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California Court Ruling Targets Independent Contractor Classification

Discussion in 'General Expediter Forum' started by Lawrence, May 3, 2018.

  1. Lawrence
    EO4ME

    Lawrence Founder Staff Member

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    Serious news out of California. This could be the beginning of the end for O/O's in California.

    I could see an exit of lot's of business out of that state. If you're a Independent driver...read this.

    California Supreme Court Clarifies Test for Employment Status Under IWC Wage Orders

    As clients of the firm will know by now, on Monday, April 30, the California Supreme Court issued its long-awaited decision in Dynamex Operations West Inc. v. Superior Court, addressing the standard for determining whether workers are employees or independent contractors under California’s wage and hour laws. As has been widely reported, the Court held that workers are employees under California’s Industrial Welfare Commission (IWC) wage orders (Wage Order No. 9 covers transportation employees) if an employer “suffers or permits” them to work, and that this open-ended standard should be analyzed under the similarly broad ABC test employed in some jurisdictions. While the “suffer or permit” language is found in an IWC order, the Court’s adoption and interpretation of the ABC test is premised expressly and exclusively on the Court’s belief that California public policy favors the classification of most workers as employees.

    The Dynamex decision raises as many questions as it answers, and it would be premature to issue sweeping conclusions or definitive forecasts about its eventual impact. Greg Feary and the Owner-Operator Practice Section, along with Jim Hanson and the Class Action Practice Section, and their respective teams, including several of the firm’s California-licensed attorneys, are developing guidance to address the decision both on an operational level and in connection with ongoing cases. For now, here are some preliminary observations about the Court’s decision and its potential implications:

    What did the California Supreme Court decide? The California Supreme Court held that the common law “Borello” test for determining employment status, set out in the case of S.G. Borello & Sons Inc. v. Department of Industrial Relations, does not apply to wage and hour claims based on California IWC wage orders. Instead, based on the IWC’s definition of employment, an employee is anyone a business “engage[S], suffer[S] or permit[S]” to work as an employee. The Court held that this standard has to be analyzed under the so-called ABC test used in other jurisdictions. Under the ABC test, a worker is presumed to be an employee unless the business proves that (A) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) the worker performs work that is outside the usual course of the hiring entity’s business; and (C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

    When can a driver be an independent contractor under the B prong? The typical argument is that drivers are employees under the ABC test because they perform work within the usual course of a carrier’s business. That was the argument in Dynamex. The Court did not decide the question, but rather held that the question was sufficiently common to all class members to be resolved collectively. Still, language in the Court’s opinion is troubling. For example, the Court explained that skilled workers like electricians and plumbers hired to perform their trade services would not be considered employees if their services were not part of the hiring entity’s core business. The Court particularly suggested that delivery drivers such as those serving Dynamex were likely employees because Dynamex was in the delivery business. Still, the Court suggested (although without explanation) that there may be “other types of businesses in which the delivery of a product may or may not be viewed as within the usual course of the hiring company’s business,” and it remains to be seen, for example, whether drivers of business vehicles and heavier vehicles might yet be viewed as distinct from small vehicle delivery drivers like those of Dynamex so as to meet the B prong (for example, many Dynamex drivers operate smaller vehicles (many personal autos) and do not need a CDL, and, with limited exceptions (such as hazardous materials), are not covered by the FMCSRs.

    The legion of cases across the United States finding drivers to be independent contractors, coupled with the fact that independent contractor truck drivers are truly independent as evidenced by the fact they have their own trade associations, including OOIDA, suggest that there should be space for independent contractor drivers, even in California. Moreover, an interpretation of the B-prong as comprehensively prohibiting truck drivers from providing services to motor carriers as independent contractors would seem to be the kind of direct economic regulation prohibited by the Federal Aviation Administration Authorization Act (FAAAA). The First Circuit Court of Appeals struck down Massachusetts’ statutory ABC test under the FAAAA for this reason.

    What was driving the Court’s decision? The 86-page decision copiously chronicled the history of the application and purpose of certain independent contractor tests and expressly evoked the child labor law protectionist views of the early 1900s to support the Court’s expansive determination of employer status. The Court made it clear that its decision was based almost exclusively on its belief that workers in California should generally be employees. As the Court stated, “adoption of the exceptionally broad suffer or permit to work standard in California wage orders finds its justification in the fundamental purposes and necessity of the minimum wage and maximum hour legislation in which the standard has traditionally been embodied,” and “[t]reating all workers whose services are provided within the usual course of the hiring entity’s business as employees is important to ensure that those workers who need and want the fundamental protections afforded by the wage order do not lose those protections.” Consistent with this policy preference, the Court dismissed as irrelevant the undeniable fact that many drivers prefer to operate independently. First, according to the Court, the state’s interest in securing wage and hour benefits afforded to employees outweighed any personal choice. And second, if workers were permitted to operate independently, other workers would be displaced because businesses would prefer to retain the services of independent contractors.

    When does the Dynamex test apply? The Court stated that the ABC test applies to claims arising under IWC wage orders, and cited claims for minimum wages, overtime, meal and rest breaks, and wage statement violations as examples. The Court of Appeal held that the plaintiffs’ claims for unreimbursed business expenses under Labor Code § 2802 were not subject to the test. The California Supreme Court did not address that issue, and while it suggested that the employment status of workers pursuing such claims would remain governed by the Borello test, the issue remains open and will likely be the subject of litigation in the near future.

    What comes next? As noted above, the firm is hard at work developing guidance for our clients on this significant development. On the operational side, the Court’s decision may support more robust adoption of the settlement carrier model as a way of further highlighting the independence of owner-operator drivers. Given the nature of the Court’s holding, a legislative response is an option to be considered.
    For questions about the California Supreme Court decision, please contact Jim Hanson or Greg Feary.
    ###


    Scopelitis Transportation Law Alerts are intended as a report to our clients and friends on legal developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.


    © Scopelitis, Garvin, Light, Hanson & Feary, P.C. 2018. All rights reserved.
     
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  2. geo
    Bashful

    geo Veteran Expediter Charter Member Owner/Operator US Navy

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    California is always trying ways to get more money. at one time if you were in military and serviced in state and retired they wanted you pay taxes on your retirement to them to. until law was change.
     
    • xmudman

      xmudman Veteran Expediter Owner/Operator

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      Would I be wrong if I thought this would be a boon for neighboring states? At the least, I can foresee more crossdocks being built


      Sent from my iPhone using EO Forums
       
    • BigStickJr

      BigStickJr Veteran Expediter Retired Expediter

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      They can build all those cross docks next to all the cross docks built near the Ca line because of CARB.
       
    • piper1
      Adorable

      piper1 Veteran Expediter Owner/Operator

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      I haven't seen all these crossdocks......building process must be held up with permit problems:rolleyes:.
       
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    • Grizzly

      Grizzly Veteran Expediter Owner/Operator

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      I look forward to Uber filing for chapter 11 & sinking like the titanic.

      The past few years have been dominated by hysteria from tech companies & venture capitalists. Meanwhile many of these companies haven't turned a profit yet. Let's get back to revering companies that are actually profitable!
       
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    • Grizzly

      Grizzly Veteran Expediter Owner/Operator

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    • blizzard2014

      blizzard2014 Rookie Expediter Driver

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      The only real problem I have with companies labeling cargo van drivers ad independent contractors is that they do not allow us to receive work from other carriers. All contractors, HVAC, plumbers, and the like will receive job offers from many different companies. They do not work at the same job site day in and day out. Also, companies that do not pay FICA taxes and other taxes for their employees are actually able to lower their bids on loads because they do not have to pay the same fixed expenses as companies that do pay their drivers as employees. Most mom and pop expedite companies would not be able to remain in business if they had to pay FICA and other taxes for their drivers. They would have to fold or raise their rates. In the end, it's the driver that loses. No social security retirement and no Medicare. No safety net unless they pay the 12 percent FICA taxes and 6 percent Medicare taxes themselves. When you deduct that from the net pay of what some cargo van drivers earn, there really is very little left in profit. Why can't the rates be raised in order to provide a decent living to the drivers who spend most of their lives out there on the road? Why have we degraded the industry so much that everyone is barely able to survive. Capitalism is wonderful, but it can also be abused. I see this happening in many industries. Currently I'm in the janitorial industry and they are doing the same thing. One company bided so low on a cleaning contract that they tried to get two people to clean a 50 thousand square foot building in 8 hours. Four hours a piece. No matter how fast we worked, the work could not be completed. I mean running around and throwing things around and getting hurt type of fast and the work could not be completed. All so they could steal that contract from a company that bid the proper cleaning time and money it takes to pay their employees and to purchase good cleaning equipment. Capitalism running wild is rife for abuse and it's the worker who pays the price for this. That is why the teamsters union was created to provide better working conditions for drivers. So that drivers did not have to drive without rest breaks. People are not machines. We break down. We get sick. We are not statistics.
       
    • blizzard2014

      blizzard2014 Rookie Expediter Driver

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      One of the biggest reasons why the government has to get involved with businesses is because they always refuse to do the right thing. They never self-regulate They push and push and push until their workers push back. I am at a new cleaning company now and have plenty of time to complete my work. We have a very low turnover rate here. At the other big box office cleaning company, they have a 140 percent turnover rate in an industry that has a 90 day turnover rate for most cleaners. So, their workers got together and voted in the union. The service sector union and the company is now being investigated for forcing workers to clean more areas than any able bodied worker can do. One college where they took over the contract from another cleaning company, they tried to get more work done with half the amount of cleaners and it became a huge court case out here. They had to hire the same amount of workers as the other company had. That is because large areas of the college were not getting cleaned properly because workers could not keep up with the work. If expedite companies would do the right thing and self-regulate, big government would not be needed to come in and play nanny in their operations. Panther regulates drivers on how much they can drive in a day. It is a start. I didn't like how they regulated their policy, but it helps cut back on unsafe drivers. It's simple. If you have happy employees, you don't have them suing to the federal government for help, or running to unions for help. I'm glad my new cleaning company does not belong to the union. It saves me 20 dollars a month. Also, they do not need to be in the union. They give me more time to clean a 15 thousand square foot building than the first company did for half of a 50 thousand square foot building. I can work at a moderate pace and still get done early and I can actually take my 15 minute break. At the other company, I could not even take my 15 minute break. I also had to work for free some days staying extra to get work done. Don't abuse your contractors and they will be happy.
       
    • Lawrence
      EO4ME

      Lawrence Founder Staff Member

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      The carriers who practice this have some of the lowest turnover rates. Others? Not so much.
       
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    • blizzard2014

      blizzard2014 Rookie Expediter Driver

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      I'm not a fan of government getting involved in businesses, but sometimes businesses go to far. Drivers too. Some of us drive long miles when we know better. We know it's not safe, but all we see are dollar signs. Bolt Express and Arrow Freight Systems were the only companies that I worked for that I would not change one thing about. They made doing business easy. They both stated in orientation that they will give you as many miles as you want, but if you accept a load you better be able to complete it. They never forced long loads on anyone. You were the one to decide what you could handle. Pay was always prompt and accurate. They would actually call you and ask you if you wanted the load before they bid on it, and they would even give you extra time on a load if you asked them to bid with extra time because you knew you would need a break. No hassles. Coming from Panther it was a breath of fresh air. No complicated rules. Just a simple system that served everyone well. I assume there are quite a few other companies out there that also treat their drivers well and would never need any outside agency to come in and regulate them. Load One is one I can think of. Panther, while having the thousand mile 16 hour rule, is trying to regulate. The way they implement that rule is dangerous. They once had me stop for a 5 hour break when I was wide awake. I sat in the front seat the entire time. Then when it was time to complete the last 300 miles of the run, I was fighting to stay awake the entire time. I told them I did not need the break and they forced me to take a break when my body was not tired. I would have stopped if I needed to. I just wish companies would work together with uniform rates and uniform delivery times/rules. Competing on rate and the 45 MPH average are not where companies should be competing.
       
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