Los Angeles is diving into the long-standing debate about how truck drivers are paid at the city’s giant port complex.
The Los Angeles city attorney and the Harbor Department are evaluating whether they have legal grounds to block companies “in violation of local, state, and federal laws, including labor and employment laws.”
It’s a thorny issue that has pitted drivers, the Teamsters’ union and motor carriers against each other in a debate over how truckers are paid as independent contractors.
Some drivers and the Teamsters say that trucking firms regularly misclassify drivers as contractors instead of employees. They believe the efforts will protect drivers by preventing repeated “bad actors” from doing business on port property.
Others think these attempts have the potential to compromise the fundamental independent contractor model and thereby business itself at the nation’s largest port.
Since 2011, California port truckers have filed 935 wage claims alleging that they have been misclassified as independent contractors. Drivers have been awarded over $46 million in about 400 of those cases, according to the California labor commissioner’s office.
Port carriers in California are responsible for an estimated $850 million per year in wage and hour violations, according to a 2014 National Employment Law Project report.
How this sorts out could have major repercussions on the movement of goods throughout the nation.
Over 30 percent of all container cargo in the U.S. goes through the port and the adjacent Port of Long Beach, and more than 180,000 jobs are tied to the port complex.
Los Angeles city officials haven’t outlined what actions they might take. The city “is exploring all options when it comes to regulating the port,” said Frank Mateljan, a spokesman for the city attorney’s office.
The independent-contractor driver model is pervasive in the trucking industry and has expanded into ridesharing like Uber and delivery services like Amazon Flex. Most drivers at the ports became independent contractors following the 1980 trucking industry deregulation, said Weston LaBar, chief executive of the Harbor Trucking Association.
Ten years ago, the port complex implemented the Clean Truck Program, banning trucks of a certain age and demanding new emission standards. The requirements forced many independent drivers to lease newer, more expensive vehicles from trucking companies.
“Prior to the Clean Truck Program, you didn’t have an issue because equipment was so cheap,” LaBar said. With the regulations, the cost of buying a dray truck — the type of vehicle used to haul shipping containers — increased tenfold, he said. Before the program, a used dray truck would start at about $10,000, he said. But because of emissions regulations and the phase out of older trucks, the vehicles now range from $80,000 to $200,000.
California passed a law in 2011 prohibiting any “willful misclassification of an employee as an independent contractor.” That prompted the complaints to the labor commissioner asserting that drayage companies treated contract drivers as employees without providing mandated employment benefits. Many of those contractors were in lease agreement plans that drivers claimed held them captive to unreasonable contracts, often leaving them in debt to their lessor companies.
California courts have largely found in favor of the drivers. Last May a federal court upheld a labor commissioner’s decision that XPO Cartage Inc. owed five port and rail truck drivers more than $950,000 in expenses and illegal deductions, plus attorney’s fees and costs. Several California drayage companies have filed for bankruptcy since 2011, citing the costs of these lawsuits.
“As with anything, there were good actors that handled it in ways that were very good for drivers, and bad actors that handled it in ways that may not have been,” LaBar said.
He is concerned that the city’s efforts may fundamentally endanger the independent contractor model. Many of these lease agreements, he said, have successfully enabled drivers to own trucks.
“Ninety percent of drivers that drive in the port are independent contractors, and it’s not because of any other reason than that’s the model those drivers choose to take,” LaBar said.
He interprets the action as the latest attempt to compromise the independent contractor model at the port, though the City Council has not explicitly discussed that.
“What they’re trying to do is say, ‘We only want employee drivers in here, and we can’t say that, so is there another way for us to accomplish that goal by approaching it in a different manner?’” LaBar said.
In the original Clean Trucks Program, the Port of Los Angeles included a driver-employee mandate, which was ultimately struck down by the U.S. 9th Circuit Court of Appeals.
At a November Trade, Travel and Tourism Committee hearing, Councilman Mike Bonin said that because of this precedent, the city needed to find new legal avenues to restrict carriers.
That employee mandate lawsuit has discouraged port leadership from intervening on matters between drivers and carriers, said Marla Blevins, the port’s chief financial officer, at the hearing. Bonin said the city should therefore look beyond the frame of regulating trucking and explore its legal options as a landlord.
“We need to find the right strategy to help us in the situation,” Bonin said. “I think we need to look at this from a different angle. We need to turn over every rock to do this.”
He requested that the city attorney gather and present a report with all relevant legal options, like land-use laws, to keep these “bad actors” off port property.
The contract that carriers must sign to do business at the port — a concession agreement — compels carriers to obey state and federal laws. If companies are found to be illegally misclassifying drivers as independent contractors, the port as a landlord should be able to block those carriers for their illicit practices, said Barbara Maynard, spokeswoman for the Teamsters Union.
The efforts by motor carriers to contain expenses and the push by organized labor groups like the Teamsters to represent drivers are driving the conflict, said Cameron Roberts, a partner at Roberts & Kehagiaras, who has been practicing law related to trade and transportation in California for 15 years.
The sheer expense of California’s workers’ compensation system has kept company driver counts low, he said. Additionally, independent drivers who are paid per trip are more productive, he said.
“Everybody I’ve ever talked to about driver productivity has told me that hourly employees tend to be less efficient, compared to independent contractors, and company turn-time data bears that out,” he said.
“If you had an all-employee model, would that make this port more efficient? I don’t know if anybody can prove it or not.” The Teamsters “would say it’s more fair,” Roberts said. “Other people would look at the model and say it’s completely impractical.”
Some believe the city won’t be able to intervene.
“It’s a fool’s errand in our view, because I think the law is pretty clear,” said Bill Taylor, a transportation attorney and partner at Sacramento’s Hanson Bridgett.
LaBar considers the action misguided. “I think the problem is that the folks trying to create public policy around this don’t understand the industry,” he said.
He is lobbying at the federal level for standardization and regulation of the lease-to-own agreements. He said the lack of regulations created the opportunity for certain companies to take advantage of drivers, which created a bad reputation for all other agreements, even the fair ones.
Although misclassification can be a problem, lease agreements can work, said Mike Matousek, the director of government affairs at the Owner-Operator Independent Drivers Association. He said 60 percent of the association’s members use them successfully.
“If [the council goes] too far and they don’t have the expertise to actually distinguish between a lease-purchase agreement and a traditional lease agreement, they might jeopardize legitimate arrangements between a motor carrier and a leased owner operator,” he said.
If the independent contractor model at the port was compromised on a large scale, it could have a wide-reaching effect on the costs of doing business.
“I would anticipate the net result in the end would be more expensive dray trucking,” said Paul Bingham, international trade economist and vice president at EDR Group. He said that with the added expense, California could lose discretionary cargo to other ports where they could operate at a lesser expense.
Alternately, if employing drivers gets too expensive, companies will also have a more pressing incentive to explore automated technology, Roberts said. “It’s perfectly logical that the next step in this is automation.”