Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

(More) Bad News For California Trucking Companies Using ICs.

by gspencermynko

When you think things can’t get any worse in California for trucking companies who use ICs, they do.

I hate to be the bearer of bad news, but this is serious business that can easily ruin trucking companies and their owners. California trucking companies need to be acutely aware of these two major setbacks.

Federal Appeals Court Rules Dynamex ABC Test Applies Retroactively

The Federal Ninth Circuit Appeals Court ruled in Vazquez v. Jan-Pro Franchising International, Inc. that the California Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court applies retroactively. In Dynamex, the Supreme Court adopted a new standard for determining whether a California worker is an employee or independent contractor under the California Industrial Welfare Commission’s (“IWC”) wage orders. The Ninth Circuit’s ruling in Vazquez should be of particular concern to trucking companies, who now face potential liability for their past decisions to classify owner-operators as independent contractors rather than employees under a standard that did not exist at the time. Prior to Dynamex, the “Borello” or “Common-Law” test applied.

In Vazquez, a case that had been pending for almost 10 years prior to the Dynamex decision, the employer, a janitorial cleaning business, prevailed in their motion to dismiss minimum wage and overtime claims stemming from allegations that janitors had been misclassified as independent contractors. The employees appealed. The Dynamex decision was issued while the case was on appeal.

The employer argued that Dynamex did not apply retroactively. But of course, The Ninth Circuit disagreed. The Ninth Circuit ordered the lower court to apply Dynamex’s “ABC” test retroactively.

The California Labor Board (known formally as the Dept. of Labor Standards Enforcement, or DLSE) dramatically expands the scope of the Dynamex ABC Test.

The DLSE – my favorite kangaroo court – handed down a written “Opinion Letter” that essentially requires their deputy commissioners (the non-lawyer, non-judge individuals who decide your fate) to give the death penalty to any and all trucking companies who utilize independent contractors. This is no exaggeration: If you are a trucking company and you hire independent contractors (who are truly and genuinely independent in the sane world – i.e.: anywhere besides California and Massachusetts), you are going to get your ass handed to you at the California Labor Board to the point where it is highly unlikely you will survive unless you switch to an Asset-Based, Employee-Model Trucking Company. Let’s say you own no trucks and you rely on Bonafide Owner-Operators who bring their own equipment to the table: Well, those Owner-Operators are – that’s right – YOUR EMPLOYEES! Congratulations! You are now liable for Payroll, Withholdings, Unemployment Insurance, Disability Insurance, and Workers’ Compensation Insurance. And because you weren’t doing any of those things, you are now on the hook for every conceivable Labor Code violation for not treating these Independent Contractors as employees, including BIG penalties and BIG (10%) interest going back to the “start” date of the violations.

The day after the Ninth Circuit Court of Appeals ruled that Dynamex applies retroactively, the DLSE released an opinion letter concluding that Dynamex’s ABC test applies to both IWC Wage Order claims and the Labor Code provisions that enforce Wage Order requirements. The California Supreme Court ruled that Dynamex applies only to claims brought under the IWC Wage Orders: But not according to the DLSE, whose recent opinion letter seems to expand what that means.

The DLSE’s opinion letter reflects the way that agency (and their lackey commissioners) will be interpreting Dynamex moving forward. This will impact trucking companies who face DLSE wage claims where owner-operators contend they were improperly classified as independent contractors.

Here’s the background:

In its opinion letter, the DLSE stated that, because wage order provisions are not independently actionable, “the obligations imposed by the wage orders do not appear only in the wage orders themselves. Wage order obligations are also imposed by certain Labor Code provisions, which serve to enforce the wage orders.” Therefore, the DLSE concluded that Labor Code provisions that implicate or “derive” from employer obligations under the IWC Wage Orders are also subject to Dynamex’s ABC test. The opinion letter specifically mentions the following Labor Code provisions:

minimum wage (Labor Code sections 1182.12 and 1197);
overtime (Labor Code sections 510 and 1194);
liquidated damages (Labor Code section 1194);
meal and rest periods (Labor Code sections 226.7 and 512);
itemized wage statements (Labor Code section 226); and
expense reimbursement claims (Labor Code section 2802).

With respect to waiting time penalties under Labor Code section 203, the DLSE said applying the ABC test to those claims would be appropriate “[w]here section 203 serves to enforce the underlying minimum wage and overtime obligations of the wage orders.”

Please note, the IWC Wage orders do not address liquidated damages, waiting time penalties, wage statements, among other matters: But the DLSE is basically saying “So What”. So again, if your a trucking company and you are being dragged to a Labor Board Hearing, prepare to die.

The California Labor Board – Your Guilty Until Proven Innocent

This statement could easily be dismissed as the ramblings of a bitter and cynical lawyer, if they unfortunately weren’t true. Here’s how it works: A driver decides he or she wants to screw you. They file a Labor Board complaint making all sorts of allegations, usually without proof. (Proof is optional at the Labor Board). You deny the allegations and put forth evidence that the driver was properly classified and fairly paid. The result? YOU LOSE! Because if a claimant says something at a labor board hearing, it MUST BE TRUE. Some of my readers may be rolling their eyes, but if I hadn’t witnessed this myself, I too would be skeptical of such a statement.

One client’s nightmare.

I recently represented a trucking company at a labor board hearing in Sacramento. Unfortunately for my client, things did not go well. Here’s the background: my client, a trucking company, tendered loads to another trucking company, who then hired independent contractors to actually deliver the loads. While I realize my client was “double brokering”, that was not an issue at the labor board hearing and had no relevance to the proceedings.

The trucking company (I’ll refer to them as trucking company X) my client tendered the loads to had valid operating authority, and as I stated above, relied on owner operators to deliver the loads. Indeed, under the old common law or Borello test, these drivers were genuine independent contractors. They owned their own equipment and were responsible for its maintenance, insurance, and fuel, and operated as bona fide independent drivers. Some of them drove for other companies. They could accept or reject loads as they pleased. You get the picture.

What is important about this case is that my client had no direct dealings with the owner operators hired by trucking company X. My client had no involvement in determining who trucking company X hired to deliver the actual loads. Indeed, my client was completely removed from the business operations and trucking operations of trucking company X.

The result? The labor Commissioner decided that the owner operators/independent contractors who were contracted with trucking company X, were also employees of my clients! WTF?

The deputy labor Commissioner completely disregarded the law on co-employment and determined that somehow, magically, trucking company X’s owner operators were my client’s employees.

What was particularly disturbing about this, was that my client and I put forth credible evidence that my client had no control over the activities of trucking company X, and had no input on who actually delivered the loads. Furthermore, my client put forth credible evidence that they believed trucking company X was actually delivering the loads.

The Claimant came down to the labor board with no evidence whatsoever. He simply made a bunch of allegations without any proof, the deputy commissioner asked him some questions, and that was all that was required for this guy to win his case. Remember – this guy drove for trucking company X and had no direct dealings with my client!

The labor Commissioner went out of her way to give him more than what he was asking for. She tacked on interest, penalties and awarded him money for stuff he wasn’t even asking for. This was the most ridiculous and unfair experience I’ve ever had as a lawyer.

Notably, this case is now being appealed. However, in order to appeal, My client had to put up a bond for the (substantial) amount of the award in order to pursue the case in Superior Court, where hopefully justice will be served.

My advice: if you want to use independent contractors, get out of California. If you want to stay in California, buy your own fleet of trucks and only work with employee drivers. There is no in-between. The State of California is on a mission to crush you out of business if you hire Owner-Operators.

Labor Board judgments can easily reach hundreds of thousands, if not millions of dollars. Furthermore, the DLSE can hold the owners, directors and managers personally liable for a judgment you cannot discharge in bankruptcy.

Valuable Tips To Help Drivers Pass Their DOT/CDL Physical: Advice From A Certified DOT Medical Examiner

by gspencermynko

Help Your Drivers Pass Their DOT Physical Exam

In addition to being a Transportation Lawyer, I also am a practicing Medical Doctor and Certified DOT Medical Examiner. Therefore, I am happy to share this information with my readers so they can help their drivers and themselves get past the DOT/CDL physical exam (hopefully for a 2 year certificate).

Even in the best of circumstances, truck driving is a stressful job, and unfortunately, truck drivers have higher rates of medical problems such as diabetes, high blood pressure, obesity, cardiovascular disease, etc. than the average population. In this day and age where it is hard to find qualified commercial drivers, anything trucking companies can do to help drivers get through their DOT physical exam is unquestionably valuable. Therefore, I am writing this article to help drivers get through the process.

Is your personal physician a certified DOT medical examiner?

As much as I would be honored to perform your DOT physical, the reality is I probably don’t know you as a patient, and you probably don’t know me as a doctor. If your personal physician is certified to perform DOT physicals, I think it’s a good idea to have them perform the evaluation. Your personal doctor should know everything about you to help streamline the process. In the event that is not possible, let’s discuss some important points to help you get that two-year certificate.

So what are DOT examiners concerned about?

DOT physical examinations focus on blood pressure, diabetes, and cardiovascular, respiratory, neurological, and musculoskeletal systems. There is also some attention given to psychological disorders, drug abuse and alcoholism, and medication and drug use.

Let’s Keep That Blood Pressure Under Control!

Blood pressure is definitely one of the biggest reasons drivers either fail the exam outright or get a restricted permit. My suggestion is to avoid caffeine, energy drinks, over-the-counter cold medication (including pseudoephedrine which can be obtained without a prescription) for at least 24 to 48 hours before the examination. Indeed, excessive caffeine, energy drinks, and certain cold medications (think “decongestants” especially) can raise blood pressure 20 to 30 points. That means a patient with a blood pressure of 120/80 (normal) can end up with a pressure of 140-150/100-110. Now you have to worry about getting a restricted license. If your blood pressure was 140/90, these products could make it rise to 160/110 and now you are disqualified.

Here is another tip on blood pressure: avoid eating salty foods for at least 48 to 72 hours prior to your examination, and make sure you are well hydrated before the exam (drink plenty of water for a few days before your exam). This will lower sodium levels – good because sodium can elevate blood pressure. Also, potassium rich foods like bananas can help lower blood pressure.

If you are on blood pressure medication, make sure you take your medication as directed for at least seven days prior to your evaluation, and especially take it the morning of your exam. Of course, you should always take your medication as directed, but this is especially true heading into a DOT Physical Exam.

Stay calm and don’t talk while your blood pressure is being checked. If you are stressed or talking while your blood pressure is being checked, it may be falsely elevated.

Keep your body in a relaxed and neutral position while your blood pressure is being tested. Do not cross your legs and keep your back straight and relaxed against the back of the chair.

Make sure the blood pressure is not checked with the cuff over your clothes. Also, if you are a big person, you may require a large blood pressure cuff.

Finally, here’s a little trick I have learned to help reduce a blood pressure reading: Close your eyes and relax and take very slow and very deep breaths in and out while your blood pressure is being checked.

Also, having a full bladder can elevate blood pressure. Therefore, always request that your urine test to be done before your blood pressure checked. If I’m the doctor doing your physical, I will make sure my clinic staff accommodates this request. The Urine Test (usually a dipstick) checks for Protein, Sugar or Blood in the urine which may be an indication for further testing to rule out any underlying medical problems. We do not test for drugs in a DOT physical exam (however – your employer can separately require a drug test which you cannot refuse if you want to drive).

Here’s the lowdown on the DOT blood pressure rules:

Prehypertension: Prehypertension blood pressure is 120-139 systolic and/or 80-89 diastolic. Prehypertension blood pressure readings will also certify you for a two year period.

Stage 1 Hypertension: If you have hypertension blood pressure you will be medically certified for one year. Stage 1 hypertension blood pressure is blood pressure of 140-159 systolic and/or 90-99 diastolic. If you have stage 1 hypertension blood pressure you will have to test every year or until you get it into the prehypertension or normal range.

Stage 2 Hypertension: If you have stage 2 hypertension you will be given a one time medical certification of three months. Stage 2 hypertension is between 160-179 systolic and 100-109 diastolic. You will be given a three month certificate so that you have time to lower your blood to the prehypertension or normal range.

Stage 3 Hypertension: If you have stage 3 hypertension you are disqualified. Stage 3 hypertension corresponds to greater than 180 systolic and 110 or more diastolic. You will not be allowed to drive a commercial vehicle until you get your blood pressure into the prehypertension or normal range.

Do you really need that cigarette?

Tobacco use can result in a failure. And for that matter, vaping is not much, if at all, better. Nicotine is a potent cardiovascular stimulant, and is a chemical known to raise pulse and blood pressure. Also, smoking can adversely affect your lung function (duh) , possibly to the point where you may be restricted or fail because your lungs simply aren’t up to the job of getting adequate oxygen from the air into your bloodstream. Ideally, if you can can quit smoking for 30 days prior to your exam, you’ll improve your chances of passing the examination. Smoking and Nicotine is bad for your examination and bad for you. Quit!

And while your at it, avoid alcohol too

Alcohol can raise blood pressure and have a profound effect on metabolism – avoid it for as long as possible before an exam.

Keep those lungs working.

If you are asthmatic or have COPD, make sure you are taking your medications as directed so when the doctor listens to your lungs, hopefully all he or she will hear is air moving in and out of the lungs clearly. If the doctor hears wheezing, congestion, or anything that would suggest inadequate or poor lung function, you could end up with a restricted permit or failing. Furthermore, if your asthma or COPD is not well treated, your blood oxygen levels (checked by a Pulse Oximeter in our office) could be diminished to the point of failing your exam or requiring further testing.

Speaking of breathing, if you use a CPAP machine, Bring your CPAP machine to the exam and a compliance letter from your doctor. Sleep apnea is a big deal for commercial drivers, and has been blamed on numerous fatal accidents. If you have sleep apnea, make sure you can convince the doctor that your sleep apnea is under control and won’t affect your ability to drive.

Bring your prescriptions and recent lab work.

It is always a good idea to bring your medications in their original bottles to the DOT exam to show the doctor. If you are being treated for an unusual illness, a letter from your doctor stating that you are compliant with treatment can be very helpful. Bringing copies of recent lab tests is very helpful.

If you have serious health conditions, bring the name and contact information for the doctor who treats you for each condition. Medical conditions like hypertension, diabetes or sleep apnea often require additional paperwork such as sleep test results or stress test results.

Don’t overeat before your exam.

A big meal, especially one with lots of sugar or starch, can result in spilling of sugar into your urine. This is especially true if you are diabetic. If sugar is detected in your urine, you’ll probably need a blood sugar test and a Hemoglobin A1C test by your family doctor. This may result in disqualification pending treatment or a restricted permit.

So eat a light, low calorie, low salt diet for at least one week prior to your exam. I recommend that you eat and drink as healthfully as possible for one week before your exam. This also means reducing or cutting out caffeine, salt, sugar and junk food. You are what you eat – healthy living is good for you and your DOT Exam will reflect that.

Now is not the time for Non-compliance

Take all of your medications as directed, and preferably on a regular schedule. Also make sure you do not run out of prescribed medications before your physical exam. Sudden withdrawl of a medication can affect your test.

Make sure your contact lenses or glasses are up to date, and obviously bring them with you to the physical.

Now is the time to see clearly

At least 20/40 vision in both eyes is required with or without corrective lenses. At least a 70 degree field of vision in horizontal meridian measured in each eye. Also, if you wear contact lenses or glasses it will be noted by the medical examiner.

Do You Hear Me?

You will pass the hearing test if you can hear a forced whisper from 5 ft. away in your better ear with or without the use of a hearing aid/device or your average hearing loss is less than 40 dB in your better ear with or without a hearing aid

Try to relax.

Going to a clinic for a DOT physical sucks. While I go out of my way to make it as pleasant as possible for drivers, I realize it is still a hassle. Therefore, try to get a good night’s rest before your physical. Also, try to get to your appointment a little bit early so you’re not stressed about running late. I do my best to make sure scheduled DOT physicals are performed on time. That said, sometimes, despite our best efforts, we run a little behind. Try to stay relaxed while waiting: Bring a good book, practice a little meditation, or use one of the relaxation apps which are easily obtained on a smart phone. This will help pass the time if you have to wait.

Don’t Go To Your DOT Exam when you are sick.

If your allergies are acting up or if you have a cold, try to hold off on having your DOT physical until the allergies are controlled or your cold is resolved. Having a cold or bad allergies can make your vision blurry and affect other aspects of your exam. Similarly, if you are on antibiotics for an infection, try to hold off on the exam until you have completed your antibiotics and the infection is resolved.

Goldilocks would appreciate this advice:

Don’t let yourself get too cold or too hot. Cold temperatures can also negatively affect your vision and blood pressure. If the office is cold, it’s a good idea to bring in a jacket with you while you’re waiting for your exam. Again, you don’t want to be too hot or too cold, but “just right”.

Call The Clinic To set up your DOT exams (for individuals or the whole company)

If you want me to perform your DOT physical or DOT physicals for your trucking company, please contact Mary Kidwell at Meridian Urgent Care at 760-242 -7707. The good folks at Meridian can set you up with in-clinic appointments in our High Desert clinics (Hesperia, Apple Valley or Barstow) or can arrange for on-site DOT exams. I would be happy and honored to help you, your company and your drivers through the process.

Sincerely, G. Spencer Mynko, M.D., J.D.

Joint Employer Doctrine: When Your Subcontractors Employees Are Also Yours. Trucking Companies Can Be Liable for Subcontractors’ Labor Law Violations

by gspencermynko

Is Your Trucking Company a “Joint Employer”?

Many of my trucking company clients rely on independent contractor/owner operators to haul freight. We are all familiar with the typical scenario: A trucking company hires an independent contractor to haul freight under their authority. Sometimes, that independent contractor has a few trucks of its own, and hires and relies upon its own drivers to actually deliver the cargo.

The trucking company (aka Carrier) will often enter into an independent contractor operating agreement with the independent contractor (aka Contractor). The carrier has the motor carrier authority, and the contractor has the equipment which will run under the carrier’s authority. This is typical stuff we are all familiar with.
The Independent Contractor Operating Agreement will usually contain language that makes it clear that the contractor is independent of the carrier, and that the contractor is responsible for their employees and the contractor’s employees are not the carrier’s employees. There also will usually be language in the contract that requires the contractor to hold the carrier harmless in the event of a dispute with the carrier’s employees.
Unfortunately, the contractor is putting drivers into the contractor’s trucks and referring to them as independent contractors. But, as is so often the case, those drivers aren’t independent and they are in fact common law employees. Furthermore, The contractor is not paying for Worker’s Compensation, nor providing legal and accurate wage statements wage that are in compliance with numerous Federal and California Labor codes. Maybe the contractor isn’t even paying their drivers what they owe them. In other words, the Contractor is operating illegally and is a ticking time bomb of liability.
Then, of course, one of the contractor’s employees (misclassified or otherwise) gets hurt and, because there is no workers compensation insurance in place, he or she hires a lawyer and files a Worker’s Compensation claim. That same employee may also realize that the contractor is violating various Labor Code laws and goes on to file a labor board claim, or, hires a plaintiff’s lawyer to file alawsuit alleging numerous labor code violations.
In other words, The contractor is an a whole lotta trouble. What about the carrier?
The Sins of the Contractor Are Visited Upon the Carrier
Pardon the Old Testament reference where the sins of parents fall upon their children, and while it is true that modern day society does not hold children responsible for their parents’ misdeeds, modern day society is more than happy to hold General contractors responsible for the misdeeds of their subcontractors. This is especially true when it comes to labor law issues, including misclassification of employees as independent contractors, workers compensation and labor law liability. The issue is referred to as the “joint employer doctrine“. And while its origins do not come from the Old Testament, Pro-labor/pro-employee rights groups are more than happy to use this doctrine to rain hell down upon employers. Looking to our common place example above, plaintiff’s lawyers and governmental agencies will attempt to hold the Carrier responsible for the Contractor’s illegal behavior.
So what is joint employer liability? 
The general rule is that only the employee’s “employer” (the Contractor in our example) is liable for wage and hour violations. However, the definition of “employer” is an evolving area of the law. California’s legislature, federal agencies, and courts have expanded traditional definitions of the employment relationship. The expansion helps workers recover wages, penalties and damages from entities that did not hire them (the Carrier in our example above). In California, AB 1701, effective January 1, 2018, makes general contractors liable for their subcontractors’ employees’ wages and benefits if the subcontractor fails to pay.
Subcontracting and trucking may involve multiple entities responsible in some way for employment conditions. When businesses are otherwise separate legal entities, they may be considered “joint” employers. Parents and subsidiaries, and sometimes even individuals, may be deemed “single employers” or “alter egos.” A primary purpose of these doctrines is to expand liability and, often, find a capitalized pocket that can finance an adverse judgment or a settlement.
Hence, if your irresponsible Contractor is broke, the courts and employee’s lawyers will attempt to hold the Carrier responsible for the Contractor’s wrongdoing.
The California Supreme Court set out the factors that can create a joint employer relationship in Martinez v. Combs.  Under this test, to “employ” means (1) “to exercise control over… wages, hours or working conditions,” (2) “to suffer or permit to work,” or (3) “to engage, thereby creating a common law employment relationship.”  The court in Ochoa v. McDonald’s Corp. explained that “[a]ny of the three is sufficient to create an employment relationship.”  In addition to the factors that California courts apply, employers must understand the federal framework that could also apply to employees by the Department of Labor in enforcing the FLSA and other federal laws.
Under California law, an entity can be held liable under the joint employer theory if it “directly or indirectly, or through an agent or any other person, employs or exercises control” over their wages, hours, or working conditions.  While this standard is potentially broad in scope, courts have limited its reach in holding that entities that may be able to influence treatment of employees but that do not have any actual “authority to directly control their wages, hours or conditions” are not joint employers.  Ochoa v. McDonald’s Corp.  The court in Ochoa explained that the California Court of Appeal in Futrell v. Payday California, Inc. held that “control over wages means that a person or entity has the power or authority to negotiate and set an employee’s rate of pay, and that an entity that does not control the hiring, firing, and day-to-day supervision of workers is not an employer.
Federal Standards
The Feds utilize a more lenient test for Joint Employer liability. The NLRB, with court approval, has made clear that “the essential element” in a joint-employer analysis “is whether a putative joint employer’s control over employment matters is direct and immediate.” Airborne Express, 338 NLRB 597, 597 (2002) (finding that Board erred by failing to adhere to the Board’s “direct and immediate control” standard); SEIU Local 32BJ v. NLRB, 647 F.3d 435, 442-443 (2d Cir. 2011) (“An essential element of any joint employer determination is sufficient evidence of immediate control over the employees.”) (quoting Clinton’s Ditch Co-op Co. v. NLRB, 778 F.2d 132, 138 (2d Cir. 1985)); Summit Express, Inc., 350 NLRB 592, 592 fn. 3 (2007) (finding that the General Counsel failed to prove direct and immediate control and therefore dismissing joint-employer allegation); Laerco Transportation, 269 NLRB 324 (1984) (dismissing joint-employer allegation where user employer’s supervision of supplied employees was limited and routine). Hence, the Carrier would need to vigorously argue they do not exercise Direct and Immediate control over the Contractor’s employment activities.

I would also argue Federal Preemption: The National Labor Relations Board (NLRB), sets the standard for determining joint-employer status under the National Labor Relations Act (NLRA). As a reminder, the NLRA covers all employers involved in interstate commerce (subject to certain jurisdictional limits), except airlines, railroads, agricultural operations and government entities, which are governed by other federal or state laws (i.e., the Railway Labor Act, the California Agricultural Labor Relations Act, etc.).

If the Contractor is Misclassifying, does that mean the Carrier is too?
In a recent case where the plaintiff (employee) tried to hold the “General” liable for the “Sub’s” misclassification, the Fourth Circuit Court of Appeal rejected a Plaintiff’s argument that the Dynamex “ABC” test could be applied to show that a worker was an employee in an alleged joint-employment scenario. The plaintiff claimed that she was misclassified as an exempt employee and was thus denied payments for overtime and missed meal and rest breaks. In addition to suing her employer, the plaintiff also sued the general contractor, alleging that the General was a joint employer. The plaintiff argued that the “ABC” test should be applied to show an employee-employer relationship in the joint-employer dispute.
The court rejected the plaintiff’s argument and limited the application of the “ABC” test to situations involving the misclassification of independent contractors. Leaning heavily on the policy reasons cited by the California Supreme Court in Dynamex, the court concluded that “placing the burden on the alleged employer to prove that the worker is not an employee is meant to serve policy goals that are not relevant in the joint employment context.” The court went on to analyze the employment relationship using the more familiar eight-factor common law test, allowing for more flexibility. This narrow application of the Dynamex decision is good news for employers.
Joint-Employer Law Remains Murky and Complicated
If you are concerned about being liable for what your Independent Contractors are doing in their own businesses, you should sit down with an experienced Transportation Attorney to determine your risk of exposure.

Knight-Swift Agrees to $100 Million Settlement in Misclassification Lawsuit

by gspencermynko

Swift Pays a Heavy Price for its Lease-Purchase Program

A $100 million IC misclassification settlement was reached between Swift Transportation Co. and approximately 20,000 owner-operator drivers who entered into independent contractor agreements with Swift. Van Dusen v. Swift Transportation Co., Inc., No. CV 10-899 (D. Ariz. Mar. 11, 2019)

Knight-Swift Transportation has reached a settlement agreement in a decade-long class action lawsuit involving roughly 20,000 drivers who alleged that the company improperly classified them as independent contractors. 

Knight-Swift Transportation Holdings agreed to a settle a class action lawsuit involving roughly 20,000 drivers over claims that the drivers were improperly classified as independent drivers instead of employees. Knight-Swift said the $100 million settlement amount was fully reserved on the company’s balance sheet as of Dec. 31, 2018, and is not expected to have a material impact on its future results (it must be nice to have an extra $100 million sitting around for a rainy day). As is the case with any Class Action lawsuit, the settlement is subject to approval by the court.
The lawsuit was initiated December 2009, originating with Swift Transportation prior to the Knight Swift merger. The lawsuit claims that Swift misclassified truck drivers who leased trucks through the company as independent contractors, when in reality they acted like employees. Swift allegedly made unlawful deductions from the drivers’ pay for truck lease payments, gas, equipment, maintenance, insurance, tolls and other expenses. The Swift lawsuit commenced in the federal district court for Arizona.  The class action complaint alleged that the drivers were really employees of Swift and were misclassified as ICs. The plaintiffs complained they were paid less than federal minimum wage, when taking into account their lease payments and costs of maintaining their trucks and paying for fuel, tolls, and insurance (all of which were illegally deducted from the drivers’ paychecks). The lawsuit against Swift alleged violations of the Fair Labor Standards Act, state wage and contract laws.While this case was based partially on Federal law, similar to California law, once the plaintiffs win the misclassification argument, then a slew of labor law violations fall into place and the trucking company’s liability expands astronomically.
The Lawyers for the drivers argued that Swift was acting in violation of federal minimum wage laws because the drivers are in reality employees, and not independent. They alleged that the drivers were not independent because Swift was able to terminate the lease for any reason and demand that all lease payments be made despite termination of the “lease”. The 10 year old case has been through quite a journey: Appeals to the 9th Circuit Court of Appeals as well as a petition to the Supreme Court. However the delay tactics employed by Swift proved to be ineffective, and they obviously realized they were on the losing side of this case.

Deja Vu for California Trucking Companies Who Put Their Confidence in Lease Purchase Agreements.

The independent contractor model has been a minefield for fleets operating at the ports in California. For several years, class action lawsuits similar to the Knight-Swift case have been brought by drivers all alleging the same thing, that being classified as an independent driver in port operations has been used to avoid providing drivers with full employee benefits. Of course, the common thread running through these cases is the use of Lease-Purchase agreements and the companies providing the drivers with the “instrumentalities of the trade”.
And the California Labor Board (known formally as the Dept. of Industrial Relations) has generally agreed with the plaintiffs. While independent drivers are commonplace in the trucking industry, California has consistently ruled against trucking companies classifying drivers as independent contractors as a tactic to avoid paying drivers proper wages and benefits that an employee is owed. It has resulted in millions of dollars in settlements and judgments from fleets and has forced some port companies into bankruptcy.

No Arbitration For You.

Swift was unsuccessful forcing drivers into individual arbitration under the arbitration provisions in the drivers’ IC agreements.  Swift also couldn’t defeat the class action by way of a class action waiver.  Swift’s arbitration clause was found unenforceable when the district court judge ruled it was a “contract of employment” that is exempt from arbitration under the Federal Arbitration Act (FAA) and the Arizona Arbitration Act.  This stinging defeat essentially forced Swift to settle – given their huge exposure in a class-action case.
The drivers in this case relied on a recent US Supreme Court decision to their advantage:  In New Prime Inc. v. Oliveira, which held that the FAA’s exemption of “contracts of employment” applied not only to employees but also to independent contractors where the workers are involved in interstate transportation.

If you want to go to arbitration, make sure your arbitration agreements are enforceable.

This case should make it clear that simply having an arbitration agreement with a class-action waiver in your independent contractor agreement will not guarantee that a trucking company can prevent class-action litigation and force drivers into individual arbitration. I’m sure Swift was astonished that their arbitration agreement was rejected. The plaintiffs’ class action lawyers have defeated certain arbitration agreements and successfully argued to the courts that they are unenforceable for a number of reasons including the FAA exemption, poor choice of law, and poor drafting of the arbitration agreement. Please refer to a prior article where I discussed important elements that an arbitration agreement for independent contractors and employees should include.

Lease-Purchase Agreements 

still regularly get phone calls from trucking company owners, managers, etc. who espouse their lease agreements as bullet proof protection against misclassification allegations – for those trucking companies who still rely on lease purchase agreements, I encourage you to consider the Swift case and their $100 million settlement. Again, if you are misclassifying, if not a matter of if, but rather when, you will face unpleasant consequences.

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.

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