Draymen: Independent contractors to employees

   More and more drayage drivers in the Southern California area are joining protests aimed at getting local trucking companies to reclassify them as employees, not independent contractors.
   But the real action is happening in court rooms throughout the state, and potentially throughout the country.
   According to Long Beach, Calif.-based trade attorney Cameron Roberts, there has been a cluster of court cases in the last six months that could have a major bearing on whether trucking companies are able to preserve the current independent contractor-based model for harbor drayage.
   The majority of these cases don’t directly involve drayage, but Roberts argues decisions in these cases could impact future decisions by California courts. The Teamsters union and truck driver advocate groups have been making a major push over the holidays to highlight what they term “wage theft” by trucking companies that are benefitting by paying dray drivers by the move, rather than by the hour.
   Drayage companies, meanwhile, argue that a wholesale change to the way they pay drivers would unbalance the entire drayage industry. Failing an increase in rates that beneficial cargo owners pay for drayage, a move to hourly pay for employee drivers would be unsustainable, the companies say.
   Roberts, in a presentation to the Harbor Transportation Club in Long Beach mid-November, said recent decisions don’t bode well for companies providing drayage services that want to keep the independent contractor model intact.
   He said California law puts the burden of proving a driver is not an employee on the company—in other words, someone doing work for a company is considered an employee until proven otherwise.
   He noted that California has a 10-point test for proving that a driver is an independent contractor, not an employee. That’s a far higher threshold than exists in other states.
   What the case law essentially comes down to is the level of control a company exerts over its drivers. This is more than just a dispatcher telling a driver he or she must go to this terminal to pick up this container and deliver it to this distribution center. It gets at whether the driver must conform to company standards that indicate so-called “right to control.”
   The gray area in the case law that could envelope the drayage industry appears when the distinction between various types of trucking blurs. In other words, a transportation veteran might innately know the differences between drayage, less-than-truckload, truckload, parcel delivery, and white-glove delivery services, but a court might not make such distinctions.
   Roberts said it was incumbent upon drayage companies—especially diverse trucking companies that handle drayage, as well as other forms of trucking—to clearly spell out those differences in anticipation of more cases being brought in front of courts.
   The difference between a white-glove delivery service—where, for example, the driver might also install the product, and is also seen as a direct customer service representative of a retailer or manufacturer—and drayage seems clear.
   But under California law, that difference has to be clearly spelled out, not just in words, but in actions, Roberts said. He advised drayage companies to avoid anything that makes the worker economically dependent on the employer. He also said independent contractor drivers should be encouraged to establish that they are in business for themselves (i.e. commercial bank accounts and licenses).
   Even the best prepared companies may find that the model is changing simply because the decisions over the last six months will set precedents for future cases brought by drivers or labor regulators in the coming years (unless those decisions are reversed, of course).
   He suggested the drayage industry examine the franchise model upon which the U.S. economy is so dependent. If independent drivers were essentially considered franchisees and not de facto employees, it would be harder to prove in a court that they were being unduly burdened in terms of renumeration.
   Indeed, Roberts said trucking companies could consider enlisting the help of a lobbyist for mega-franchise industries (like fast food, where the franchise model predominates) to fight off court decisions that would render their pricing and pay model obsolete.
   What it will eventually boil down to is whether trucking companies providing dray services can get a preemption in cases that seek to determine whether a driver is an employee or an independent contractor. A preemption is the invalidation of a U.S. state law that conflicts with federal law.
   In this case, the onus is on trucking companies to show that any California law that affects their routes, rates, and service under federal law would be invalid. Sounds rather simple—paying drivers hourly instead of per move would certainly raise costs for drayage companies.
   But it hasn’t worked thus far in the recent cases that have the potential to impact the drayage industry. Courts have rejected the calls for preemption, saying the threshold for impact on rates, routes and service have not been met.
   Until that threshold is met in a key court decision, it appears the industry is inching gradually toward an employee model.
   The impact on shippers should be obvious. If drayage companies have to pay their drivers hourly, rates will go up. As Roberts put it, the math doesn’t add up if drayage providers have to pay more salary (either to existing independent contractors or the addition of new drivers, or both) without rates rising.
   The title of Roberts’ presentation opined on whether the independent contractor model for drayage was an endangered species. The tenor of his discussion wasn’t overwhelmingly positive for companies that want to keep the status quo. He even admitted to drayage providers, “I have more to tell you about what not to do than what to do.”
   The drayage industry is in flux, and is more likely to be decided in a courtroom than a container terminal.

This column was published in the January 2015 issue of American Shipper.