State and federal regulators are investigating scores of harbor trucking companies, demanding payment records and contracts for hundreds of drivers in a crackdown that the companies complain is a labor-backed intimidation campaign.
Trade groups say as many as 60 local firms are being audited and that regulators are looking for companies that call their drivers independent contractors when they are in fact employees. That’s a distinction that determines whether a company has to pay a minimum wage, withhold payroll taxes or pay workers’ compensation premiums – and whether workers can join a union.
Investigations of potential misclassification typically happen after regulators receive a complaint from a worker, but in this case, regulators are auditing some companies that haven’t been the subject of complaints.
Michael Shaw, a vice president of the California Trucking Association, which represents trucking companies, called the audits a fishing expedition.
“They’re looking for fire where there’s no smoke,” he said. “We have a problem when companies are harassed or targeted unjustifiably simply because they use independent contractors.”
Shaw and others in the trucking industry say regulators are investigating on behalf of the Teamsters union, which has long claimed that carriers call workers independent to cheat them out of wages and benefits. The fight goes back more than 30 years to when the trucking industry was deregulated, but trucking executives see the audits stemming from something more recent: a Port of Los Angeles program that has replaced older diesel trucks with new, clean-burning models over the last few years.
Just a year ago, the 9th Circuit Court of Appeals rejected a Teamster-backed element of the plan that would have required trucking companies operating at the port exclusively to have employee drivers rather than independent contractors. Employees can join unions but independent contractors cannot.
After the court rejected the employee mandate, Teamster President James P. Hoffa visited the port and said the union hadn’t given up on organizing port truckers – and that the next strategy would be to lobby regulators to investigate trucking companies and reclassify drivers as employees.
“The Department of Labor has money in its budget to investigate misclassification. We want to have state agencies do the same thing,” Hoffa said in a December interview. “There’s a lot of ways to put pressure on companies to get out of this (business) model.”
For their part, regulators say the audits are part of ongoing efforts to stamp out labor law violations, not a favor for the Teamsters. State Division of Labor Standards Enforcement officials said they have stepped up enforcement because of a new state law that took effect this year and stepped up fines on employers that knowingly misclassify workers.
Federal officials, who have beefed up enforcement efforts under the Obama administration, say misclassification is a growing trend in many industries and that the practice hurts vulnerable workers as well as companies that follow labor laws.
“The Labor Department is committed to ensuring that employees receive the pay and benefits to which they are legally entitled, and to leveling the playing field for employers that play by the rules,” a Department of Labor spokeswoman said in a statement.
Most of the ongoing audits started this spring, with the Division of Labor Standards Enforcement sending subpoenas to several local firms. State unemployment officials and the Department of Labor have requested records as well.
Regulators would not say how many companies are being investigated, but trucking trade groups put the number of targeted firms at 40 to 60.
While that’s a small fraction of the roughly 950 trucking companies that do business at the ports of Los Angeles and Long Beach, it’s an unusually large number of firms to be suddenly under investigation, said Alex Cherin, executive director of the Harbor Trucking Association, a local trade group that represents trucking companies.
“What’s new here is the level of intensity,” he said. “They seem to be using a hatchet instead of a scalpel. It seems like just a shotgun approach with no real intent other than to place a burden on these companies.”
Some companies have been asked to provide records for all their drivers, while others for a sample or a few individuals. In many cases, companies were asked to produce several years of records.
That was the case at Long Beach trucking giant California Cartage Co. LLC. About six months ago, state regulators subpoenaed contracts and pay records for drivers at three of the company’s subsidiaries, K&R Transportation LLC, California Multimodal LLC and Container Freight-EIT LLC.
Cal Cartage’s general counsel, Bob Sanders, said regulators told him up front there were no complaints against the company and the subpoenas did not list specific allegations, instead mentioning potential violations of labor laws.
“It’s pretty generic,” he said. “It made us wonder about the basis for the subpoenas. We didn’t feel like there was any reasonable suspicion of wrongdoing.”
Regulators are looking at payment records, driver contracts and truck lease agreements, looking to see if drivers appear to be independent contractors or employees. Generally, a worker is an independent contractor if they are paid to accomplish a task but are not directed on how to do it, while an employee is paid to do a task in a particular way, according to the Internal Revenue Service.
But that’s a vague definition, and one that different agencies approach differently. Shaw of the California Trucking Association said that leaves trucking companies trying to comply with different and possibly contradictory rules.
“If you get a determination from the IRS that you’ve complied with the law, other agencies don’t have to abide by that,” he said.
Both the IRS and the state Department of Industrial Relations, according to their websites, say the distinction usually comes down to facts about individual workers and companies – for instance, whether a worker stays with a company long term or how much control a company has over a worker’s schedule.
Fred Potter, director of the Teamsters’ port division, said harbor truckers across the country aren’t independent because they don’t control their pay rates, work schedules or destinations.
“We’re not talking about a few outliers here,” Potter said. “It is standard industry practice to illegally disguise workers as contractors at the ports of L.A. and Long Beach.”
Trucking companies are equally adamant in their claims that drivers are independent, that they can set their own schedules and choose which loads to haul.
“We believe these guys are independent contractors,” said Kevin Baddeley, general manager of Shippers Transport Express Inc. in Carson, one of the companies being audited. “These guys came in looking to lease a truck, and they knew what we offered. If they wanted a job with benefits, working eight hours a day, they should have applied for a job.”
Despite the wide-ranging audits, Cherin of the Harbor Trucking Association said he isn’t aware of regulators taking action against any local operations. A spokeswoman for the Department of Labor said it has filed only one recent lawsuit. In August, it sued Shippers Transport Express, saying 37 of the company’s drivers in Oakland were employees, not contractors, and were owed back pay. The suit does not reference the company’s Southern California operations.
The company has not yet responded in court and declined to comment about the litigation.
Investigations of employee misclassification go well beyond the local harbor.
In 2009, the Obama administration launched a misclassification initiative, providing more funding to the Department of Labor to investigate thousands of companies in a variety of industries, including trucking. The department has since reached agreements to share information with the IRS and labor regulators in California and 12 other states.
And last year, the state Legislature passed Senate Bill 459, a Teamster-sponsored bill that added penalties of up to $25,000 per violation for companies that intentionally misclassify employees as contractors. Peter Melton, a spokesman for the California Department of Industrial Relations, said the passage of that bill is the driving force behind ongoing audits around the ports.
“This is obviously a priority for (the Legislature),” he said. “They want something done about this.”
For state and federal officials, the motivation is partly financial: The Obama administration estimated in 2010 that cracking down on misclassification could bring in $7 billion over a decade in additional payroll taxes and penalties.
Still, it’s not clear what if any impact, beyond taking time and effort, the audits will have on local trucking firms. The trucking industry has successfully beaten back claims of broad misclassification for decades.
Previous mass audits, including a campaign by the IRS in the early ’90s that targeted more than a dozen local firms, didn’t push trucking companies to switch to hiring drivers as employees.
Robert Millman, an attorney with Littler Mendelson PC in Century City who represents companies trying to remain union free, said this sweep likely won’t either.
“It’s the same car, repainted,” he said. “This issue has been litigated to death in every forum imaginable and every finding has been that these are independent contractors.”
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