Written by Galen T. Shimoda and Erika R. C. Sembrano
Misclassification of Truck Drivers
It is not uncommon for employers to misclassify their employees. This is especially true for motor carriers who employ the services of truck drivers to provide transportation services for compensation. Courts consider various factors to determine whether truck drivers are employees or independent contractors. It is usually a fact-intensive inquiry. The factors considered by courts include the right to control, distinct occupation or business, degree of supervision, skill required, who supplies instrumentalities/tools/place of work, length of time services are to be performed, method of payment, whether the work is part of the principal's regular business, and the parties' belief in whether they created an employer-employee relationship.
The California Court of Appeal recently evaluated these factors in Garcia v. Seacon Logix, Inc., 238 Cal. App. 4th 1476, 1484 (2015), a truck driver misclassification case.
The Court noted that the primary test of an employment relationship is whether the principal (the person or business paying for services to be performed) has the right to control the manner and means of accomplishing the result. Id. In this case, because the principal determined when the truck drivers were supposed to arrive at work, instructed them to inform the principal if they were late, controlled the truck drivers' assignments and prices to be charged to clients, and refused truck drivers work when they refused to take a job, the Court found that there was "substantial evidence" to show that the principal "effectively controlled the manner and means of [the truck drivers'] work." Id. at 1486.
The Court also evaluated the "secondary" factors. For example, the principal exercised the right to terminate the truck drivers at-will – this indicated an employer-employee relationship. The truck drivers were performing work that was the primary function of the principal, i.e. transporting cargo – this indicated an employer-employee relationship. The principal directed the truck drivers' work duties – this indicated an employer-employee relationship. The principal provided the trucks for the truck drivers but only allowed the truck drivers to use the trucks when working for the principal – this indicated an employer-employee relationship. The truck drivers were paid via weekly paychecks – this indicated an independent contractor relationship. The truck drivers' work was part of the principal's regular business – this indicated an employer-employee relationship. Finally, the truck drivers believed they entered into an employment relationship and the principal believed they entered into an independent contractor relationship – this did not weigh in favor of either party. See id. at 1486-88.
After balancing all of these factors, the Court determined that the evidence "supports the finding that [the truck drivers] were employees, not independent contractors." Id. at 1488.
Thus, truck drivers can be considered independent contractors or employees depending on how the principal treats them but especially depending on the right of control that the principal exercises over the truck drivers.
Motor Carrier Employer Amnesty Program
In or around October 2015, California Governor Jerry Brown signed into law AB 621, also known as the Motor Carrier Employer Amnesty Program. This law affects motor carriers, such as businesses who provide transportation services. According to this new law, motor carriers may be relieved of liability for statutory and civil penalties even if they misclassified their drivers as independent contractors.
This relief is only available if the motor carrier enters into a settlement agreement with the Labor Commissioner and the Employment Development Department and agrees to classify the drivers as employees. The motor carrier must submit an application to the Labor Commissioner, perform a self-audit according to the Labor Commissioner's guidelines, and other documents. If the application is successful, then the motor carrier must agree to several settlement agreement terms, including paying all wages, benefits, and taxes owed, if necessary, and consenting that any future drivers with same or similar duties are presumed to be employees. Also, after entering into the settlement agreement, the law allows for the Labor Commissioner and the Employment Development Department to obtain reasonable, actual costs to review, approve, and monitor the settlement agreement.
Assuming the motor carrier entered into a successful settlement agreement, it will be able to avoid paying statutory and civil penalties that would otherwise be sought by the misclassified truck driver through a civil action. Interestingly, if a driver does not accept the terms of the settlement agreement, then the commercial driver is not bound by the agreement. The motor carrier would be excused from performing under the terms of the settlement agreement to pay the amount owed to that particular driver. The motor carrier must still classify the driver as an employee, but the driver would not be able to pursue any statutory or civil penalties as mentioned in the settlement agreement.
Overall, motor carriers should be aware of how they classify their truck drivers. Indeed, this new law recognizes that motor carrier employers misclassify truck drivers. In the event this happens, the motor carrier employer can avoid civil and statutory penalties but only if it is diligent in its cooperation with the applicable California regulatory authorities.
If you think you may have potential claims relating to your employment or believe you have claims appropriate for a class action, contact our office to have your claims evaluated.