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Los Angeles sues port trucking companies over lease-to-own

Image: Jim Allen/FreightWaves

Trucks wait to be loaded at the port of Los Angeles in 2012. 

CA judges say it’s illegal to classify port truckers as independent contractors

Three trucking companies operating at the twin ports of Los Angeles and Long Beach, California, were sued by L.A. City Attorney Mike Feuer last week over allegedly abusive labor practices. CMI Transportation, K&R Transportation, and California Cartage Transportation Express, all businesses recently acquired by New Jersey-based NFI Industries from California Cartage, were accused of misclassifying their employees as independent contractors and locking them into exploitative lease-purchase agreements. 

NFI Industries, a 3PL giant with nation-wide interests, may have an opportunity to reform one of the most obscure, shadowy segments of the American labor market. NFI’s website prominently displays commitments to sustainability and corporate responsibility, highlighting their generous contributions to the National Multiple Sclerosis Society, and the company enjoys wide respect in the warehousing and freight sectors. 

NFI purchased the dray-port operator back in October 2, 2017, so all the claims predated the company’s involvement. Port dray has been under the microscope for a number of years and only recently has attracted large-scale 3PL and truckload operators with business scope outside of the ports. NFI’s involvement will hopefully clean up practices that have received a lot of negative press. 

Los Angeles’ lawsuit said that the port trucking firms “exert near complete control” over the drivers’ schedules, forced them to absorb tens of thousands of dollars of fuel and insurance costs. “This abuse, this disgraceful exploitation has to stop,” Feuer said at a press conference. 

“We’re trying to create systemic change, and we’ll continue to investigate other companies as well,” Feuer said. 

The International Brotherhood of the Teamsters quickly released a statement in support of the suit. “The Teamsters applaud Los Angeles City Attorney Mike Feuer for taking aggressive action against these market-leading companies – K&R Transportation, CMI, and California Cartage Express – which continue to violate the law even after determinations by the California Labor Commissioner that they are openly violating the law,” said Fred Potter, Director of the Teamsters Port Division and International Vice President. “We hope this will send a strong message that not only these companies, but the entire port trucking industry must stop breaking labor laws.”

According to the Teamsters, in recent years, California Cartage has faced four class action lawsuits in California Superior Court for multiple Labor Code violations, including willful misclassification, unlawful deductions, unreimbursed expenses, unpaid minimum wages, and failure to provide meal and rest breaks, along with violation of California’s Unfair Competition Law. In December 2017, the last pending case settled for $3.5 million and a motion for final approval is scheduled for April 2018.

USA Today has reported that more than 1,100 California port truck drivers have filed labor complaints in civil court and with the state labor commissioner since 2008. The drivers have won more than 97% of those cases, with judge after judge ruling that it’s illegal to classify port truckers in California as independent contractors. If the drivers are counted as employees instead of contractors, then they must be paid at least minimum wage and can’t be charged for the equipment they use at work.

That year a new California environmental law required trucking companies serving state ports to replace old trucks with new, cleaner rigs. For decades, the short-haul port drivers had used beat up, obsolete old clunkers to run their routes, avoiding large up-front investments in equipment and deferring maintenance costs as they ran the old rigs into the ground. But when state officials ordered the 16,000 trucks serving the ports to be replaced with modern, cleaner vehicles, the sector faced a $2.5B price tag unlike anything it had ever experienced. To avoid the cost, many companies pushed their independent drivers into lease-to-own contracts that they didn’t understand and could not afford.

Under these lease-to-own contracts, drivers were forced to drive long hours, even 16 hours straight, were sometimes locked into gated lots and kept from going home, and received minuscule paychecks, sometimes netting less than a dollar a pay period. One driver profiled by USA Today, Samuel Talavera, Jr., couldn’t afford to fix his truck when it broke down, and his employer, QTS seized the truck and kept the $78K Talavera had paid towards owning it.

Some shippers have responded quickly to the news of the port trucking companies’ labor practices. Goodyear Tires took immediate action. Spokesperson Keith Price said that in 2015, Goodyear dropped port trucking company Pacific 9 “within two weeks” of California labor commission decisions in favor of dozens of drivers. Amazon and Walmart have begun audits of their supply chains to ensure that they aren’t enabling worker abuse. 

Other shippers, like LG Electronics, have disclaimed any responsibility to change their business practices. “We’re not trying to wash our hands of this issue,” said John Taylor, a spokesman for LG Electronics, “but it’s frankly far afield” and “really very disconnected from LG Electronics.” Target spokeswoman Erika Winkels simply said, “Target doesn’t have anything to share here.”

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John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.