California Gov. Jerry Brown on Friday signed a law, SB1402, that would make shippers jointly and severably liable for the unpaid wage, tax and workers’ compensation liability of port trucking companies.
An article discussing the law by Benjamin Ebbink of the Fisher Phillips law firm succinctly summarized the implications with the following headline: “Am I My Brother’s Keeper? New California Law Says If You Do Business With a Port Trucking Company Then, “Yes You Are!”
Ricardo Lara, the sponsor of the bill, indicated the bill is targeting the retail industry, saying last month in a statement, “Retailers have been leaders in ending exploitation in overseas factories. They can be a force in creating good jobs for American workers here at home.”
“California’s 25,000 port truck drivers routinely face wage theft and illegal pay deductions while hauling goods for the world’s biggest brands,” Lara said, adding the bill “makes retailers jointly liable for violations of state labor and employment laws when they hire port trucking companies with unpaid final judgments for failure to pay wages, imposing unlawful expenses on employees, failure to remit payroll taxes or provide worker’s compensation insurance, misclassifying employees as independent contractors and other labor law violations.”
The Teamsters and other groups have been campaigning for years to have port drayage drivers recognized as employees and not independent owner operators, and supported Lara’s bill.
Fred Potter, the director of the Teamsters Port Division, said “More than a decade of court rulings, media stories, and independent reports have revealed rampant labor violations in the port trucking industry, and the State Labor Commissioner has awarded tens of millions of dollars to hundreds of drivers for wage theft due to misclassification as independent contractors.”
The bill requires California’s Division of Labor Standards Enforcement (DLSE) to post a list of the names of port drayage companies with “any unsatisfied final court judgment, tax assessment or tax lien that may be released to the public,” including findings of misclassification of employees as independent contractors.
The bill provides “each and every customer that engages or uses a port drayage motor carrier to provide port drayage services in a given workweek shall be jointly and severally liable with the motor carrier for the full amount of all unpaid wages, unreimbursed expenses, damages and penalties, including applicable interest, which are found owed by the motor carrier for that workweek. The customer shall be jointly and severally liable from the time the driver is dispatched to begin work on behalf of the customer until all tasks are completed incidental to that work, including the return of an unladen chassis or intermodal container to its point of origin, and the driver is ready to be dispatched to haul freight on behalf of another customer.”
The California Trucking Association said it had originally opposed the law “because of concerns the process and implementation of the policy of creating a blacklist for certain operators could hurt good actors and cause a shift of cargo away California’s ports.”
But in a letter to Lara in July, the California Trucking Association removed its opposition, saying amendments to the bill “will ensure companies are able to use all their legal remedies to appeal decisions from the labor commissioner and be properly notified before they are placed on any list. In addition, the inclusion of a 90-day grace period for cargo owners will provide time for a smooth transition away from bad actors and continue the flow of goods out of the ports.”
Weston LaBar, the chief executive officer of the Harbor Trucking Association, which represents port trucking companies in California, said he did not think the law would have a big effect on the port drayage business because of “clarifying language that it is prospective and is only applicable to cases moving forward.”
The law goes into effect Jan. 1.
He noted that the law applies not just to claims of worker misclassification but other claims such as complaints about violations of wage and hour laws.
LaBar is concerned the law could put California ports at a competitive disadvantage when competing for discretionary cargo that also could move through other ports.
He also expressed concern about future exposures that the drayage industry may face if subsequent legislation modifies and changes the focus of the new law.
He said his organization preaches best practices and that its members do everything they can to comply with the law, “so hopefully we won’t see a whole lot of these actions going forward.”
LaBar did not believe the law will result in many port trucking companies switching from using independent owner operator drivers to employers.
“That’s not going to happen because the drivers in many instances have no interest in being employees,” he said.
In his article on the law, Ebbink said, “Companies that engage with or use port trucking companies will need to develop protocols to monitor the DLSE ‘blacklist’ to determine whether any potential contractor falls on that list. Businesses may wish to build in disclosure and notification requirements (or other due diligence processes) before engaging the services of a port trucking company. Finally, potential ‘customers’ may wish to consult with counsel to discuss contract provisions or other methods to minimize any potential liability when dealing with port trucking companies.”
Peter Friedmann, an attorney who is executive director of the Agriculture Transportation Coalition and counsel for the Coalition of New England Companies for Trade and the Pacific Coast Council said "In the interests of fairness to the shippers, as well as achieve the State's objective that all dray truck drivers are compliant with the California employment laws, it is essential that the California Attorney General or some other State entity maintain and make publicly available, a complete list of those drayage companies which the Attorney General believes to be non-compliant. In this way, and exporter or importer, freight forwarder or other entity can be assured that it is working with a compliant drayage trucker."
"The worst result would be for a shipper to have no way of knowing in advance of contracting with a drayage trucker, whether or not that trucker is compliant. Further, if a shipper contracts with a drayage trucker which is not on the Attorney General's non-compliance list, then should the Attorney General subsequently determine that trucker to be non-compliant, the shipper should not be held liable under this Act," he said. "As long as the Attorney General and the state of California maintain an accurate list, then I think this system can be reasonably implemented."