provision which allows for holding the owners of a company personally liable for the death or injuries of an injured worker if they were operating without proper Worker’s Compensation insurance in place.

California Workers’ Compensation: Death Benefits

The amount of death benefits due is determined by the number of dependents eligible to collect payment. For injuries occurring on or after January 1, 2006, the following amounts are paid out: $250,000 for one total dependent, $290,000 for two total dependents, and $320,000 for three or more total dependents. Certain members of a worker’s family are automatically considered to be total dependents under the law. They include: children under the age of 18; children of any age who are physically or mentally incapacitated and unable to earn a living; and a spouse who earned $30,000 or less in the 12 months before the worker’s death.The uninsured company would also be responsible for burial expenses up to $10,000.

However, this is only the beginning for the Uninsured Employer: The family would be able to bring a Wrongful Death civil lawsuit in Superior Court against the company and its owners.

Other penalties and fines the Trucking Company can get hit with:

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 (Cal. 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 a misdemeanor.

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.

No Relief in Bankruptcy Court: This type of liability is non-dischargeable in bankruptcy.

The owners (including directors, officers, and shareholders) of a company where a misclassified Driver was killed will probably not be able to avoid a worker’s Compensation death award or wrongful death judgment in bankruptcy court. And for that matter, many of the other consequences of operating without workers’ compensation insurance are likely non-dischargeable in bankruptcy as well. Take heed : The liability for the death or injuries of a misclassified or uninsured driver could follow the owners of the company to their grave.

Fight Back Against Freight Charge Setoffs

by gspencermynko

Can Brokers Legally Offset Freight Loss and Damage Claims?

Freight charge setoffs are at the very least frustrating, and for some carriers, devastating to business. For small carriers who operate on small, thin margins, freight charge set offs can put a company out of business. In this article, I want to explore how carriers can protect themselves against freight charge setoffs and their onerous consequences..

The Bad News

Carriers need to know what they are up against when dealing with brokers and their customers who insist on contractual provisions that allow them to set off cargo damage claims against freight charges. Brokers, and by extension shippers, may without fear of violating federal or state laws, refuse to pay carrier freight charges and offset unpaid cargo claims. The basis for a broker to legally be able to set off a freight charge for lost or damaged cargo arises from Draconian “set-off” provisions in broker-carrier contracts which dump all the liability at the feet of the carrier.

All too often, I have received telephone calls from upset carriers who are being denied tens of thousands, or even hundreds of thousands, of dollars worth of freight charges due to a single cargo claim. Of course, the cargo claim itself is unrelated to all of the other freight charges due the carrier, but the brokers rely on provisions in their contract to enable them to withhold carriers’ cargo payments. This particular situation can be extremely bad if a carrier has been working extensively, or even worse, exclusively, with a particular broker and is expecting payment on numerous pending freight bills.

What is particularly upsetting in this entire scheme is that often the broker will pay the shipper’s claim without contesting that issue, and then, armed with broad contractual rights to set off a cargo claim, force the Carrier bear the brunt of the loss. I have a problem with brokers who honor their customers cargo claims without question or adjustment and then attempt to collateralize the claim by deducting from the freight charges due the carrier from other customers shipments. It’s as if the brokers callously have this attitude where they don’t care if they are on the hook for a cargo claim because they can simply pass on the costs to the carrier.

Allowing a broker (or shipper for that matter) to hold freight charges hostage for settlement of a cargo claim can be devastating for carriers. Most small carriers lack the leverage to absorb the costs of an offset cargo claim. Few carriers can deal with the disruption to their cash flow. Indeed, an offset can put a small carrier out of business. First of all, many small carriers are forced to factor to survive. However, most factoring agreements require motor carriers to warrant that each freight invoice is due, owing and not subject to set off, defense or adjustment. The set off of a large cargo claim can put the carrier in default with the factoring company and result in the seizure of all its accounts receivable and other collateral.

Secondly, most broker-carrier contracts have oppressive venue selection and forum selection clauses, along with unfavorable choice of law clauses, that force a carrier to litigate the case against a broker in the broker’s hometown. As I have written before, forum selection, venue selection and choice of law clauses tend to be enforceable and are upheld by the courts. Furthermore, to add insult to injury, most broker-carrier contracts include arbitration clauses which, for all practical purposes, deny the small carrier any hope of justice. As I have written about before, arbitration is very expensive, and most small carriers simply have no hope hiring a lawyer in a far away jurisdiction (for thousands upon thousands of dollars) and paying the upfront arbitration costs (for more thousands of dollars). As such, the carrier is forced to “eat it” and the broker gets off scott free and without any consequences.

In all fairness, I know all brokers do not treat the carriers they work with this way. However, all of contracts of the big, well known brokers that I have seen have these provisions in their broker-carrier contracts. And big shot brokers are more than happy to utilize those provisions of their contracts with no concern for the carrier.

The Law (More Bad News)

In preparation for this article, I did legal research to see what the status of the law is and how the courts have been dealing with offset clauses. What I determined is not good news for carriers. Typically, the courts have up held offset provisions in broker-carrier or shipper-carrier contracts.

In REI Transp., Inc. v. C.H. Robinson Worldwide, Inc., 519 F.3d 693 (7th Circuit US Court of Appeals), acting on a shipper’s behalf, the broker hired the carrier to transport a shipment. Some of the cargo was missing when the shipment arrived at the depot. The broker reimbursed the shipper for the lost cargo. The carrier sued the broker after the broker deducted the value of the lost cargo from the carrier’s payment. The broker countersued and asserted that it was entitled to recover the amount required to fully reimburse it for the value of the lost cargo. According to the broker-carrier contract that the carrier signed, the broker retained the right to withhold compensation to satisfy claims or shortages arising out of contract, which included claims arising under the Carmack Amendment for the lost goods. The court held the broker did not breach the contract by legitimately deducting the cost of the lost cargo from the carrier’s payment.

Another case I came across involves two titans of the industry doing battle with each other: NATIONAL BANKERS TRUST CORPORATION (A Factoring Company) vs. TOTAL QUALITY LOGISTICS, LLC (A Freight Broker) (Federal District Court for W.D. Tenn.) While the facts of this particular case are somewhat complicated, essentially what happened was that the broker fronted the carrier various costs, which costs were deducted from what the broker paid the factoring company. Again, the broker relied on their broker-carrier agreement which included an offset clause, which allowed the broker to offset costs against the freight bill. The factoring company didn’t take too kindly to this and sued the broker. The court held that the broker was entitled to offset their costs against freight charges pursuant to the offset provision in the contract. The court held, “as a matter of law, …Total is authorized under the Broker-Carrier Agreement and § 9-404 (of the Uniform Commercial Code) to deduct from pending invoices valid claims on prior shipments”. And these are merely two examples of numerous cases I came across which upheld offset clauses in broker carrier contracts.

So What Can Carriers Do To Prevent Offsets?

It is easy for me to say that carriers must insist that freight charges are paid in full and without unilateral offset. I realize that Big Time Brokers have a “take it or leave it” attitude about their contracts. While I suppose a carrier could cross out language granting set off and”indemnity” or “hold harmless” clauses from broker prepared contracts, a broker may reject the contract. However if the deleted language goes unnoticed by the broker, a court may reject a broker’s claimed right to offset freight charges.

On the other hand, carriers can be proactive in providing that freight charges be timely paid and freight claims be handled in accordance with federal rules and without set off. Carriers should insist on their own language in contracts or through incorporation of their rules circular by reference. Furthermore, if your freight charges are held hostage, be sure to include a provision for interest and attorneys’ fees so you can recoup your litigation costs if necessary.

California Carriers may exercise a possessory lien on goods in transit to enforce payment for freight charges. The carrier may also be in a position to exercise a lien in order to ensure payment of past-due freight charges, provided the notice and other requirements of California Civil Code section 3051.5 are observed. But this is tricky – be sure to consult with a Transportation Attorney if you want to assert a Carrier’s Lien on cargo in your possession pursuant to section 3051.5. This strategy can backfire against a carrier if they don’t know what they are doing.

Don’t haul freight valued in excess of your cargo liability policy. A number of cases I have looked at have dealt with cargo claims that exceeded the carrier’s cargo policy limits. Know what you are hauling, and demand an agreement with the broker that you will not be liable for a cargo claim that is beyond the limits of your cargo policy.

Finally, as a matter of common sense, don’t put all your eggs in one basket. Carriers shouldn’t put themselves in the position of being owed a substantial amount of money from a single freight broker. I encourage carriers to do business with different brokers who are reputable, trustworthy, and hopefully, willing to exclude offset provisions from their contracts. That way, an offset won’t be so painful and the broker won’t have major leverage over the life or death of your company.

Contact today if you wish to discuss setoffs for freight bills and how to protect yourself against these contentious situations!