Arbitration Update : US Supreme Court Forces PAGA Claims To Arbitration: CA Employers Rejoice!

by G. Spencer Mynko, Esq.

The United States Supreme Court Rules That Individual PAGA Claims Can Be Compelled To Arbitration

This ruling will have profound effects on arbitration clauses and class action waivers in California. The United States Supreme Court held in Viking River Cruises, Inc. V. Moriana that claims brought pursuant to the California Private Attorney General Act (PAGA) can be split into individual PAGA claims and non-individual PAGA (i.e class or representative claims), that are brought on behalf of others. Furthermore, the employee’s individual PAGA claims may be compelled into arbitration, and as a result, prevent the employee from participating in representative (class) actions. What is particularly striking about this opinion is that once an employee‘s individual PAGA claims are compelled to arbitration, the class action PAGA claims brought on behalf of others cannot be maintained in court and must be dismissed. In other words, to put it simply: this decision effectively forces PAGA claims to individual arbitration IF the employer’s arbitration requirement is properly drafted.Prior to this decision, the California Supreme Court ruled that PAGA claims could not be compelled to arbitration. In Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), The California Supreme Court held that under PAGA, individual employee’s claims were precluded from arbitration. But then, the US Supreme Court In Viking held that the federal arbitration act (FAA) preempts the rule in Iskanian and ruled that individual PAGA claims can be separated from non-individual PAGA claims, and therefore individual PAGA claims can be compelled to arbitration. But then the court went a step further, which in my opinion is a very huge step. The United States Supreme Court went on to rule that because of “standing requirements”, when an individual‘s PAGA claim is compelled to arbitration, the employee cannot maintain their position as class representative, and therefore the non-individual PAGA claims, or class representative or class action claims, brought on behalf of others must be dismissed. Therefore logically, no individual can be a class representative, because the arbitration clause will force them into individual arbitration, and because they are forced into individual arbitration, they cannot act as a class representative, and the rest of the class gets dismissed. So, any employee that is subject to the arbitration agreement is unable to be a class representative, because they can be compelled to individual arbitration, which likely will include every employee, and because No employee can be a class representative, no class actions can proceed under PAGA.Admittedly, it took me a minute to sort this out, but if we discuss the facts in the the Viking case, the legal mumbo-jumbo makes more sense. What Happened In The Viking Case? The plaintiff, Angie Moriana, was a sales representative for Viking River cruises, and in the course of her employment agreed that any employment disputes would be resolved in individual arbitration and further agreed to not participate in class action and PAGA representative actions pursuant to a waiver. Despite agreeing to the class action and PAGA waiver, she sued Viking on behalf of herself and other employees “similarly situated” under PAGA. Her lawyers relied on the Iskanian case which held that PAGA waivers are unenforceable. Viking attempted to compel arbitration, but the trial court denied their motion and the denial to compel arbitration was upheld on appeal.Subsequently, Viking appealed the case to the United States Supreme Court, which not only granted review, but overturned the California court of appeal. The Court stated “[u]nder PAGA’s standing requirement, a plaintiff can maintain non-individual PAGA claims in an action only by virtue of also maintaining an individual claim in that action…[w]hen an employee’s own dispute is pared away from a PAGA action, the employee is no different from a member of the general public, and PAGA does not allow such persons to maintain suit.” Specifically the court stated “that PAGA actions cannot be divided into individual and non-individual claims” is preempted by the FAA, and therefore “Viking [was] entitled to compel arbitration of Moriana’s individual claim.” And because Moriana was forced into individual arbitration of her employment dispute with Viking, she could no longer be a PAGA-rep and the PAGA class action case must be dismissed. Relief For California Employers This decision provides California employers with some relief from onerous PAGA class action lawsuits. Because the FAA preempts California law so “individual clams” brought by an employee against an employer under PAGA can be forced to arbitration. Also pursuant to the FAA, “Representative claims” cannot be forced into arbitration: The FAA preempts or overrides California law that denies enforcement of arbitration agreements requiring consumers to waive any right to bring a class action unless the agreement also provides for class arbitration. In AT&T Mobility LLC v. Concepcion, 2010 U.S. LEXIS 3367 (Apr. 27, 2011) the US Supreme Court held the FAA precludes arbitrators from imposing classwide arbitration; the Supreme Court essentially stated that any attempt to impose classwide arbitration violates the FAA.So again, once an individual brings an employment claim under PAGA and is forced into arbitration pursuant to an arbitration agreement, the employee can no longer participate in representative PAGA lawsuits because the employee lacks standing to participate in non-individual PAGA claims. Now Is The Time To Revisit Your Arbitration Agreements The US Supreme Court essentially provided California employers with a roadmap on how to draft arbitration agreements to eliminate or minimize the risk of exposure to representative or class action claims brought under PAGA. Now is the time to speak with an experienced transportation attorney to ensure that your company‘s arbitration agreements are enforceable.  One Caveat In New Prime v. Oliveira, the U.S. Supreme Court ruled that a Trucking Company’s Arbitration Agreement is unenforceable against workers in interstate commerce under the Federal Arbitration Act (FAA). In New Prime, the United States Supreme Court ruled that a trucking company cannot compel arbitration in a wage dispute brought by an independent contractor truck driver. Generally speaking, employers can insist upon arbitration agreements in contracts with subcontractors. However, The US Supreme Court decided that an exception to the Federal Arbitration Act (FAA) applies to independent contractor truck drivers and anyone one else working in interstate commerce.That said, an arbitration agreement pursuant to state (not federal) law may be a way around this obscure exception to the FAA. Contact Transportationattorneys.net today to discuss Arbitration Agreements and Class Action and PAGA Waivers!

Employment Practices Liability Insurance (EPLI)

by G. Spencer Mynko, Esq.

Are You An Employer? Do You Have Employees? If You Answered “Yes” To Both Of These Questions, Your Transportation Company Should Consider Employment Practices Liability Insurance

The COVID Pandemic Aftermath Has Made Things More Difficult For Employers By Increasing Their Risk of Employee Related Disputes

I’m sure everyone reading this is aware of the significant labor shortages affecting employers in general, and trucking in particular. And it’s not just drivers, but employees along every step of the chain. A combination of the Covid pandemic, the “Great Resignation“ and the demand for higher wages has led to greater turnover, difficulty filling positions, overworking existing staff, and employee dissatisfaction. Furthermore, employee loyalty is another victim of the current labor market, with employees more than willing to burn bridges on the way out the door. Quite frankly, I think this also increases the likelihood of employees contacting plaintiffs‘ lawyers in their effort to extract a pound of flesh on their way out the door.

If things weren’t bad enough in the state of California for employers, now they are worse. We live in a very pro-employee state – I know you know that – yet, even when employers do everything right, they are still subject to “Shake Down” letters from unethical “Employee Rights” lawyers who know even unmeritorious cases are worth something because employers will pay the extortion fee to avoid litigation. But what if you had an insurance policy in place where you can tender claims of workplace violations to your insurance carrier like a cargo claim and let your insurance company and their lawyers handle the matter? This is where EPLI comes in.

What is EPLI?

First of all, let’s start by defining “EPL”: “Employment Practices Liability is an area of United States labor law that deals with wrongful termination, sexual harassment, discrimination, invasion of privacy, false imprisonment, breach of contract, emotional distress, and wage and hour law violations. It may be categorized as a form of professional liability. Employment practices liability insurance (EPLI) is sold as a type of management liability insurance, which is related to professional liability insurance.

Most commonly, employment practices liability deals with laws and protections brought under Title VII of the Civil Rights Act of 1964, the ADA (Americans with Disabilities Act) of 1990, the Civil Rights Act of 1991, ADEA (Age Discrimination in Employment Act) of 1967, and Family and Medical Leave Act (FMLA). The Equal Employment Opportunity Commission (EEOC) interprets and enforces these laws.

The EEOC recognizes eleven types of employment practices discrimination: age, disability, equal pay/compensation, genetic information, national origin, pregnancy, race/color, religion, retaliation, sex, and sexual harassment” See https://en.wikipedia.org/wiki/Employment_practices_liability.

EPLI is the Insurance that protects the employer: it is a type of policy that business owners can buy to protect their organizations against employee suits for rights protected under acts above. Id.

What does EPLI cover?

Traditionally, EPLI covers “-isms” related to allegations of wrongful hiring, employing, and firing. For example, sexism, ageism, racism, etc. In other words, typical EPLI claims include: Discrimination, Hostile environment, Lack of advancement, Sexual harassment, Wrongful termination, etc. It’s no secret that allegations of sexual harassment, racism, workplace hostility, unlawful firing, discrimination based on gender, sexual preference, and age, flow freely these days and, because the way the laws in the state are written, employers often get stuck in a situation where they are “presumed guilty, until proven innocent“ . Of course, The proof of innocence comes at a great cost of time and money. Your business is vulnerable to claims of employee mistreatment, real or perceived.

Will your EPLI policy cover “wage and hour” Claims?

The short answer to that is “Maybe”. While EPLI insurance traditionally provides broad protection for businesses facing costly litigation and potential liability for claims brought by employees, former employees and job applicants. But, these policies almost always excluded wage and hour claims—for example, claims for the failure to pay overtime, failure to pay minimum wage and failure to provide meal and rest breaks Typically, EPLI insurance does not cover fair labor standards act (FLSA) violations and similar state law claims, and therefore employers should not assume that there EPLI insurance will cover wage and hour claims. That said, some EPLI policies will pay for attorney fees and defense costs in wage and hour claims, but not judgments or settlements. therefore, employers must be clear that their policy, will cover wage in our claims. know that this may require the business to purchase a specific rider that covers such claims.

California, however, has wage and hour provisions with no parallel in the FLSA. This has led to disputes between insurance companies and their insureds as to the exclusions in EPLI policies, and often in favor of the insured employer. Indeed, despite insurance company contentions, recent court and arbitration decisions have held that EPLI policies do not bar EPLI coverage for claims alleging failures to reimburse business expenses incurred by employees, provide accurate wage statements, and pay wages timely.

Insurers are fighting back by drafting policies which state which claims— like state wage and hour claims—are excluded from EPLI coverage. Employers take note: when faced with claims alleging violations of the FLSA and/or California state labor codes, insured employers should fight back against denial of coverage.

Will Southern California Pizza Help Employers?

Sorry folks – I’m not talking about the stuff you eat, but instead a court case: Southern California Pizza Co., LLC v. Certain Underwriters at Lloyd’s, London Subscribing to Policy Number 11EPL-20208. Again, while EPLI typically excludes wage and hour claims, this decision narrowed the definition as to what is a wage and hour claim, and also increases the chance that your insurance company will cover wage and hour claims in lawsuits that also allege failure to reimburse employees for business related expenses. The Court of Appeal held that claims brought under California Labor Code Sections 2800 and 2802 for failure to reimburse employee expenses did not fall within the wage and hour exclusion in a Lloyd’s of London EPLI policy that excluded coverage for claims “based upon, arising out of, directly or indirectly connected to or related to, or in any way alleging violations of any foreign, federal, state, or local, wage and hour or overtime law(s), including, without limitation, the Fair Labor Standards Act.”

Again, employers who hold these policies may be able to force the insurance companies’ broad defense obligations and obtain indemnification for certain claims. Of course, insurance companies have reacted to this decision by expanding the language of their wage and hour exclusions to specifically avoid coverage for reimbursement expenses.

So again, it falls upon you, the employer policyholder, to carefully analyze your insurance policies to clearly understand any exclusions so you are not met with an unpleasant denial of coverage letter after tendering your claim to your insurance company.

Gratuitous Pizza Joke: Sex is like pizza: when it’s good, it’s good, and when it’s bad, it’s still pretty good.

The Conclusion

If you didn’t die laughing from that joke, you can turn your attention to minimizing risk: trucking companies can protect themselves by incorporating well drafted employee handbooks and policies and procedures manuals, account for all time worked, properly classify employees, comply with regulatory changes, and talk to your lawyer about all of this.

If feasible, purchase wage and hour insurance that includes coverage for (in addition to defense costs), monetary remedies such as back-pay. MAKE SURE YOU KNOW YOUR EXCLUSIONS.

Contact Transportationattorneys.net today to discuss Employment Practices!

A Bill Of Lading Is A Contract – And Why That’s A Problem. Don’t Be Stuck Relying On A BOL As Your Only Contract

by gspencermynko

A Bill Of Lading wears many hats: It is a contract determining the rights, duties and liabilities of the parties involved with the transportation of freight. It is a receipt for the goods containing the description, quantity and condition of the property to be transported. As such, it carries significant legal consequences.

The Interstate Commerce Act (ICA) requires motor carriers to “issue a receipt or bill of lading” for property received for transportation, 49 USC § 14706. (In practice, the shipper usually prepares a bill of lading on its own form and presents it to the driver for signature.) Theoretically, this requirement can be waived, if the parties expressly agree in writing, 49 USC § 14101, but it is always a good practice to have a written receipt for shipments. While various forms of Bills of Lading exist, the function served by a bill of lading is even more significant when attempting to resolve a dispute. Bills of lading can serve as contracts of carriage, receipts for goods, documents of title, or any combination of the foregoing. Thus, the significance of any particular bill of lading is context-dependent, and not every bill of lading serves all of the aforementioned functions. Yet, this humble document with hard to read wording crammed in a small space is often overlooked and given short shrift.

The Law

The ICA does not specify any particular form of the receipt or bill of lading, but the Federal Motor Carrier Safety Administration regulations prescribe the minimum requirements, (See 49 CFR Part 373). 373.101 Motor Carrier bills of lading: “Every motor common carrier shall issue a receipt or bill of lading for property tendered for transportation in interstate or foreign commerce containing the following information:

1. * Names of consignor and consignee.
2. * Origin and destination points.
3. * Number of packages.
4. * Description of freight.
5. * Weight, volume, or measurement of freight (if applicable to the rating of the freight).”

In the U.S., the multi-part, non-negotiable UNIFORM DOMESTIC STRAIGHT BILL OF LADING is the most commonly used form. Shippers often use preprinted forms which often contain not only a description of their commodities and applicable class(es) but, in addition, make a reference to the carrier’s filed tariff. Since the filing of tariffs is no longer mandated by law, Shippers and carriers have since had the opportunity to negotiate the terms and conditions of the bill of lading contracts since this deregulation took place. Individual shippers and carriers as well as shipper and carrier trade organizations hire lawyers to draft Bills of Lading that protect their interests first. While the “filed rate doctrine” has been abolished with deregulation, compliance with the carrier’s tariff and the terms and conditions of the bill of lading can still be required under ordinary principles of contract law. This is why it is so important for shippers and carriers to understand the terms of the their agreement regarding hauling freight AND beware of the traps associated with BOLs that reference Tariffs!

Carmack Amendment and Other Laws Affecting BOLs

The governing statutes are the Carmack Amendment of 1906 (“Carmack Amendment”), the Motor Carrier Act of 1980, the Trucking Industry Regulatory Reform Act of 1994, and the Interstate Commerce Commission Termination Act of 1995 (“ICCTA”). Carriers can provide either Section 14706 (common carrier) carriage or Section 14101(b) (contract) carriage within the United States.
a. Section 14706 (Common Carrier) Carriage

• A carrier in today’s period of deregulation need not file tariffs with DOT’s Surface Transportation Board. Under Section 14706, carriers are liable to the person entitled to recover under a motor carrier bill of lading or a receipt for the goods. The liability regime is a Carmack Amendment liability regime. Under this liability regime, a carrier is liable for the actual loss or damage to the cargo caused by the receiving carrier, the delivering carrier, or an intermediate carrier over whose route the cargo is transported either:

(1) in interstate transportation within the United States or
(2) from a place in the United States to a place in Canada or Mexico, provided the transportation takes place under a through bill of lading.

The Carmack Amendment prohibits a carrier from limiting or exempting itself from liability, except under certain specified circumstances prescribed by the Motor Carrier Act of 1980. A carrier may limit its liability if that limit would be reasonable under the circumstances surrounding the transportation of the goods. The ICCTA is not specific as to who determines reasonableness. Consequently, this issue has been left to the courts to determine. A civil action can be brought either in a federal or a state court against the delivering carrier or the carrier that caused the loss, damage or delay. Claims must be filed within 9 months, and the law suit must be brought within 2 years.

The General Rule of Bills of Lading

Regarding bills of lading, 49 U.S. Code § 80107 applies a general rule. Under the general rule of bills of lading the person who negotiates or transfers a bill warrants that the bill is genuine; that the holder has the right to transfer the bill and title to the goods described in the bill; the holder doesn’t know of anything that would adversely affect the value of the goods; that the goods are fit for their purpose when merchantability and fitness would have been implied in an agreement for transfer of the goods without a bill of lading.

• “The mere delivery of the goods to a carrier for transportation does not necessarily import an absolute promise by the shipper to pay the freight charges. To ascertain the contract, the bill of lading must be looked to primarily, as this serves both as a receipt and a contract. Ordinarily the person from whom the goods are received for shipment assumes the obligation to pay the charges, and this obligation is ordinarily a primary one. The shipper is presumably the consignor, and the transportation ordered by him is presumably on his own behalf, and a promise to pay may be inferred therefrom. This inference may, however, be rebutted, and it may be shown by the bill of lading or otherwise that the shipper was not acting in his own behalf, that this fact was known to the carrier, and that the parties intended not only that the consignee should assume an obligation to pay but that the shipper should not assume any liability whatsoever, or that he should assume only a secondary liability.” New York C. R. Co. v. Frank H. Buck Co., 2 Cal. 2d 384.

Why Every Motor Carrier, Broker, Shipper, Freight Forwarder and anyone else needs to understand BOLs

A major concern these days is that there is no uniform or standard form of bill of lading used throughout the industry. Every carrier, shipper, broker, freight forwarder and other party involved in transportation often will use their own form of bill of lading. Many of these bills of lading are deficient because they do not contain a nonrecourse provision (or any terms and conditions for that matter), a Section 7 box, or places to mark if the shipment is “prepaid” or “collect.” Transportation contracts generally avoid these problems by demoting bills of lading to receipts. Which is why you should contact a Transportation Attorney to draft those transportation contracts.

Parties also must take care in preparing their own form of bill of lading and using it whenever there is no contract. Finally, parties must know how to protect themselves if a different, deficient bill of lading is used. If a nonnegotiable bill of lading is not conspicuously marked “nonnegotiable,” a holder who purchased the bill of lading for value supposing it to be negotiable may treat the bill of lading as imposing upon the bailee the same liabilities it would have incurred had the document been negotiable. As you can see, this simple and commonly used document can be a source of traps for the unwary.

Get with your Lawyer so you are not stuck with a BOL as your only contract.

I draft contracts: Contracts for motor carriers, freight brokers, freight forwarders, warehousers, shippers, etc. These long-winded multi page documents – that are so dry they make dust seem succulent – are designed to protect my clients, regardless of the role they play in the transportation chain. I think My clients’ business partners quickly sign my contracts to spare them the torture of actually having to read them. Which of course, is all the better for my clients. With that in mind, don’t back yourself into a corner by relying on a few paragraphs of boiler plate language found on a typical bill of lading. I assure you, if you find yourself with a problem, you do not want that BOL to be your only contract.

The bottom line in all of this is that parties involved in transportation and shipping of freight need to consult with competent counsel to review, revise or prepare their contracts to protect your business from unexpected liabilities. Contact  Transportationattorneys.net today to discuss tariffs, bills of lading and contracts today.

Annual Year End Corporate Maintenance

by G. Spencer Mynko, Esq.

Get Your Company Tuned Up For The New Year

Annual Year End Corporation and LLC Maintenance Issues

As 2021 draws to a close, it’s a good idea to think about California corporate compliance requirements. California corporations have a number of annual requirements that must be fulfilled with the California secretary of state and in accordance with California Corporation Law.

California corporations must abide by the California corporations code, which require corporations to:

Adopt Bylaws(Section 212)
Maintain a copy of the bylaws at the corporate office(Section 213)
Issue Stock
Hold annual meetings of directors and shareholders
Pay the annual corporate (franchise) tax
Abide by annual reporting requirements.

In order to comply with California corporation laws, Bylaws must be adopted, business accounts set up, Shareholder and Director meetings need to be held, Minutes need to be recorded/drafted, Stock certificates need to be executed and any other Corporate records need to be maintained.

These matters are critically important for officers and directors of California corporations to meet as they are legal requirements regarding annual corporate compliance. And while this is critically important, too many people – owners of corporations and LLCs – disregard these requirements or procrastinate in their responsibilities.

Let me be blunt: if you want to make it easy for a plaintiff’s attorney to pierce your corporate veil and hold you personally responsible for the liabilities of your corporation, blow this shit off. If, on the other hand, you want to protect your corporate entity, keep reading.

Annual Statement of Information

Every year, a California corporation must file an annual statement of information on an SI-200 form that reports your address, officers, directors, and the registered agent for service of process.

Pay the Tax Man

Hopefully you have accountants dealing with this, but you should still be aware of that C corporations and S corporations are subject to franchise taxes. C corporations are taxed at 8.84% of net income, and S corporations are taxed at a rate of 1.5% of net income. Of course, there is the $800 minimum franchise tax, which requirement is waived for first year corporations. First and foremost, anyone who has a corporation or LLC should be working with a competent accountant, and preferably a CPA. Federal taxes, state taxes, state income tax returns, franchise taxes, sales taxes and other various taxes all need to be dealt with and addressed properly.

Pay the State

I can’t tell you how many times I’ve looked up corporations on the Secretary of State‘s website only to find that they are “FTB suspended”. I’ve had clients that didn’t even realize their corporations or LLCs were suspended (“Hey, you got a problem, Bro”). This usually means the business didn’t pay its taxes, including the $800 minimum corporate tax, and now because their charter is suspended, their charter doesn’t exist, and there is no corporate protection. The business cannot sue anyone, nor can it defend itself in a lawsuit. Therefore, make sure your annual reporting and fees are up-to-date with the California Secretary of State.

Contracts, contracts, contracts

While you are addressing your annual corporate requirements, you may wish to do some housekeeping on all of the contracts you have in place. This is definitely a good time for you to review every contract your business is using: employee handbooks (a de facto contract), contracts with brokers, carriers, independent contractors, and anyone else your business is contractually engaged with.

Corporate bylaws and shareholder agreements often require annual business valuations. Now is a good time to go through your bylaws and shareholder agreements to make sure you comply with their requirements. I can’t stress enough how important it is to follow corporate formalities to protect your corporation and avoid piercing of the corporate veil.

Employee handbooks should always be reviewed on an annual basis and updated accordingly. As my readers know all too well, California labor law is constantly changing and new traps are being set for employers all the time. December is a great time to review and modify your employee handbooks as needed, especially since new laws generally go into effect January 1.

At the same time, I’d encourage all of my readers to review not only their own business contracts, but the contracts prepared by companies you are contractually doing business with. Undoubtedly, this is always well advised so you can intelligently evaluate risk and potential liability.

This applies to LLCs too!

Don’t be fooled into thinking that LLCs do not require annual maintenance and that Articles of Organization filed with the secretary of state is all you need. An LLC is not a “set-it-and-forget-it” deal: “Low Maintenance” is common misconception of running an LLC. LLC owners and managers have their duties as well, and annual maintenance is a must. Just as with corporations, when owners of LLCs do not perform their annual maintenance, they put their LLCs at risk of piercing of the corporate veil: as such, the owners personal assets are placed at risk and are fair game in a lawsuit.

At a bare minimum, LLCs should be completely formed with all proper supporting documents such as operating agreements and other agreements/contracts as needed.

Examples of critical LLC documents are the articles of organization, operating agreement, organizational resolution between the members, the corporate book, and your EIN certificate.

And just as with corporations, annual meetings need to be held and recorded in your corporate book, statements of information need to be filed with the secretary of state, and state and federal tax filings need to be maintained. Again, it’s always good to sit down with your accountant to make sure all of the boxes are being checked to maximize your audit protection with the IRS or state tax agencies.

Minutes of Annual meetings need to be recorded and placed in the corporate book. Matters to be recorded include annual sales for the prior year, what the business purchased, what the business sold, who was hired, who was fired, and business plans for the following year. The importance of this is that it shows that the corporate entity is being respected as an independent entity and properly governed.

Get With Your Lawyer

Too many owners of too many corporations make the mistake of returning to “business as usual“ after their articles of incorporation are filed. Corporate formalities need to be followed: file a statement of information, provide notice of annual meetings to all shareholders and directors, actually have annual meetings to discuss the business, and record all of the annual meetings with corporate minutes. To ignore or disregard these requirements can result in the owners of the corporation losing their personal assets to satisfy a business liability or judgment.

This list is by no means exhaustive, but Owners, Directors and Executives of Companies (Corporation, LLC or Otherwise) need to sit down with a trusted advisor to make sure critical maintenance matters are completed. Now is a good time to contact a transportation attorney to get ready and gear up for 2022.

January 1, 2022 Will Bring In A Slew Of New California Labor And Employment Laws

by gspencermynko

These New Laws Will Make Your Life Harder – And More So If You Kick Off The New Year With A Hangover.
California can always count on its politicians to justify their existence protect their constituents by passing new laws. Because complicated regulations screw business make life better for everyone, Californians everywhere can look forward to January 1 for new laws created in the cauldron of hell our noble legislature. While I probably shouldn’t complain too much because it gives me something to do, my readers have my sympathy.

Wage Theft is now “Grand Theft“

Yup, if you thought dealing with some moron at the labor board was bad, dealing with a prosecutor will be 10 times worse. AB 1003 adds a new section to the California Penal Code where the definition of “grand theft“ will include intentional theft of wages, including gratuities, in excess of $950 from any one employee, or $2350 from a group of employees. Furthermore, trucking companies should realize that the law defines an “employer“ to include the “hiring entity of an independent contractor.“ If 1 million reasons to be careful about classifying truck drivers as independent contractors wasn’t enough for you to take this seriously, you now have 1,000,001 reasons. 

Pursuant to California law, grand theft can be classified as a misdemeanor or felony and carries the potential for up to one year in jail for a misdemeanor, or up to three years in jail for a felony. I’m sure all of you can appreciate the seriousness in this: it is one thing to be able to pay money to get out of trouble, but it’s another thing to have your liberty taken away from you. This reminds me of a quote from a good friend of mine, who once told me “Spencer, anytime you can pay money to get out of trouble, it’s a good deal.” This changes that.

While it is true that certain labor code violations can be prosecuted as misdemeanors, actual prosecutions are rare, save for the really bad actors the state wants to make an example of. Whether the new law changes how the Labor Code will be enforced remains to be seen: My astute opinion is that, in general, California wants your money, and doesn’t want to spend money warehousing your ass in jail.

On the other hand, this could be beneficial to plaintiffs’ lawyers. In a criminal case, the prosecutor has to prove the matter beyond a reasonable doubt, which is a high legal standard. Plaintiffs’ lawyers who sue based on labor code violations merely have to prove their case by a preponderance of the evidence (a far lower standard than BRD). Conceivably, plaintiffs lawyers could simply sit back and let the state prosecutors do the heavy lifting, because if the state gets a win in a criminal case, the civil case is basically a foregone conclusion / slam dunk. While this is an interesting legal question, we shall see if this ends up having any real world relevance.

Employment Discrimination Legal Settlement Agreements

SB331 expands upon the existing law which prohibits a settlement agreement from preventing disclosure of factual information related to sexual assault, harassment, workplace harassment or discrimination based on sex, retaliation for reporting such acts, etc. SB 331 expands the restrictions to prevent the use of non-disclosure provisions in any case involving employment discrimination, which would include discrimination on the basis of race, religion, creed, disability, marital status, etc., etc. 
So companies need to be on notice that under SB 331, any provision in a settlement agreement that violates these restrictions is void and unenforceable. In other words, if there is a settlement of a case involving employment discrimination of any type prohibited by the Fair Employment and Housing Act (FEHA), any non-disclosure clause in the settlement agreement will be unenforceable against the claimant. Note to businesses: there is zero tolerance for discrimination in California. Act accordingly.

Employment Severance Agreements

SB 331 also limits the use of non-disclosure agreements in employment severance agreements. Specifically, this law makes it unlawful for an employer to put in a severance agreement any provision that prohibits disclosure of information about unlawful acts in the workplace. In other words, if the business was acting unlawfully in anyway, a nice severance package with a non-disclosure agreement cannot stop a former employee from dishing the dirt on your company. 

Furthermore, SB 331 requires that the employer notify the employee that they have the right to consult with an attorney before agreeing to a severance agreement. The soon to be former employee has a minimum of five business days to consult with a lawyer.
SB 331 goes on to state that severance agreements do not apply to settlements of lawsuits, labor board claims, arbitration disputes, or an employer‘s internal dispute process.  

The law provides sample language for a general confidentiality clause exception which states: “Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

As is the case with so many regulations in California, this is a treacherous regulation filled with traps for the unwary. Employers who rely on severance agreements should consult with their lawyers in anticipation of the new law going into affect January 1.

Leaves of Absence

Under the California Family Rights Act, employees may take 12 weeks of leave per year to care for family members, including parents. The new law expands the definition of “parent” to include “parents-in-law”. Remember as well that the California Family Rights Act, or CFRA, applies to businesses with five or more employees..Record Retention
Pursuant to SB 807, employers are required to maintain personal records for four years. If a lawsuit has been filed, the records must be maintained until the statute of limitation runs or the litigation concludes, which ever occurs later.

Workplace safety

Pursuant to SB606, Two new types of workplace violations have been created: enterprise wide violations, and “egregious” violations.

In these cases, if an employer has a written policy or procedure that violates Cal OSHA rules or a law, or if there is a pattern or practice of those violations committed by the employer involving more than one worksite, a “enterprise wide violation” may be found. This is true even if some locations committed no violations. In other words, employers cannot tolerate “rogue outposts” who like to do things anyway they want.

Egregious violations are where the employer “intentionally, through conscious, voluntary action or inaction, made no reasonable effort to eliminate a known violation, or if a violation result in worker fatalities, a worksite catastrophe, or a large number of injuries or illnesses.”

Needless to say, these violations come with severe penalties. Disclaimer: I am barely scratching the surface of SB606 – I simply want you to be aware of this and get proper legal advice.

Independent Contractors

As far as trucking and transportation is concerned, there are no significant changes or amendments to the laws. AB5 / AB2257 are still churning their way through the courts.

Port Drayage Motor Carriers

Since 2019, the California Division of Labor Standards Enforcement, or DLSE, has maintained a webpage list of “port drayage motor carriers“ who were busted for violating wage and hour laws. Port Drayage companies who hire motor carriers on the naughty list can be held jointly liable for labor law violations of those motor carriers.

SB 338 amends of the law to now include joint liability for employment tax assessments (new work for EDD?) and failure to comply with health and safety laws.  Beware: if you operate in the ports, be sure to check the naughty list before you hire a trucking company. 

Finally, a new law involving COVID-19.

According to AB 654, employers must notify all employees who were on the premises at the same worksite and who came into close contact with a person infected with COVID-19. To make things more confusing, the employer must notify the employees present within the “infectious period” of the infected employee. Considering the fact that the CDC has constantly changing standards regarding contagiousness and quarantine periods regarding COVID-19, I have no idea how employers will be able to clearly comply with this provision. That said, you may want to consult with me while I put my doctor hat on to discuss this (the clinic I work has constantly evolving standards and recommendations about Covid-19). Personally, I don’t think COVID is going away anytime soon, and the virus will continue to mutate and evolve and be a part of our lives for a long time.
So those are the highlights for California labor and employment law changes for 2022. Now is a good time to contact a transportation attorney to get ready and gear up for 2022.

FMCSA Issues A New Rule To Ban Drivers With Drug And Alcohol Violations

by G. Spencer Mynko, Esq.

The FMCSA Enlists The States (and Their DMVs) In Their Battle To Keep CDL Holders With Drug And Alcohol Violations Out Of CMVs. The new rule goes into effect November 8, 2021

Pursuant to a new rule issued by the Federal motor carrier safety administration, truck drivers with a history of positive drug or alcohol tests will have their CDL‘s downgraded. States have until November 18, 2024 to come into compliance with the new rule. This rule has been published in the October 7 federal register. Furthermore, the FMCSA is amending its regulations to establish requirements for state drivers licensing agencies (SDLAs) to access and utilize the drug and alcohol clearinghouse.

Here is the Summary of the FMCSA’s New Rule:

“FMCSA is amending its regulations to establish requirementsfor State Driver’s Licensing Agencies (SDLAs) to access and use
information obtained through the Drug and Alcohol Clearinghouse (DACH or Clearinghouse), an FMCSA-administered database containing driver-specific controlled substance (drug) and alcohol records. SDLAs must not issue, renew, upgrade, or transfer a commercial driver’s license (CDL), or commercial learner’s permit (CLP), as applicable, for any individual prohibited under FMCSA’s regulations from performing safety- sensitive functions, including driving a commercial motor vehicle (CMV), due to one or more drug and alcohol program violations. Further, SDLAs must remove the CLP or CDL privilege from the driver’s license of an individual subject to the CMV driving prohibition, which would result in a downgrade of the license until the driver complies with return-to-duty (RTD) requirements.”

The rule requires state agencies to stop issuing, renewing, or upgrading commercial drivers licenses or commercial learner permits to drivers with a history of drug and alcohol violations, as well as downgrading drivers CDL‘s within 60 days of notification of a violation.

According to the FMCSA “The CDL downgrade requirement rests on the simple, but safety critical, premise that drivers who cannot lawfully operate a CMV because they engaged in prohibited use of drugs or alcohol or refused a test should not hold a valid CDL“. In other words, zero tolerance here. And I mean zero tolerance as generally speaking MOST ALL drug tests (blood alcohol levels being a notable exception) detect inactive metabolites and not active drug, so at best they reveal past drug use, but do not prove being under the influence while performing a safety sensitive function. “I smoked a joint at my cousin’s bachelor party in Vegas 2 weeks ago” is not an excuse.

State DMVs, Meet The FMCSA Drug And Alcohol Clearinghouse. Uncle Sam Drafts State DMVs Into Its War Against Drivers Accused Of Drug And Alcohol Abuse

The FMCSA goes on to say that “the rule closes that knowledge gap by ensuring that all SDLAs are able to determine whether CMV drivers license in their state are subject to the FMCSA’s CMV driving prohibition. The rule facilitates enforcement of the driving prohibition by requiring that SDLA‘s deny certain commercial licensing transactions and remove the commercial driving privileges of individuals who are prohibited from operating a CMV and performing other safety sensitive functions, due to drug and alcohol program violations.” Furthermore, the new rule puts more teeth into the FMCSA’s drug and alcohol clearinghouse by making SDLAs aware of substance abuse violators and keeping them out of commercial vehicles by enlisting them in enforcement efforts.

As a result of the new rules, police will be able to readily identify banned drivers with a simple driver’s license check during a traffic stop or roadside inspection. Therefore, all law enforcement officers will be able to easily identify prohibited drivers by conducting a license check and subsequently take them off the road.

Trucking Companies Are Brought Into The Cause As Well

Trucking companies who know of a driver’s use of drugs or alcohol based on a DUI citation are required to report “actual knowledge” of the violation to the clearinghouse. Such a violation will remain in the clearinghouse for five years or until the driver has completed the return to duty process, which ever is later, and regardless of whether the driver is convicted of the DUI charge. While there is a mechanism to allow drivers to document a non-conviction, in my opinion, once it’s been reported that a driver has been accused of DUI, they are guilty and really don’t have a meaningful opportunity to prove their innocence.

Will this rule make the driver shortage even worse?

There are approximately 90,000 drivers in the clearinghouse return to duty process, with approximately 70,000 in prohibited status. Of the banned or prohibited drivers, approximately 75% have not started the return to duty process. Furthermore, over the last two years, the clearinghouse has logged over 100,000 positive tests and very few of those drivers have completed the return to duty process. The question is, will this trend continue where 100,000 drivers are taken off the road every two years?

Marijuana

Marijuana is by far and away the most frequent drug of abuse found in the course of drug testing. I doubt I need to tell my readers that marijuana use is becoming more and more acceptable, yet a single positive test for marijuana, which does not mean the driver was under the influence of marijuana at the time of the test, would result in disqualification from commercial driving. Furthermore, a “prescription” or excuse from your doctor won’t make a difference.

A Suggestion For Motor Carriers

Motor Carriers may want to implement hair follicle drug testing prior to hiring CDL Holders to determine if regular or frequent drug use has been ongoing. Most new hires can stop using long enough in anticipation of a preemployment urine test for drug use to turn up clean – that’s much harder with hair testing where a 3 month window is detectable.

IRS Adopts More Stringent IC Test

by G. Spencer Mynko, Esq.

IRS Adopts More Stringent Independent Contractor Test

While California Goes “ABC”, The IRS Does a “123”
While California and the Trucking Industry continue to battle it out in the courts, the IRS has revised the way they evaluate classification of independent contractors

While I am certain that my readers are quite familiar with California’s “ABC“ test to determine whether someone is an independent contractor, and probably sick and tired of hearing about it, I haven’t talked about the IRS in quite some time. While that may not make you feel all warm and fuzzy, the reason I’m bringing it up now is because the IRS has also changed its method for determining whether a worker is properly classified as an independent contractor. Of course, trucking companies and the transportation industry in general shouldn’t forget that the IRS could knock on your door, so let’s see what they’re up to.

What was once 20, is now three.

That’s a little bit of an exaggeration, but a long time ago – ok, 4 1/2 years ago – I wrote an article about the IRS 20 factor test which has been reduced to three general categories the IRS considers when determining classification:

Behavioral control; Financial control; Relationship of the parties

The IRS looks at three main factors in determining whether and to what extent the employer exerts control over the worker and to what extent the worker is independent in performance of duties. Instead of my paraphrasing what the IRS says, I’ll simply quote it:

Behavioral Control: A worker is an employee when the business has the right to direct and control the work performed by the worker, even if that right is not exercised. Behavioral control categories are:
Type of instructions given, such as when and where to work, what tools to use or where to purchase supplies and services. Receiving the types of instructions in these examples may indicate a worker is an employee.

Degree of instruction, more detailed instructions may indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor.

Evaluation systems to measure the details of how the work is done points to an employee. Evaluation systems measuring just the end result point to either an independent contractor or an employee.
Training a worker on how to do the job — or periodic or on-going training about procedures and methods — is strong evidence that the worker is an employee. Independent contractors ordinarily use their own methods.

Financial Control: Does the business have a right to direct or control the financial and business aspects of the worker’s job? Consider:
Significant investment in the equipment the worker uses in working for someone else.
Unreimbursed expenses, independent contractors are more likely to incur unreimbursed expenses than employees.
Opportunity for profit or loss is often an indicator of an independent contractor.
Services available to the market. Independent contractors are generally free to seek out business opportunities.
Method of payment. An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time even when supplemented by a commission. However, independent contractors are most often paid for the job by a flat fee.

Relationship: The type of relationship depends upon how the worker and business perceive their interaction with one another. This includes:
Written contracts which describe the relationship the parties intend to create. Although a contract stating the worker is an employee or an independent contractor is not sufficient to determine the worker’s status.
Benefits. Businesses providing employee-type benefits, such as insurance, a pension plan, vacation pay or sick pay have employees. Businesses generally do not grant these benefits to independent contractors.
The permanency of the relationship is important. An expectation that the relationship will continue indefinitely, rather than for a specific project or period, is generally seen as evidence that the intent was to create an employer-employee relationship.
Services provided which are a key activity of the business. The extent to which services performed by the worker are seen as a key aspect of the regular business of the company.

See Understanding Employee vs. Contractor Designation

Here’s some more elaboration courtesy of the IRS:

Behavioral Control covers facts that show if the business has a right to direct and control what work is accomplished and how the work is done, through instructions, training, or other means.

Financial Control covers facts that show if the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:
The extent to which the worker has unreimbursed business expenses
The extent of the worker’s investment in the facilities or tools used in performing services
The extent to which the worker makes his or her services available to the relevant market
How the business pays the worker, and
The extent to which the worker can realize a profit or incur a loss

Relationship of the Parties covers facts that show the type of relationship the parties had. This includes:
Written contracts describing the relationship the parties intended to create
Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
The permanency of the relationship, and
The extent to which services performed by the worker are a key aspect of the regular business of the company

See Topic No. 762 Independent Contractor vs. Employee

So even though the 3 major factors have been broken down into a number of sub-factors, the 20 factor test is still lurking in the background, and still provides some guidance on determining whether a worker is properly classified as an independent contractor. Assuming you are still awake, I think you get the point. Even though they break things down to “three” categories, what you are really dealing with here is the old “common-law” test, not much unlike California’s Borello test.

Consequences of Misclassifying an Employee

Obviously, if the IRS determines that a trucking company has misclassified an individual, they are probably not going to say “Aww, gee-shucks, just don’t do it again, ya’ hear?” Indeed, the IRS states “Classifying an employee as an independent contractor with no reasonable basis for doing so makes employers liable for employment taxes”. Beyond that, chances are the trucking company is going to have to deal with a number of penalties, including a $50 fine for each W-2 the trucking company failed to file, a penalty of up to 3% of the misclassified employee’s wages, plus up to 40% of FICA taxes that were not withheld from the misclassified contractor, and up to 100% of the matching FICA taxes the trucking company should’ve paid. Furthermore, if the IRS determines that the employer intentionally and willfully misclassified its employees, the penalties are even greater.

Burden Of Proof

Just as in California, the IRS presumes a worker is an employee, so the burden falls upon the employer to prove that the worker is properly classified as Independent.

Ask The IRS!

If you’re really chomping at the bit to establish a relationship with the IRS, you can ask them to give you an opinion by filling out form SS-8 and let them help you figure it all out. Or, you can call me. While I may be ever so slightly biased, it’s probably a better idea to call me first.

Gratuitous Humor

All this talk of ABC and 123 made me think of the Jackson 5. Take it away Michael! ABC-123

Contact Transportation Attorneys for legal advice on how to comply with the laws and regulations that confront your company.

Trucking Companies Need To Be Aware Of Two Major Rulings (One Federal, One State) From The Ninth Circuit And The California Supreme Court

by gspencermynko

Trucking Companies Need To Be Aware Of Two Major Rulings (One Federal, One State) From The Ninth Circuit And The California Supreme Court

The Ninth Circuit Rules In Favor Of Trucking Company on Piece-Rate Pay Case

Yeah – can you believe it? The Ninth Circuit actually did something that favors trucking companies. The federal case, Ayala V. U. S. Express Enterprises, Inc. specifically addressed piece-rate compensation of truck drivers. California Trucking companies have come under attack by wage and hour lawyers who argue that mileage-based or load-based compensation is illegal because drivers are not specifically compensated for “non-productive time“. In other words, when a driver is paid per load or per mile, there is no separate compensation for activities like pre-trip inspection, fueling, detention, and other activities outside of driving, which therefore exposes the trucking company to severe penalties. This is favorite threat of Plaintiff’s lawyers when extorting trucking companies.

This case involved a class action lawsuit against US Express based on plaintiff Ayala alleging that the piece rate system violated California wage and hour laws by not compensating drivers for “non-productive time“.

But the trial court ruled that motor carriers do not have to pay drivers separately for non-productive time work when they are paid on a piece-rate basis.

The plaintiffs obviously didn’t like that ruling and appealed the decision to the Ninth Circuit. The ninth circuit affirmed the decision stating that piece rate payment does not violate California law because employee compensation is a matter of contract. The court went on to say that Ayala and US Express entered into the contracts with the understanding that the piece rate payment scheme was compensation for “completing a trip and delivering a load”.

Recall that California Labor Code section 226.2 completely changed how piece rate compensation must be accounted for and, well, compensated. Because so-called “non-productive time“ must be specifically paid for, I have advised clients to pay at least minimum wage for every hour a driver is on the clock, with a “production bonus“ related to and based on a piece-rate formula such as mileage or per-load.

However, this recent ruling from the Ninth Circuit dramatically changes this for trucking companies. In a very brief three page memorandum, the court said this:

“California Labor Code section 226.2 requires an employer who pays by the piece to provide separate compensation for “other nonproductive time.” Ayala argues that “other nonproductive time” must be defined by reference to the pay formula alone. However, “[t]he minimum wage laws exist to ensure that workers receive adequate and fair pay, not to dictate to employers and employees what pay formulas they may, or may not, agree to adopt as a means to that end.” Oman v. Delta Air Lines, Inc., 466 P.3d 325, 341(Cal. 2020). Because “[t]he compensation owed employees is a matter determined primarily by contract,” id. at 336, section 226.2 permits an employer and its employees to define the scope of its piece-rate compensation system. Accordingly, the district court did not err in looking to the understanding of the parties to determine the scope of the piece-rate pay. See id.at 337–38. USX’s 2013 Driver Handbook states that “[USX] pays drivers the designated mileage rate as compensation for completing a trip and delivering a load on behalf of [USX].” Ayala’s testimony—that the load pay “cover[ed] everything I got to do in order to get it there”—confirms the understanding of the parties. The district court therefore did not err in granting summary judgment to USX for the time period following the publication of the 2013 Driver Handbook. See the full decision here: Ayala v. U.S. Express.

This is significant and trucking should speak with a Transportation Attorney to re-evaluate piece rate pay.

California Supreme Court Makes Compensation For Meal, Rest and Recovery Periods more confusing and worse for Employers

In what is clearly bad news for employers, The California supreme court handed down a ruling that changes the way employers compensate employees for missed meal and rest breaks. The court ruled that employers must pay their employees “premium” pay (I.e. a penalty) based on “regular“ rate of pay, and not “hourly rate“ of pay. In Ferra v. Loews Hollywood Hotel, LLC, the Court unanimously ruled that employers must pay their California employees premiums for meal, rest, and recovery break violations at the employees’ regular rate of pay.

What’s the difference, you ask, between regular and hourly pay?

Hourly rate is the rate of pay employees make for every non-overtime hour worked. Regular rate is the hourly rate plus any additional non-discretionary compensation such as bonuses, commissions, shift differentials, piece rate, etc. In other words, employers must include in the pay rate calculation all wages and non-discretionary pay when calculating “regular” pay. Now, after the Ferra decision, premium pay for missed meal, rest, and recovery breaks should also be paid at the regular rate. .

The Law

California labor code section 226.7 requires employers to provide employees meal, rest, and recovery breaks. if these brakes are not provided, employers must “pay the employee one additional hour of pay at the employees a regular rate of compensation“. And that’s where things got sticky in this case. The plaintiffs argued that the employer did not take into account non-discretionary incentive payments in calculating “regular pay“. As such, premium pay for missed meal, rest, and recovery breaks should be paid at the “regular” rate.

And to further add insult to injury, the court stated that the labor codes must be liberally construed in favor of employees, and stated that the ruling in this matter is retroactive.

This probably will not affect drivers who drive in interstate commerce.

Truck drivers meal and rest breaks and recovery periods are not subject to California law. Indeed, they are preempted by federal law, so for truck drivers driving in interstate commerce, this ruling should not apply. However, for clerical, office, and other employees this ruling could have major implications on employer liability.

First of all, employers with non-exempt employees must make certain that they compensate employees for missed meal and rest breaks at the “regular“ rate of pay. Furthermore, because the decision is retroactive, employers can be held liable for noncompliant practices prior to the courts ruling. Just like in Dynamex.

So again, trucking companies should consult with a transportation attorney to determine how to assess and remedy past violations. Trucking companies need to review their compensation practices for meal and rest break premiums in the event they are liable for missed meal and rest breaks. Again, because the decision is retroactive, this ruling could have a major impact on compensation practices, and therefore on company liability.

Contact Transportation Attorneys for legal advice on how to comply with the laws and regulations that confront your company.

9th Circuit Puts A New Twist On Broker Liability For Motor Carrier Negligence

by gspencermynko

Big Ruling From 9th Circuit Impacts Broker Liability

The Ninth Circuit ruled freight brokers can be liable to plaintiffs in personal injury cases when a trucking company they tender a load to injures someone on the road. See Miller v. C.H. Robinson Worldwide, Inc., No. 19-15981 (9th Cir. 2020).

Now, this is a bit of an oversimplification (first I wanted to make sure I have your attention) and while I will get into the rationale of the court, the bottom line is that freight brokers can be held liable for the negligent selection of motor carriers. In other words, if a freight broker is negligent in selecting a motor carrier, and that motor carrier causes all sorts of mayhem due to their negligence, the broker can be on the hook for personal injuries caused by the trucking company it gave a load to.

The facts put this case in perspective: Plaintiff Miller ended up a quadriplegic after an automobile accident with a tractor trailer in Nevada. He sued the trucking company and CH Robinson, the freight broker, alleging that CHR was negligent in hiring the trucking company. CH Robinson asked the district court to be dismissed from the case based on the “preemption clause“ of the FAAAA. The district court granted CH Robinson‘s motion finding that the preemption clause of the FAAAA preempted Miller’s claim, and tossed the case against CHR..

49 U.S.C. § 14501(c) contains the FAAAA’s preemption clause.

It states:

(1) General rule. Except as provided in paragraphs (2) and (3), a State, political subdivision of a State, or political authority of two or more 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, broker, or freight forwarder with respect to the transportation of property;

(2) Matters not covered. Paragraph (1)-(A) shall not restrict the safety regulatory authority of a State with respect to motor vehicles. (Emphasis added)

What is preemption?

Preemption is a legal doctrine that the federal government can displace or override state laws in favor of federal law, if “One Rule” for the entire nation is Constitutional and avoids a patchwork of inconsistent laws across the country.

“The Constitution’s Supremacy Clause provides that federal law is “the supreme Law of the Land” notwithstanding any state law to the contrary. This language is the foundation for the doctrine of federal preemption, according to which federal law supersedes conflicting state laws. The Supreme Court has identified two general ways in which federal law can preempt state law. First, federal law can expressly preempt state law when a federal statute or regulation contains explicit preemptive language. Second, federal law can impliedly preempt state law when Congress’s preemptive intent is implicit in the relevant federal law’s structure and purpose.” See https://fas.org/sgp/crs/misc/R45825.pdf.

While I am not going to discuss the finer points of the Constitution or detailed legal theory, the point is brokers’ lawyers like to use Federal Preemption to get their clients out of state court and into federal court, and away from state personal injury laws. However, the brokers’ lawyers now have a bit of hurdle to jump referred to as the “Safety Exception”

The “Safety Exception”

The lower federal courts are split on whether FAAAA preempts negligence claims against brokers. However, Miller v. CH Robinson is the first appellate court (Circuit Court) case to rule on this issue. The court ruled that Miller’s claim related to a claim against brokers, and therefore fell within the scope of paragraph one of the preemption clause. However, it also held that Miller‘s claim was saved from preemption by paragraph two, the so-called “safety exception“. The safety exception gives states the power to regulate motor vehicle safety, and is a way for plaintiffs bringing state law claims (e.g. – Personal Injury) to avoid federal preemption defenses and have their state law claims tossed.

The Ninth Circuit says “not so fast“.

As mentioned above, The ninth circuit court of appeals overturned the availability of preemption as a defense to third-party claims for freight broker negligence in personal injury cases. Again, remember that Plaintiff Miller alleged that C.H. Robinson negligently selected an unsafe motor carrier. The following summarizes the 9th circuit’s ruling.

“The Ninth Circuit agreed with the district court that plaintiff’s claim is “related to” C.H. Robinson’s services, but held that the district court erred in determining that the Federal Aviation Administration Authorization Act of 1994’s (FAAAA) safety exception does not apply. The panel explained that, in enacting that exception, Congress intended to preserve the States’ broad power over safety, a power that includes the ability to regulate conduct not only through legislative and administrative enactments, but also though common-law damages awards. The panel also held that plaintiff’s claim has the requisite “connection with” motor vehicles because it arises out of a motor vehicle accident. Therefore, the negligence claims against brokers, to the extent that they arise out of motor vehicle accidents, have the requisite “connection with” motor vehicles, and thus the safety exception applies to plaintiff’s claims against C.H. Robinson.” See https://law.justia.com/cases/federal/appellate-courts/ca9/19-15981/19-15981-2020-09-28.html.

Brokers: you’re on notice.

What’s A Broker To Do?

The bottom line is this decision is bad for freight brokers. Most caselaw across the country enabled responsible freight brokers to avoid liability for carnage caused by trucking companies they tender loads to. Indeed, if a freight broker confirmed the trucking company had active authority and was properly insured, most transportation lawyers would argue that the freight broker satisfied it’s due diligence requirements and duties under the law This case substantially increases freight broker profile and as such, exposes them to a substantial increase in risk and liability. In other words, freight brokers are now a far juicier target for plaintiff personal injury attorneys and another deep pocket to go after. We can expect Brokers will now be held to a higher standard in carrier selection and Plaintiff’s lawyers aggressively pursuing negligent hiring and negligent selection accusations, while trying to hold brokers vicariously liable for motor carrier negligence. I used to think one of the great advantages of being a freight broker was the ability to shield itself from the disasters that occur on the road – my sentiments have been shaken.

Another question is how the 9th Circuit’s ruling will affect brokers outside of the 9th circuit – there are jurisdictional issues to be considered as well.

I encourage all freight brokers to speak with an experienced transportation attorney to determine their duties and obligations in selecting carriers, so as to minimize their exposure in claims where broker negligence in carrier selection is alleged.

Contact Transportation Attorneys for legal advice on how to comply with the laws and regulations that confront your company.

US Supreme Court Or Bust! 9th Circuit Denies Rehearing Of CTA’s AB5 Challenge

by gspencermynko

On June 21, 2021, in CTA v. Bonta, the 9th Circuit Court of Appeals denied the CTA’s petition for a rehearing of the Ninth Circuit’s prior decision to reverse the district court’s preliminary injunction against AB5. As a result, the recent decision that gave the State of California the green light to use the “ABC” test against motor carriers remains in place. However, the injunction preventing the implementation of AB5 against motor carriers will remain in place pending an appeal to the U.S. Supreme Court.

The United States Supreme Court Or Bust : The highest court in the land is the final hope to rule that the “ABC” Test is preempted by Federal Law. As most of my readers know, on the eve of the implementation of AB5 and the dreaded “ABC“ test, a federal district court judge granted a request by the California Trucking Association for an injunction prohibiting the state of California from enforcing the law. The state of California appealed that decision to the Ninth Circuit United States Court of Appeals which overturned that decision. While the lower district court ruled that the CTA was likely to succeed on their claim that Federal law preempts AB5 (and specifically the “ABC“ test), the appeals court essentially stated exactly the opposite that the CTA was unlikely to succeed on their claim.  In a legal Hail Mary, The CTA requested a rehearing from the entire 9th Circuit (a.k.a. an en banc hearing). Well, apparently the judges of the Ninth circuit couldn’t care less and wouldn’t be bothered, as zero judges in the entire Ninth Circuit voted for a rehearing (The appeals court stated that the group’s petition “was circulated to the judges of the court, and no judge requested a vote for en banc consideration.”) The American Trucking Associations, the Western States Trucking Association and the Owner-Operator Independent Drivers Association (OOIDA) all filed briefs with the court in support of CTA’s rehearing request. Their arguments essentially restated that AB5 is a state law that impacts prices, routes and service, and therefore is preempted by the Federal Aviation Authorization Administration Act (F4A). OOIDA also arugued that AB5 “eliminates an entire category of motor carriers who rely upon independent owner-operators to do business and, therefore, subverts Congress’s intent to allow the market to dictate how motor carriers provide trucking services, to preserve and strengthen the independent owner-operator driver business model, and to preempt such pervasive state regulation” and that “the impact of AB 5 would have a far-reaching and immediate negative effect on a large part of the country’s economy“. Of course, these arguments didn’t register with the deaf ears of the 9th Circuit Court judges. As such, The CTA really only has one option left, and that is to appeal, with a hope and a prayer – indeed, another Hail Mary, to the United States Supreme Court to take up their cause.  Depending on how you look at the statistics, the CTA probably has a less than 3% chance that The US Supreme Court will open the door when they knock. In the event the High Court doesn’t say “come on down”, California trucking companies will be stuck having to deal with the ABC test or the “Business to Business Exemption” of AB 2257.… End of story.  ABF’inC Of course, everybody knows that the ABC test makes the use of independent contractor truck drivers by trucking companies impossible. As such, the only ray of hope, dim as it may be, is the business to business exemption laid out in AB 2257. This 12 criteria exemption is a legal minefield for the unwary, and successful navigation of the minefield doesn’t result in an automatic victory on the classification issue, but merely analysis based on the  “Borello” standard (also referred to as the “multi-factor” test or “common-law” test). In other words, if you satisfy ALL 12 CRITERIA of the B2B exemption, you have to justify your classification of an IC using the “Borello” test.  While that certainly restores the possibility of a trucking company hiring independent contractor truck drivers without breaking the law, it is no slam dunk. Therefore, if you are a trucking company that is going to continue to use independent contractors come hell or high water, you absolutely need to sit down with an experienced transportation attorney to determine whether you satisfy the business to business exemption of AB 2257 and the good old Borello test.   Is there any other way?  Of course, trucking companies can all simply treat their former independent contractors as employees and convince their owner operators to ditch their trucks. Maybe we can start a Go Fund Me page to pay off the loan balances on every tractor-trailer owned by a California owner operator. OK, I guess the chance of that happening is about the same as the chance that the United States Supreme Court will take up the CTA‘s appeal.  Alternatively, and a bit more seriously, I see two potential scenarios that are at least feasible, if not simple or easy. One scenario would be to convert your former owner operators to employees, which of course means giving them a W-2, putting them on payroll, withholding taxes, paying disability and unemployment insurance, paying Worker’s Compensation insurance, and of course complying with the California labor code. OK, but what about their tractors and trailers? Well, the trucking company could rent or lease the equipment of the former independent contractor, now employee. Of course, the employee would enjoy a stream of income from renting their equipment to the trucking company. Easy? No. Simple? No. Legal? Yes. While this is possible in my opinion, the devil lies in the details of this scenario and therefore it would be critical to speak with an experienced transportation attorney before implementing such a system. Scenario Two: The other model would be to simply form a freight brokerage. While this would require all of the former independent contractor/owner operators actually going out and getting their own authority, and thereby becoming actual trucking companies instead of just ICs, and hauling the loads under their own authorities, it is a plausible solution. The reason I can see this working is because if the ABC test becomes the law of California, then, I can foresee a new reality where there is an explosion of new trucking companies (the former O-Os with no authority) that will rely on brokered loads to make money. As such, the demand for freight brokers could very well rise. Time will tell what ultimately happens, but now is probably a good time to start preparing for a doomsday scenario. Again, assuming you wish to stay in California, California trucking companies need to figure out how they are going to navigate this narrow highway, and sooner rather than later. Still thinking about moving out of California? Of course, if you can put yourself in a situation where you do not fall under California’s jurisdiction, you won’t have to concern yourself about all of this crap. Now, that means running and operating your business from outside of California, and not contracting with independent contractors who are California residents. While there are a few other concerns in terms of escaping the long arm of California law, those two factors are the big ones.   That said, I have to rain on your parade to Texas a bit, because there is a big push to enact the “PRO Act“, which would implement a nationwide “ABC“ test. While that probably will not come to pass anytime soon, we all know that policies which start in California have a way of making their way across the rest of the country. Unfortunately, my crystal ball is broken, so I can’t say when a nationwide ABC test will come to fruition. I will predict that none of this will matter when self driving trucks are loaded and unloaded by armies of robots who won’t require meal breaks, rest breaks, compliant paychecks, or sexual-harassment training. But until then, I urge my readers to sit down with a Transportation Attorney to figure out Plan B, C, and D in the event the CTA is not successful with their petition to the United States supreme court.