JOC TPM Conference Is the Independent Contractor Model in Port Drayage Sustainable? Julie Gutman Dickinson March 3, 2015

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1 JOC TPM Conference Is the Independent Contractor Model in Port Drayage Sustainable? Julie Gutman Dickinson March 3, 2015

2 Is the Independent Contractor Model for Port Drayage Sustainable? No IC Model is illegal and liability is costly. Drivers have been fed up with it for years but have been unable to change it, until now. IC Model runs counter to drayage companies business interests.

Port Truck Drivers: An Overview 90% of containerized cargo moves through top 10 ports Transport +/- 250 million metric tons of imported goods worth $900 billion/year +/- 75,000 port truck drivers

3 Port Truck Drivers: An Overview 90% of containerized cargo moves through top 10 ports Transport +/- 250 million metric tons of imported goods worth $900 billion/year +/- 75,000 port truck drivers nationwide +/- 80% of drivers misclassified as Independent Contractors State Port Drivers California 25,000 New Jersey 7,000 Washington 6,500 Georgia 6,000 Florida 6,000 Texas 4,500 Virginia 4,000 Puerto Rico 3,000 S. Carolina 3,000 New York 1,200 Others 9,000

4 San Pedro Bay Ports: Ground Zero for Future of Drayage Industry Port of Los Angeles Registered Companies: 733 Active Companies: 595 Registered Trucks: 12,794 Active Trucks: 10,071 Port of Long Beach Registered Companies:809 Registered Trucks: 13,765 Active Trucks: 10,326 25,000 drayage drivers service LA/Long Beach, accounting for 40% of U.S. incoming container cargo

5 Debunking the Independent Contractor Myth Labeling drivers as independent contractors does not make them actual independent contractors. Changing language in lease agreements does not make port drivers actual independent contractors. Under any of the tests for employee status, it is clear that virtually all port truck drivers working for harbor truck companies are in fact employees, not independent contractors.

6 Pertinent Factors In All Employee-Status Tests 1. Degree of company control over the drivers 2. Whether drivers operate distinct and independent businesses 3. Length of relationship Misclassification of drivers as independent contractors is wage theft and is illegal.

7 Liabilities Mounting for Drayage Companies State and federal wage & hour laws. IRS: Unpaid payroll taxes and penalties. State unemployment insurance. Workers compensation. ERISA and tax code violations. Affordable Care Act. Back pay and retaliation penalties.

8 Litigation Exploding; Agencies and Courts Clamp Down National Employment Law Project (NELP) estimates $1.4 Billion in annual costs due to misclassification of Port Drivers: Social Security and Medicare Unemployment Insurance Workers Compensation Subtotal Wage & Hour (California) Total $57.4 M $20.9 M $484.8 M $850 M $563.1 M $1,413 B

Scorecard Determinations of Misclassification U.S. Department of Labor National Labor Relations Board California Labor Commissioner (DLSE) California Employment Development

9 Scorecard Determinations of Misclassification U.S. Department of Labor National Labor Relations Board California Labor Commissioner (DLSE) California Employment Development Department California Attorney General California Superior Court New Jersey Department of Labor U.S. Federal Judge (Consent decree and 10(j) injunction) None Determinations of IC Status

10 Agencies Agree: Drivers Are Misclassified

DLSE rulings upheld on appeal by Superior Court in 2015

11 Pacer Cartage/Harbor Rail Transport (NYSE:XPO) $2.7 Million DLSE ruling for seven misclassified drivers DLSE rulings upheld on appeal by Superior Court in DLSE claims and private actions pending Driver strikes in 2014

12 Agencies Agree: Drivers Are Misclassified

13 Private Litigation & DOL

14 Private Litigation and Bankruptcy

Green Fleet Systems (GFS) $280,882 DLSE ruling for four misclassified drivers. $942,351 in liability for six more misclassified drivers. Drivers strike in 2013 and 2014.

15 Green Fleet Systems (GFS) $280,882 DLSE ruling for four misclassified drivers. $942,351 in liability for six more misclassified drivers. Drivers strike in 2013 and Green Fleet fires two misclassified drivers. EDD awards unemployment benefits; NLRB issues complaint alleging 50+ ULPs; and Federal District court grants historic injunction. Green Fleet files for bankruptcy in (j)

Federal Pre-emption Argument Has Been Lost CA Attorney General v. Pac Anchor 2008: Pac Anchor found in violation of California Unfair Competition Law Sec.

16 Federal Pre-emption Argument Has Been Lost CA Attorney General v. Pac Anchor 2008: Pac Anchor found in violation of California Unfair Competition Law Sec : CA Superior Court rules against pre-emption by FAAAA April 2014: CA Supreme Court upholds ruling Feb 23, 2015: U.S. Supreme Court will not hear appeal of CA Supreme Court claiming FAAAA Pre-emption

18 Drivers Fed Up With IC Model But Have Been Unable to Change It Until Now 100+ strikes at 17 different ports over last 25 years involving thousands of drivers. Five strikes at Ports of LA/Long Beach in last 2 years. Drivers fight to stop misclassification has gained national support by those united to reduce income inequality.

19 Independent Contractor Model is Obsolete Drivers know their rights Teamsters are committed to supporting misclassified drivers at Ports of LA/Long Beach and at seaports across U.S. Labor laws are being enforced

Opportunities for dispatchers to solicit bribes for good loads Lazy and inefficient management practices Inefficient use of

20 IC Model Actually Runs Counter to Trucking Companies Business Interests What do drayage companies want? Low driver turnover Long-term relationship with drivers High-quality, skilled drivers What does IC model provide? Opportunities for dispatchers to solicit bribes for good loads Lazy and inefficient management practices Inefficient use of truck assets (minimal slip seating) How does IC model impact port congestion? Too many trucks chasing loads Increased dead heading Lower company profits

21 Port Trucking Using an Employee Model Drayage companies can purchase trucks themselves and hire employees to drive those trucks OR, they can have owner driver employees just because a driver owns the truck he or she uses does not mean the driver is an independent contractor In either scenario, companies must correctly label these drivers as employees and put an end to the unlawful practice of misclassifying drivers

22 Industry Is in Transition: Leading Drayage Firms Realize the Debate is Over Hub Group: It appears that the legal climate in California is becoming unfavorable to the common trucking industry practice of using independent truck drivers, Dan Burke, president of Hub Group Trucking, said in a statement to customers. (September 9, 2014) Shippers Transport Express: "Shippers' transition to an employee-based business model is a crucial step in the drayage industry's efforts to modernize, make the ports more efficient, and reduce congestion at the ports and on our freeways," said Kevin Baddeley, General Manager, Shippers Transport Express. "On unionization, we took a neutral position because we respect our drivers' right to form a union. Finally, through our productive dialogue with the Teamsters, we anticipate we will be able to improve operational efficiencies and stabilize our driver workforce. (January 9, 2015)

23 To Succeed, Drayage Companies Must Embrace an Employee Model Port trucking companies can eliminate liability for misclassification and avoid loss of business from labor disruptions by: Following the law; Embracing an employee model; and Agreeing to neutrality with regard to unionization. Companies that refuse to embrace this change and cling to the independent-contractor relic will not last in the industry.

Regulatory Action and Litigation at NFI/California Cartage Updated January 16, 2019

Regulatory Action and Litigation at NFI/California Cartage Updated January 16, 2019 NFI/California Cartage, based in Wilmington, CA, is one of the largest goods movement companies in America, with warehouses