|
Post by californiadude on May 26, 2011 14:19:47 GMT -5
California legislation AB 950
Page A Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Sandre Swanson, Chair
AB 950 (John A. Pérez and Swanson) - As Introduced: February 18, 2011
SUBJECT : Employment: drayage truck operators.
SUMMARY : Deems drayage truck operators to be statutory employees for employment purposes, as specified. Specifically, this bill :
1)Provides that for purposes of state employment law (including workers' compensation, occupational safety and health, and retaliation or discrimination) a drayage truck operator is an employee of the entity or person who arranges for or engages the services of the operator.
2)Defines "drayage truck operator" as the driver of any vehicle with a specified gross vehicle weight rating operating or transgressing through port or intermodal rail yard property for the purpose of loading, unloading, or transporting cargo.
3)Specifies that these provisions shall not be construed to deem a public agency the employer of a drayage truck operator without the consent of the public agency.
4)Makes related legislative findings and declarations.
FISCAL EFFECT : Unknown
COMMENTS : California is home to some of the largest and most complex port operations in the world. Together, the Ports of Los Angeles and Long Beach are the third largest port operation in the world and the busiest seaport in America. They handle approximately 43 percent of America's imports, including 62 percent of all shipments to West Coast ports from Asian exporters. In addition, the Port of Oakland is the fourth busiest port in the United States and handles more than 99 percent of the containerized goods moving through Northern California.
In many respects, the backbone of the complex intermodal transportation system is port trucking or drayage, which
AB 950 Page B generally involves the movement of shipping containers by truck via public roadway to or from the port. Port drayage is an important part of the local trucking industry that specializes in hauling container freights between port terminals and warehouses, retail establishments, manufacturers or rail lines. Port drivers are the individuals who pick up a container from a port terminal operation and haul it by truck from the port to the rail yard, warehouse or local delivery destination.
By some estimates, there are approximately 20,000 port drivers in California, including 16,000 at the Ports of Los Angeles and Long Beach, 2,500 at the Port of Oakland, and 1,500 at the smaller Ports of San Diego, San Francisco, and Stockton.
Over the years, concern has been expressed about the working conditions facing these port truck drivers. By many accounts, conditions facing port drivers began to change dramatically in the early 1980s. Prior to this time, port truck drivers had generally been recognized as employees, and many were unionized with union wages and benefits. However, following deregulation the industry began to shift and more of a reliance was placed on the use of independent contractors or "owner operators." There has been much debate over the years about whether this classification of drivers as independent contractors is lawful or instead represents a legal fiction. This particular question is not unique to the port drayage context, as concern about misclassification of workers as independent contractors has spread to many other industries.
Over the past decade, the Assembly Committee on Labor and Employment has held a number of hearings on this topic in order to hear from port drivers directly about their working conditions, as well as to explore potential solutions with interested stakeholders in the process.
Independent Contractor vs. Employee Status Generally
As much of the debate about the working conditions affecting port drivers centers on legal issues related to their classification as employees or independent contractors, it is useful to examine these issues is some detail.
Under California law, employment generally occurs when an
AB 950 Page C employer engages in the services of an employee for pay. The Industrial Welfare Commission Wage Orders define an "employer" as any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours or working conditions of any person. A common law employee is an individual who is hired by an employer to perform services where the employer has the right to exercise control over the manner and means by which the individual performs his or her services.
In contrast, California common law generally defines an independent contractor as any person who renders service for a specified recompense for a specified result, under the control of a principal as to the result of his or her work only and not as to the means by which such result is accomplished.
The party seeking to avoid liability as an employer has the burden of proving that persons whose services he or she has retained are independent contractors rather than employees. In other words, there is a presumption of employment. S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, (1989) 48 Cal. 3d 341; Labor Code Section 3357.
In determining whether an individual providing service to another is an independent contractor or an employee, there is no single determinative factor. Rather, it is necessary to closely examine the facts of each service relationship and to then apply a multi-factor or "economic realities" test. Borello at 351. An important, but not necessarily determinative, factor involves the independent contractor's right to control the manner and means of accomplishing the desired result. Other factors considered in this determination, as set forth by the Borello court, include the following:
Whether the person performing services is engaged in an occupation or business distinct from that of the principal. Whether or not the work is part of the regular business of the principal. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work. The alleged employee's investment in the equipment or materials required by the task. The skill required in the particular occupation. The kind of occupation, with reference to whether, in
AB 950 Page D the locality, the work is usually done under the direction of the principal or by a specialist without supervision. The alleged employee's opportunity for profit or loss depending on his or her managerial skill. The length of time for which the services are to be performed. The degree of permanence of the working relationship. The method of payment, whether by time or by the job. Whether or not the parties believe they are creating an employer-employee relationship
These "individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations." Id. As discussed above, although no single factor is decisive, the right to control the manner and means used is generally the most important factor. In addition, some administrative agencies have broadened the test to include other factors.
Why Is The Distinction Important?
The determination of whether a worker is an employee or independent contractor is important for a number of reasons, including what rights and remedies the worker is afforded under state and federal law, federal and state tax consequences for the employer, and the level of tax revenues for the state and federal government.
In general, independent contractors need not be covered by workers' compensation, do not have employment taxes deducted from their earnings, are not covered by many state and federal anti-discrimination laws, are not included under Cal-OSHA and federal OSHA in an employer's duty to provide a safe and healthy work environment, are not covered by state and federal wage and hour laws, are not entitled to unemployment insurance benefits from an employer's account, and are excluded from coverage under the National Labor Relations Act (NLRA).
History of Federal Deregulation of the Trucking Industry
The past three decades have witnessed a dramatic transformation in the trucking industry, in large part brought about by federal deregulation of the transportation industry generally that occurred beginning in the 1970s.
AB 950 Page E Beginning in the late 1800s, the federal government began regulating transportation companies to prevent railroads from charging unfair freight rates. It was also argued that regulation helped to protect transportation companies from unfair competition. Specifically, with the creation of the Interstate Commerce Commission (ICC) in 1887, the federal government began regulating rail carriers.
This reach was extended to the trucking industry during the New Deal. The Motor Carrier Act of 1935 gave the ICC the authority to regulate the motor carriers and drivers involved in interstate commerce by granting operating permits, approving trucking routes, and setting tariff rates. As one commentator has noted in explaining the rationale for regulation, "At the time, the federal government felt the need to control predatory pricing and what it perceived as unscrupulous business practices. New motor carriers popped up every day. One person who owned a truck could become a motor carrier simply by hauling one load for a local goods producer. A flood of able drivers and able equipment plummeted rates and owner-operators struggled to last. Having seen something like this before in the railroad industry, the federal government looked to the Interstate Commerce Commission to act<1>."
However, beginning in the 1970s, opponents of regulation argued for market (rather than a government) regulation of the industry. Deregulation advocates argued that consumers would see lower prices as a result of deregulation. As a result, Congress and the White House began the process of deregulation in the late 1970s, culminating in the Motor Carrier Act of 1980 which partially deregulated the trucking industry. When President Carter signed the Act he stated, "I am also particularly pleased that the bill will improve truck service to small communities and enhance business opportunities for independent truckers."
This process was essentially completed by 1996 with the abolishment of the ICC.
Deregulation of the trucking industry also occurred at the state level. Deregulation of "intrastate" trucking first began in Florida in 1980, followed in Maine and Arizona in 1982, and
--------------------------- <1> Grawe, Douglas C. "Have Truck, Will Drive: The Trucking Industry and the Use of Independent Owner-Operators Over Time." Transportation Law Journal, Vol. 35:2 (2008).
AB 950 Page F later in five other states. Finally, in 1995, the Trucking Industry Regulatory Reform Act (TIRRA) prohibited all states from regulating carriers' routes, rates, or services. However, states were still allowed to regulate such areas as safety, financial fitness, hazardous material movement, and vehicle size and weight.
Deregulation: The Good, The Bad and The Ugly
As one can imagine the debate over whether deregulation of the trucking industry was good public policy or not is one which is fiercely contested.
Noting the benefits of deregulation, one commentator has stated the following:
"In response to deregulation and the intense competition that followed, the trucking industry has changed the quality and types of services it renders. By most accounts, the resulting reductions in cost have been passed on to consumers. Today, trucking services are more responsive to our increasingly dynamic and complex economic environment, incorporating improvements in technology that have pervaded all industries.
Competition has resulted in increasing capital intensity in the industry, as firms strive to reduce average variable costs per load. Firms often are coupling with other transportation sectors to minimize the cost for specific delivery requirements by combining the efficiencies of different modes of transport<2>."
Much of the debate about deregulation has focused on the shift that has occurred from employee drivers to independent contractors or owner-operators. Proponents of deregulation contend that this has been a positive development:
"Owner-operators have long been an important component of virtually every segment of the trucking industry. They are used in most, if not all, sectors of the trucking industry, including but not limited to long-haul trucking, household goods moving, home delivery and intermodal operations. The
------------------------- <2> Engel, Cynthia. "Competition Drives The Industry." Bureau of Labor Statistics, Office of Employment and Unemployment Statitstics (April 1998).
AB 950 Page G reasons that independent contracting is attractive to both motor carriers and owner-operators are clear.
For motor carriers, owner-operators provide a number of advantages. Owner-operators quite often are seasoned business persons with truck driving experience who are highly skilled and motivated. The availability of such owner-operators and their equipment (through leases of equipment and driver services to motor carriers with operating authority) enables motor carriers to save on equipment and capital costs and provides flexibility to meet fluctuations in demand for trucking services. In addition, owner-operators, like other independent contractor business vendors, typically share the motor carriers' interests in meeting customer demand and increasing revenues and profits. In short, many motor carriers believe owner operator/independent contractors to be more productive, dedicated, and safety conscious than employee drivers.
"For owner-operators, independent contracting provides numerous advantages. The trucking industry offers a unique opportunity for individuals to begin their own businesses. Start-up costs in the trucking industry are within reason and reach of many small business entrepreneurs, consisting principally of the cost of a power unit and various licensing and insurance fees. Thus, while not inexpensive, an initial investment of $50,000 to $75,000 can place such a small business person in some segments of the trucking industry in a position to earn annual revenue of three times that amount. Motivated individuals can establish their businesses rather expediently while working with motor carriers to negotiate terms to the business contract commonly referred to as the lease. Owner-operators can eventually purchase additional trucks and trailers and employ drivers and other staff to assist in carrying out their business. While most will not have the success-or ambition-of J.B. Hunt, who started with five trucks and seven trailers in 1969 and took his company public in 1983, independent contracting in the trucking industry allows owner-operators to live out their own version of the American dream. Owner-operators feel strongly about their independent status. It allows them to run their own businesses, control their own finances, work the hours and
AB 950 Page H days they choose and ultimately control their working environment. Studies show high levels of job satisfaction among independent contractors<3>."
However, other commentators have a much different view of the effects of deregulation in general, and in particular on the impact this has had on individual drivers as they transitioned from employees to independent contractors or "owner operators":
"Port trucking, the segment of the freight movement industry that carries 80 percent of shipping containers between ports and warehouses or distribution centers, is an essential cog in the global trade system, but it suffers from excessive, destructive competition.
As a result of deregulation, the general public is placed at risk when sharing the road with increasingly dangerous and unsafe trucks and chassis, sometimes carrying overweight loads that have led to dangerous and deadly highway accidents. Unregulated trucks driven by so-called independent contractors have also added to a growing environmental crisis because of the inability of individual drivers to afford clean truck technology.
Low-paid drivers' financial inability to invest in clean trucks has led to a growing environmental crisis that pumps tons of dangerous toxins into the air residents near the port and along freight routes. The health impacts of diesel particulate matter in the air is negatively impacting human health and plaguing our health care system with otherwise preventable diseases like childhood asthma.
In addition to concerns over public safety, environmental impacts and the costs to public health systems, the quality of port trucking jobs has eroded significantly, forcing tens of thousands of working families into poverty. Drivers are misclassified as independent contractors by their companies in order to strip them of state and
------------------------- <3> "Use of Owner-Operators in the Trucking Industry." Prepared by Gregory M. Feary, Esq. on behalf of the American Trucking Association (December 5, 2008).
AB 950 Page I national labor and employment law protections, and to avoid financial liability for vehicle operations. As independent contractors, drivers are paid by the load and are responsible for all costs associated with truck ownership and maintenance. Without employment law protections, they lack the ability to raise rates when expenses rise, negatively impacting not only their own working conditions, but the well-being of their families, residents of communities located along freight routes, and the public at large.
Lack of incentives for licensed motor carriers to address the many negative impacts of trucking deregulation has also led to an increasingly inefficient drayage system that has failed to invest in improved communications systems and goods movement operations<4>."
Prior Research on Classification Issues and Impact on Port Drivers Generally
As discussed above, since the early 1980s the port drayage industry has experienced a shift from an employment-based model to an independent contractor or "owner operator" model.
As independent contractors, drivers are responsible for many of the costs associated with port trucking, including fuel, insurance, truck payments, repairs, maintenance, and other licenses, tolls, parking and tickets. Several years ago, a survey of Port of Oakland drivers found that drivers on average
--------------------------- <4> Bensam, David. "Port Trucking Down the Low Road: A Sad Story of Deregulation." Dmos (2009).
AB 950 Page J received $66,187 in gross annual earnings<5>. Truck expenses reduced their earnings by an average of $36,117 resulting in an average net income of $30,490.
This same report found that 62 percent of surveyed drivers reported receiving no health insurance of any kind, 17 percent receive health insurance through their spouse, 15 percent purchase insurance privately, and five percent are covered through a government-sponsored plan<6>. Thirty percent of the surveyed drivers reported taking themselves or a family member to the emergency room to receive medical care in the last year.
With respect to Southern California, one recent report estimated that in the Ports of Los Angeles and Long Beach, 88 percent of drivers were classified as independent contractors, with employee drivers accounting for 12 percent<7>.
Another study, prepared for the Gateway Cities Council of Governments found that the median driver's gross income of $75,000 per year drops 61 percent to $29,000 after accounting for these expenses<8>. This same study concluded that the average independent contractor earner $11.59 per hour, compared with the mean employee driver's earning of $16.30 per hour (or a 40.6 percent difference)<9>.
A 2005 study reported that only 10 percent of drivers had any health insurance and only five percent had any pension benefits<10>.
--------------------------- <5> "Taking the Low Road: How Independent Contracting at the Port of Oakland Endangers Public Health, Truck Drivers & Economic Growth." East Bay Alliance for a Sustainable Economy (September 2007). <6> Id. <7> "The Road to Shared Prosperity: The Economic Benefits of the San Pedro Bay Ports' Clean Trucks Program." Los Angeles Alliance for a New Economy (August 2007). <8> "A Survey of Drayage Drivers Serving the San Pedro Bay Ports," CGR Management Consultants, LLC, prepared for the Gateway Council of Governments, March 26, 2007. <9> Id. <10> Kristen Monaco and Lisa Grobar, "Study of Drayage at the Ports of Los Angeles and Long Beach," Department of Economics, California State University Long Beach, April 2005.
AB 950 Page K
More Recent Research Findings
A very recent research report<11> by the National Employment Law Project, Change to Win and others made numerous findings about the intermodal port drayage system in the United States. Specifically the report made the following research findings:
"The typical port truck driver is misclassified as an independent contractor: o Port drivers are subject to strict behavioral controls. Trucking companies determine how, when, where, and in what sequence drivers work. They impose truck inspections, drug tests, and stringent reporting requirements. Drivers' behavior is regularly monitored, evaluated, and disciplined. o Port drivers are financially dependent on trucking companies that unilaterally control the rates that drivers are paid. Drivers work for one trucking company at a time, do not offer services to the general public, and are entirely dependent on that company for work. Like other low-wage employees, drivers' only means for increasing their earnings is to work longer hours. o Port drivers and their companies are tightly tied to each other. Drivers perform the essential (and most often sole) services of the trucking companies they work for. Drivers work for years for the same company; use company signs and permits; represent themselves to others as being from the company; and rarely offer their work independently of the company. Classification of drivers as independent contractors drives the economics of the port trucking industry: o Based on surveys of 2,183 drivers in seven major ports, it is estimated that 82 percent of the nation's 110,000 port truck drivers are treated as
----------------------- <11> Smith, Rebecca, Dr. David Bensman and Paul Alexander Marvy. "The Big Rig: Poverty, Pollution and the Misclassification of Truck Drivers at America's Ports" (2011).
AB 950 Page L independent contractors. Industry analysts identify independent contracting as the industry's dominant business model which sets standards for all port drivers. Few other industries rely on anywhere near this proportion of independent contractors. o Through independent contracting agreements, leases, and other employment arrangements, trucking companies make drivers responsible for all truck-related expenses including purchase, fuel, taxes, insurance, maintenance, and repair costs. o Port truck drivers work long hours for poverty-level wages. Among surveyed drivers, the average work week was 59 hours. Average net earnings before FICA, income, and other taxes was $28,783 per year for contractors and $35,000 per year for employees. Minimum wage violations appear to be widespread. o In driver surveys, independent contractors reported average net incomes 18 percent lower than employee drivers did. Independent contractors were two-and-a-half times less likely than employee drivers to have health insurance and almost three times less likely to have retirement benefits. The misclassification of drivers in port trucking can be directly linked to safety violations and the environmental and public health crises at the nation's ports: o The literature on the industry describes how economic pressures encourage widespread evasion of safety regulations. Drivers commonly use dangerous and illegal equipment. Safety limits on working hours and vehicle weights are routinely ignored. o Industry observers have concluded that low-wage independent contractors bear the industry's capital expenses by owning and operating the only equipment they can afford - the oldest diesel trucks on the road. The environmental and public health crises surrounding the nation's ports are a direct result of the industry's adoption of misclassification as a business model."
Previous Legislative Oversight
The Assembly Committee on Labor and Employment conducted several informational hearings on working conditions affecting port truck drivers in recent years. At those hearings, testimony was
AB 950 Page M received from drivers, representatives of the trucking, shipping and terminal operator industries, local elected officials and members of the public.
The background material for the previous informational hearings included the following summary of the working conditions facing port truck drivers at the time:
"A vital component of this industry is port trucking or drayage, part of the local trucking industry that specializes in hauling container freights between port terminals and warehouses, retail establishments, manufacturers or rail lines. It is the first leg of transport after arrival at the ports.
There are an estimated 11,000 class A short-haul truck drivers in the L.A. basin, alone. The vast majority are newly arrived immigrants and 87% are owner-operators, considered to be independent contractors. They own their own trucks and pay the costs of fuel, maintenance of equipment, insurance, road taxes, license/permits and other fees and expenses of the job. They are also responsible for their own federal and state taxes, social security, disability, unemployment, workers' compensation and health insurance.
These truck drivers are paid "piece rate", that is, by the haul (load) rather than by the hour. They cannot access loads directly but are instead "deployed" by small trucking companies (more than 300 in the L. A. basin) licensed to do business in California as drayage companies. The trucking companies, either directly or through brokers, contract with steamship lines or shipping carriers to provide them independent truck drivers (owner operators/ independent contractors). This is done through the use of lease agreements between the trucking company and drivers.
Under the lease agreements, a company provided truck is signed over in title to a truck driver who then authorizes the company to deduct payments for the truck and vehicle insurance from his/her weekly compensation. Initially, most of these truck drivers cannot afford a down payment on a commercial vehicle, vehicle insurance, the cost of a motor vehicle permit, a Nextel cell phone or initial fuel credit. The authorization for deductions in weekly pay is the
AB 950 Page N means used to repay the start-up debt.
The driver must go through the trucking company dispatcher to receive any loads and compensation is based on how much is transported, not the amount of time worked. The truck driver earns nothing during waiting periods or while at the port terminal waiting to pick up or drop off cargo containers.
Generally, truck drivers start their day at 5:00 a.m. to insure a place in line by the 7:00 a.m. or 8:00 a.m. port terminal gate openings. They hopefully finish with a last load by the 5:00 p.m. gate closures. On average, this produces three moves or loads per day. The truck drivers' average work day is 11.6 hours and 50% or more of that time is "waiting time". Unpaid time waiting to pick up cargo cuts the number of runs truck drivers can make by half and limits their ability to make a living. After deductions for truck payments, vehicle insurance and the costs for fuel, equipment upkeep, road taxes and other expenses of the job, the net profit for many port truck drivers is as little as $20,000 to $25,000 a year, making them among the lowest paid truck drivers in the country.
Current business practices at the terminals result in trucks idling inside the port gates in excess of two hours and sometimes up to seven or eight hours during peak time. Existing law limits idling outside the gate to 30 minutes, but terminal operators skirt this law by simply moving the gates. The idling or queuing trucks emit smog, pollute the air and waste expensive diesel fuel. Drivers, port workers and local communities are being unnecessarily exposed to pollution due to the long hours of idling.
Moving the long lines at terminal gates inside the terminals has created other hazardous working conditions for drivers. The area inside the terminal is chaotic, with heavy equipment loading and unloading trucks. To avoid disrupting this work or risk of injury, drivers must wait hours in their trucks without restroom or lunch breaks. Oftentimes they are required to perform uncompensated tasks (work that is supposed to be assigned to longshoremen) while waiting for their load. Terminal operators require them to move containers between terminals without compensation, refusing to provide them their load if they
AB 950 Page O don't comply.
Truckers must often wait long hours inside the ports in order to obtain safe chassis and other equipment from the shipping companies and the shipping companies often fail to reimburse drivers for safety repairs incurred while in highway transit.
In addition, truckers are charged late fees for the return of empty containers, even when terminals are closed or when returned containers are refused due to congestion in the terminal. They are charged parking fees inside the terminal when their assigned space is unavailable, and are fined if they refuse to move containers to off docks and other locations.
Invoices are generated without any back-up information and completely at the discretion of the marine terminal. Marine terminals can "shut out" or prohibit trucking companies, owner operators, and drivers from operating if any bill is outstanding, regardless if the bill is disputed or not. Truckers must sign adhesive contracts with the foreign shipping companies if they want to work at the ports and they have no recourse to a neutral, third party for the resolution of disputes.
As a result of these and related conditions at the ports, many independent truck drivers are taking their services elsewhere. Many are abandoning the business altogether, bringing in less-skilled, often undocumented immigrant drivers with old rigs that are less reliable and more polluting. The turnover rate among port truck drivers is said to exceed 150 percent per year as they cycle in and out of the industry."
The California Air Resources Board Statewide Drayage Truck Regulation
In December 2007, the California Air Resources Board (CARB) approved a new regulation to reduce emissions from drayage trucks at California's ports and intermodal rail yards. CARB staff subsequently proposed, and the board approved, changes to the regulation at the CARB's December 17th, 2010 hearing. These changes will become law upon Office of Administrative Law approval.
AB 950 Page P
The regulation establishes requirements for drayage truck drivers, drayage truck owners, motor carriers that dispatch drayage trucks, port and marine terminals, intermodal rail yards, and port and rail authorities.
In general, the regulation requires emission reductions from drayage trucks as well as recordkeeping and reporting to help monitor compliance and enforcement efforts. The basic responsibilities for each stakeholder are as follows: truck drivers must provide motor carrier contact information, load destination, and origin to enforcement officers, if requested; truck owners are required to register their trucks in the State administered Drayage Truck Registry (DTR), ensure their trucks meet emission standards by the appropriate deadline dates (see table below), and ensure that emission control technologies are functioning properly; motor carriers must ensure that dispatched trucks are compliant with the regulation, provide a copy of the regulation to truck owners, and keep dispatch records for five years; and terminals are required to collect information from each noncompliant truck entering their facility and report it to their respective port or rail authority, who then reports this information to the CARB.
The regulation applies to all on-road class-7 and class 8 (gross vehicle weight rating > 26,000 lbs) diesel-fueled vehicles that visit California's ports and intermodal rail yards regardless of the state or country of origin or visit frequency. The regulation requires truck owners to register their trucks in the State run DTR prior to port or railyard entry. Truck owners are also required to meet emission standards according to a specified compliance schedule. After December 31, 2013, all drayage trucks must be equipped with a 1994 or newer model year engine that meets or exceeds 2007 model year California or federal emission standards.
Recent Port "Clean Trucks" Proposals and Subsequent Litigation
In recent years, there have been efforts to persuade California ports (and others across the nation) to take matters in to their own hands with respect to some of these issues. The most significant of these port proposals involved the Ports of Los Angeles and Long Beach.
In late 2006, the San Pedro Bay Ports of Los Angeles and Long
AB 950 Page Q Beach adopted an aggressive, comprehensive strategy to reduce port-related emissions by at least 45 percent over five years, a plan known as the Clean Air Action Plan (CAAP). One of the first major proposed initiatives under the Plan was the Clean Trucks Program (CTP), announced in April 2007. The articulated goal of the CTP was to cut air pollution from port trucks by more than 80 percent within 5 years. Under the proposal, drayage truck owners would scrap and replace the oldest of approximately 16,000 trucks and retrofit others, with the assistance of a port-sponsored grant subsidy.
Under the proposal, beginning in 2008 the ports would use their tariff authority to allow only concessionaires operating "clean" trucks to enter port terminals without having to pay a new truck impact fee at the gate. The concession companies would be required to use only trucks that meet the CAAP standard, which was defined as EPA-standard 2007 or newer trucks, retrofitted trucks manufactured in 1994 or after, or trucks that have been replaced through the Gateway Cities Truck Modernization Program. Year by year, the oldest trucks will be barred from the ports until finally only those that meet the CAAP standard will be permitted to work in the ports.
In addition under the proposal, licensed motor carriers would be required to pay a license fee to obtain a concession to operate in the ports, and after a transition period would be required to directly own, operate and maintain their truck fleet and employ the drivers directly.
As part of the Clean Truck Program development process, the Port retained various consultants. Primarily, the Port retained John E. Husing to conduct an economic analysis of the proposed Clean Truck Program. Mr. Husing prepared a presentation dated September 5, 2007, and a report dated September 7, 2007, known as the "Husing Report." The Husing Report concluded that:
"At its core, the Clean Truck Program is designed to reduce air emissions in a timely fashion yielding an economic benefit to the community of $4.7 to $5.9 billion due to a reduction in premature deaths, loss of work and fewer medical problems. Some 95% of this benefit will come from 230-1,450 people not dying. With the program in place, the ports will be in a position to get their infrastructure plans approved. This will allow them to expand to their
AB 950 Page R 42.5 million TEU capacity by the period 2020-2030. The result will be the ability of the ports to support 300,000 to 600,000 new jobs that would be lost if that infrastructure cannot be built. Unfortunately, there is a cost of attaining these goals. That will be the closure of some Ýlicensed motor carriers] and the loss of some of the non-driving jobs and small businesses involved with them, as well as the closing off of port drayage as a route to upward mobility for some workers. It is the type of choice that has led to the expression, 'there is no such thing as a free lunch.'"
In addition, the Husing Report concluded that the cost of using employee drivers would "be 167% higher than the cost of using today's Ýindependent owner-operators]." In aggregate, the report concluded that drayage services prices would need to increase by 80 percent to cover cost increases, including the cost of higher driver costs, truck purchases, and off-street parking.
The Port also retained the Boston Consulting Group ("BCG") to prepare an analysis of various options for implementation of the Clean Truck Program. BCG prepared a report that was released in March 2008, known as the "BCG Report." The BCG Report considered various options and determined that the proposed Concession Agreement, including the employee driver requirement, was the most likely to provide sustainable environmental, safety and security, and operational gains. The BCG Report stated that its Clean Truck Program Option III, which included the requirement for employee drivers, would add a $500 million annual operating cost to the cost of Port drayage, compared to an option without such a requirement. BCG also set out an Option II, "Enhanced Model with Market Incentives," under which the Port would adopt incentives and funding priorities "that should create market conditions to encourage the evolution" of the drayage market to meet port objectives, but without an employee driver provision. However, BCG concluded that the benefits from Option II would not be as great as from Option III.
On February 19, 2008, the Port of Long Beach adopted a clean truck program, but without an employee driver requirement. The Port of Los Angeles adopted their program on March 20, 2008. Most significantly, the Port of Los Angeles program required
AB 950 Page S drivers to be directly employed by the motor carriers<12>.
On July 28, 2008, the American Trucking Association (ATA) filed lawsuits challenging both the Los Angeles and Long Beach<13> clean truck concession programs (or portions thereof). On July 30, 2008, ATA moved for a preliminary injunction restraining implementation of the mandatory concession agreements.
On September 9, 2008, the District Court denied the ATA motion for preliminary injunction. However, this decision was appealed to the Ninth Circuit Court of Appeals, which reversed the lower court and remanded the case for further proceedings.
On April 28, 2009, United States District Court Judge Christina A. Snyder granted a preliminary injunction against those parts of the Los Angeles and Long Beach plans that were not directly tied to safety (as determined by the court). The ruling put a temporary end to the Port of Los Angeles' requirement that all trucking companies doing business at the port hire their drivers as employees.
On February 24, 2010, the Ninth Circuit affirmed the lower court's preliminary injunction, with one limited exception (related to a requirement that trucks display certain placards).
The trial on the merits was held before the District Court in April 2010. On August 26, 2010, the District Court made its determination. The specific preemption doctrines at issue in the litigation and the basis for the Court's decision are discussed in more detail below. However, essentially the District Court held that the employee driver requirement escaped federal preemption under a specified "market participant" exception.
Following the District Court ruling, the ATA requested an order that the preliminary injunction with respect to the employee driver requirement remain in place, which the Court granted. The ATA has appealed the District Court ruling to the Ninth Circuit Court of Appeals, where the case is currently pending. --------------------------- <12> The Port of Oakland adopted a clean truck program on June 16, 2009, but without an employee requirement. Allegations were made that the threat of litigation influenced the decision by the Port not to include the employee requirement. <13> The ATA settled their lawsuit with the Port of Long Beach out of court on October 19, 2010.
AB 950 Page T Oral argument in the case has been set for June 10, 2011.
A Brief Primer on Federal Preemption
The federal preemption arguments regarding the Port plan are complex, but important in understanding this issue properly. Moreover, opponents of this bill argue that it would be preempted by federal law on the same grounds as (they contend) the Port plan is preempted. Therefore, in considering this legislation it is useful to understand these preemption doctrines in some detail, and the arguments the respective parties have made about the issue.
(1) Federal Preemption Under the Federal Aviation Administration Authorization Act
The primary (although not the only) preemption argument raised against the Port plan was that it was preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAA Act).
Congress enacted the FAAA Act to achieve deregulation of the motor carrier industry, and therefore, included a broad preemption statute. The statute provides that, with regard to motor carriers, "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." 49 U.S.C. § 14501(c)(1). Therefore, for a state regulation to be preempted under the FAAA Act, the regulation must be "related to the price, route, or service of a motor carrier that transports property." Toucher v. City of Santa Ana, 219 F.3d 1040, 1047 (9th Cir. 2000), 219 F.3d at 1047. Relation to price, route, or service is found where "the regulation has more than an indirect, remote, or tenuous effect on the motor
AB 950 Page U carrier's prices, routes, or services." Id.
(2) The "Safety Exception" to Preemption Under the FAAA Act
The provision of the FAAA preempting state regulation "related to the price, route, or service of a motor carrier that transports property," contains an express safety exception to preemption. See 49 U.S.C. § 145019(c). Specifically, this section provides that the preemption provision "shall not restrict the safety regulatory authority of a State with respect to motor vehicles, the authority of a State to impose highway route controls or limitations based on the size or weight of the motor vehicle or the hazardous nature of the cargo, or the authority of a State to regulate motor carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self-insurance authorization." 49 U.S.C. § 14501(c)(2)(A).
The United States Supreme Court has held that, in order to fall within the safety exception, a statute, regulation, or provision must be "genuinely responsive to safety concerns." City of Columbus v. Ours Garage and Wrecker Service, Inc., 536 U.S. 424, 442, 122 S.Ct. 2226, 153 L.Ed.2d 430 (2002). In other words, a regulation does not fall under the safety exception if it is an economic regulation under the guise of a safety regulation. Id.
The Supreme Court has also held that the "narrowest possible construction of the exception" is "surely resistible," because the FAAA Act's preemption rule and the safety exception "do not necessarily conflict." Ours Garage, 536 U.S. at 441. Instead, the safety exception "seeks to save from preemption state power 'in a field which the States have traditionally occupied.' " Id.
(3) The "Market Participant" Exception
A provision of state or local law that is preempted under the FAAA Act and does not fall under the "safety exception" discussed above may nevertheless escape preemption under an additional ground: the "market participant" exception.
The market participant doctrine distinguishes between the role
AB 950 Page V of the state or local government as a regulator and its role as a market participant. Engine Mfrs. Ass'n v. South Coast Air Quality Management Dist., 498 F.3d 1031, 1040-41 (9th Cir.2007) ("Not all actions by state or local government entities ... constitute regulation, for such an entity, like a private person, may buy and sell or own and manage property in the marketplace."). In cases of statutory preemption, "the market participant doctrine is based on the proposition that 'pre-emption doctrines apply only to state regulation.' " Id. at 1040 (emphasis added). Therefore, if state action is proprietary, rather than regulatory, such action is not generally subject to statutory preemption. Id.
The Ninth Circuit has held that state action qualifies as proprietary in either of two circumstances. "First, state action is proprietary if it 'essentially reflectÝs] the Ýgovernmental] entity's own interest in its efficient procurement of needed goods and services, as measured by comparison with the typical behavior of private parties in similar circumstances.' " Engine Mfrs., 498 F.3d at 1041. Second, "state action is proprietary if 'the narrow scope of the challenged action defeatÝs] an inference that its primary goal was to encourage a general policy rather than address a specific proprietary problem.' "Id.
How The Court Has Applied The Preemption Doctrines to This Case Thus Far:
As discussed above, on August 26, 2010, the District Court issued a decision on the merits of the preemption challenge to the Port plan (specifically the employee driver requirement). A brief analysis of the Court's rationale is as follows:
(1) The Port Plan Falls Within the FAAA Act Preemption Clause
The District Court concluded that the employee driver requirements are "related to Ýmotor carriers'] price, route, or service," and thus fall under the preemption provision of the FAAA Act. Specifically, the Court stated the following:
"The evidence shows that the employee driver provision would affect motor carrier's routes or services, by prohibiting trucks driven by independent owner-operators
AB 950 Page W from providing drayage services to and from marine terminals at Ýthe Port]?Furthermore, the record demonstrates that the employee driver provision would significantly affect costs of drayage services. Therefore, the evidence shows that at least some of the increased costs of drayage services caused by the employee driver provision will impact drayage pricing, causing it to increase. Accordingly, the Court finds that Ýthe FAAA Act] preempts the employee driver provision, unless Ýthe Port] demonstrates that an exception to preemption applies."
(2) The Employee Driver Requirement Does Not Fall Under the "Safety Exception"
As discussed above, federal preemption under the FAAA Act contains an express exception for "the safety regulatory authority of a state with respect to motor vehicles."
However, the District Court held that the Port's employee driver requirement did not fall under this safety exception. Citing earlier language from the Ninth Circuit decision on the merits of the ATA's preliminary injunction, the Court stated:
"The Port of Los Angeles Concession agreement mandates the phasing out of thousands of independent contractors (many or most of them small businessmen who own their own trucks). In an attempt to justify this, the Port argues that there are 'Ýs]erious and longstanding safety problems' because of 'unsafe, negligent or reckless driving' that has subjected the Port to 'a risk of financial liability and moral culpability for failure to act to control actions by third parties.' Those concerns would allegedly be ameliorated because requiring employee drivers will provide 'control Ýto] the concessionaires as employers of their employee drivers to a degree not possible with casual or independent drivers.' We see little safety-related merit in those threadpaper arguments, which denigrate small businesses and insist that individuals should work for large employers or not at all. As it is, the record demonstrates that the Ports' primary concern was increasing efficiency and regulating the drayage market."
AB 950 Page X (3) The Employee Driver Requirement Nevertheless Escapes Preemption Under the "Market Participant" Exception
Despite finding that the Port's employee driver requirement was preempted by the FAAA Act and did not fall within the "safety exception," the District Court nevertheless held that the requirement escaped preemption under the "market participant" exception (discussed above.)
In relevant part, the Court stated the following:
"The Port's adoption of the Concession Agreement as a whole is an 'essentially proprietary' action under the market participant doctrine, because the Port took the action in order to sustain and promote Port operations. The Concession Agreement helps the Port manage its property and facilities as any private landlord and facilities operator would?
?While the Port had not previously required drayage services providers to contract with it to access Port property, it made an economically driven decision to do so via the Concession Agreement in its capacity as a landlord and facilities operator?
?As recognized by the Ninth Circuit, the employee driver provision was designed to transfer the financial burden of administration and record-keeping onto the trucking companies instead of the Port. This is clearly an economically motivated action, and one that a private company with substantial market power-such as the oligopoly power of the Port-would take when possible in pursuit of maximizing profit. The provision was also designed to help protect the Port's investment in retrofitted trucks?
?Consequently, the weight of evidence demonstrates that the employee provision was adopted to conserve administrative costs of the Clean Truck Program and protect the Port's investment in clean trucks."
Opponents' Comment on the Current Appeal
Opponents to this bill have stated that the ATA filed an appeal to the District Court's decision (which is currently pending). However, they note that the Port did not appeal the District
AB 950 Page Y Court's finding that the employee driver requirement did not fall under the "safety exception" to federal preemption. Therefore, they contend that that issue has not been challenged and therefore the only primary issue on appeal is whether the District's Court's determination regarding the "market participant" exception was correctly decided.
"Statutory Employees" Under the Federal Motor Carrier Act
Under traditional tort liability, an employer is generally not liable for physical harm and damage caused by an independent contractor. In the trucking industry, this raises obvious public safety concerns. Prior to the 1950s, it is reported that many motor carriers attempted to shield themselves from liability for the negligent act of drivers they utilized as independent contractors under lease agreements.
As a result, in 1956 federal law and regulations were amended to protect the general driving public. Language was added to the federal motor carrier safety regulations as follows:
"Employee means any individual, other than an employer, who is employed by an employer and who in the course of his or her employment directly affects commercial motor vehicle safety. Such term includes a driver of a commercial motor vehicle (including an independent contractor while in the course of operating a commercial motor vehicle), a mechanic, and a freight handler. Such term does not include an employee of the United States, any State, any political subdivision of a State, or any agency established under a compact between States and approved by the Congress of the United States who is acting within the course of such employment." (49 C.F.R. § 390.5)
Thus, the individuals driving the trucks under a lease agreement are essentially deemed "statutory employees" of the motor carrier for purposes of the safety regulations protecting the public.
In addition, with respect to the written lease agreements, the federal regulations require the motor carrier shall have "exclusive possession, control and use of the equipment" for the duration of the lease and shall "assume complete responsibility for the operation of the equipment" for the duration of the lease. (49 C.F.R. § 376.12(c)(1))
AB 950 Page Z
However, it is important to note that the regulations go on to state that, "Ýn]othing in Ýthese provisions] is intended to affect whether the lessor or driver provided by the lessor is an independent contractor or an employee of the authorized carrier lessee. An independent contractor relationship may exist when a carrier lessee complies with Ýthese requirements]" (49 C.F.R. § 376.12(c)(4))
Is The Establishment of "Statutory" Employment Protection Unprecedented Under State Law?
Under current law, there are already a number of circumstances where state law deems an individual to be an employee for specified employment purposes. This is referred to as designation as a "statutory employee." A "statutory employee" is defined as an employee by law under a specific statute, whereas most individuals are determined to be an employee under the common law test described above.
According to EDD<14>, certain groups of workers have been specifically covered by state law for Unemployment Insurance, Employment Training Tax, and State Disability Insurance purposes.
Under California law, "statutory employees" include workers performing services for an individual or entity in a continuing relationship as:
An agent-driver or commission-driver engaged in distributing meat, vegetable, fruit, or bakery products, beverages (other than milk), or laundry or dry-cleaning services for his/her principal. A traveling or city salesperson, other than an agent-driver or commission-driver, working full time on behalf of their principal (except for sideline activities on behalf of some other person), taking orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments for merchandise for resale or supplies to be used in their own business operations. A homeworker performing work, according to specifications furnished by the person for whom the
-------------------------- <14> See EDD Information Sheet DE 231SE
AB 950 Page A services are performed, on materials or goods furnished by that person which are required to be returned to that person or a person designated by him/her.
"Statutory employees" also include certain unlicensed individuals working in the construction industry, certain authors or artists in the motion picture, radio or television industry, and certain authors of commissioned or specifically ordered work.
Therefore, supporters of this bill argue that it is not unprecedented for certain types of individuals to be treated as employees for specified employment purposes by statute.
Prior Legislative Proposals
In prior years, there have been several legislative proposals aimed directly at port drivers and their classification as employees or independent contractors.
In 2005, the California Teamsters Public Affairs Council sponsored Senate Bill 848 (Dunn). Senate Bill 848 would have utilized the "state action doctrine" of federal antitrust law to authorize port owner-operator drivers to organize collectively to better their economic conditions through joint negotiations with port motor carrier concerning their compensation, benefits, and terms and conditions of engagement.
Governor Schwarzenegger vetoed Senate Bill 848 on September 29, 2005 and stated the following in his veto message:
"While this bill is meant to improve the economic clout of port owner- operator drivers, its provisions could violate federal antitrust law and result in many unintended consequences. This legally doubtful attempt at an antitrust exemption, or untried expansion of state regulation, is sure to become a legal battleground.
California ports face heavy congestion and air quality problems.
AB 950 Page B Motor carriers, drivers, port operators and shippers have worked cooperatively to address these issues in recent months. I recently signed Senate Bill 45, which was cooperatively negotiated between both the trucking companies and drivers, protects drivers from being assessed fees for circumstances that are out of their control, including locked gates, employee lockouts and traffic congestion.
The litigious firestorm this bill would assuredly ignite is counter- productive to the cooperative work that must be accomplished to capture the economic potential afforded by the growth in international trade."
In 2006, State Senator Dunn introduced a nearly identical bill, Senate Bill 1213, that was similarly vetoed by Governor Schwarzenegger.
Moreover, there have been numerous bills in recent years to address port issues generally, some of which would have directly or indirectly impacted the working conditions of port drivers.
ARGUMENTS IN SUPPORT :
Writing in support of this measure, the California Teamsters Public Affairs Council states the following:
"These drivers - mostly vulnerable Spanish-speaking immigrants unaware of their legal rights - have no choice but to go along with being misclassified as an "independent contractors." Port trucking companies misclassify drivers not only to evade legal mandates such as minimum wage laws, employment tax payment and workers' comp coverage, but also in order to thrust onto drivers virtually the entire cost of doing business by requiring drivers to supply their own trucks and deducting from their pay numerous operational costs, including maintenance, repairs, fuel and insurance - costs that the Labor Code prohibits imposing on employees.
AB 950 Page C These workers bear no resemblance to bona fide "independent contractors." They plainly lack decision-making control of an entrepreneurial nature. Unless a driver possesses his own "operating authority" from the U.S. Dept. of Transportation, he isn't allowed even to advertise himself to shippers as being in the truck delivery business let alone permitted to haul their freight. Nor do port drivers have true entrepreneurial opportunity to profit by selling driving services to multiple trucking companies. Most of these drivers no longer even own their own trucks. A port driver isn't in a position to negotiate his rates, as he can't influence the rates paid by shippers to a trucking company. Port drivers also lack power to decide whether or in what manner to divide work among two or more companies; instead, drivers are at the mercy of their employer's power to terminate without cause, and also are constrained by, among other things, contractual restrictions, maximum hours regulations, and frequent limits on their productivity due to chronic port gridlock.
The indisputable reality is that port drivers misclassified as "independent contractors" do exactly the same work as the much smaller group of port drivers who some trucking companies have hired as "employees." Both groups carry out the employer's core business: carrying goods to and from the ports. Single-truck port drivers are simply a lower cost alternative to using employee drivers. They do not compete with other trucking companies; they compete with other minimum wage workers in the lowest level of the labor market. They are nothing less than sharecroppers on wheels.
The price for
|
|