Executive Summary: Labor organizations are aggressively attempting to eliminate owner-operators as independent contractors on a national level. A recent union-backed New Jersey bill has broad implications for the transportation, retail and other industries. The intent of the bill is to create a presumption that owner-operators are employees and not independent contractors. The bill also permits labor organizations to file lawsuits on behalf of individuals they do not represent for perceived violations of the act and creates a presumption of retaliation. In addition to the proposed bill in New Jersey, similar bills were introduced in the states of Washington and California.
Highlights of the New Jersey Bill:
The proposed bill, which is being introduced this year, seeks to make drayage and parcel delivery owner-operators employees of the companies they provide services for, rather than independent contractors. Identical versions of this bill have been introduced in the Senate (S1450) and General Assembly (A1578). The bill provides that any entity that is primarily engaged in the business of, or contracts with, a drayage truck operator or small package operator for trucking services shall be considered an employer of the operator unless it can be demonstrated that: (a) the operator has control and discretion over the performance of the service; (b) the service is either outside the employer's usual course of business, or outside of all the places of business of the employer; and (c) the operator is customarily engaged in an independently established trade, occupation, profession or business. Drayage truck operators are defined in the bill as any person or entity that controls the operation of in-road vehicles weighing greater than 33,000 pounds which operate or transgress through port or intermodal rail yard property for the purpose of unloading or transporting cargo.
The bill imposes severe criminal and civil penalties for the misclassification of truck operators as independent contractors. In addition, any individual employed as a drayage truck operator or parcel delivery truck operator may bring a civil action for damages for any misclassification. Labor organizations may also bring an action on behalf of the individual or as a class action. In addition to damages, costs and attorneys' fees may be awarded. Furthermore, an employer who takes adverse action within ninety days of any individual's complaint of noncompliance with the provisions of the proposed act will be presumed to have engaged in retaliation.
Analysis and Effect:
Two elements determine profitability within the transportation industry: efficiency and cost. The primary reason companies employ owner-operators is efficiency. The longer items sit at the docks, the less money a motor carrier will make. The ability to put work out for bid ensures that freight moves quickly to its final destination. When motor carriers utilize their own employees, efficiency drops as does the competition for work.
Labor organizations often argue that increases in costs are warranted because owner-operators are being exploited and paid sub-minimum wages. This rhetoric is contrary to the economic reality. Owner-operators are small business owners who run their businesses in accordance with their desires. Some owner-operators relish the opportunity to grow into a large corporation as in the case of Swift and JB Hunt. Others desire the flexibility in their schedules to work when they want. Still others simply want the opportunity to run their business in a way that enables them to make more money in less time than an employee typically would. Becoming an owner-operator is a choice, as the driver who wishes to become an owner-operator must purchase or lease a vehicle and understand the business or risk losing his or her investment.
Despite these mutual benefits to both motor carriers and owner-operators, the New Jersey bill would severely diminish the existence of owner-operators as independent contractors. In fact, the bill has far-reaching implications, not only within the trucking industry, but also for any business that utilizes drayage and parcel delivery truck operators. Of great significance are three issues:
- the bill eliminates New Jersey's owner-operator exemption and creates a presumption that owner-operators are employees;
- the bill creates a presumption of retaliation by any employer who takes an adverse action against an individual who has alleged noncompliance with the proposed act and thus could severely impact a company's ability to make business decisions in these situations; and
- most significantly, the proposed bill would permit labor organizations to bring a civil action on behalf of an individual or as a class action.
In other words, the proposed bill provides labor unions with the authority to file a class action against a company without actually representing anyone who works or contracts with the company. Then, as soon as the union files a lawsuit against the company, if the company fails to provide the owner-operator work, it will be presumed to be retaliation. You don't need to be a labor economist to see how this law could be used to cripple a motor carrier. This law, in effect, gives labor unions enforcement rights generally reserved for government entities.
As a result, it is important for companies that use such owner-operators, directly or indirectly, to express their opposition to this proposed bill. It is strongly recommended that any company affected by this proposed bill contact either the New Jersey Motor Truck Association or the American Trucking Association for more information.
If you have any questions regarding the proposed legislation or other labor or employment related issues, please contact the authors of this Alert, Salvador P. Simao, ssimao@fordharrison.com, a partner in our Short Hills, New Jersey office, or David Kim, dkim@fordharrison.com, an associate in our New York City office, both of whom are members of Ford & Harrison's Transportation Industry practice group, or the Ford & Harrison attorney with whom you usually work.