ANALYSIS: State Courts and Labor Movement In Lock-step

By Pat Whalen, Legal Counsel to CCTA

A number of recent state law changes (legislation) and court cases in Sacramento have increased the potential exposure of trucking companies to liability for wage and hour claims, employee payment forms, and misclassifications of independent contractors.

In the past, these lawsuits were frequently brought by plaintiffs’ attorneys looking for quick settlements and attorney’s fees, and are often brought as class actions on behalf of all current and former employees of a company, as the statute of limitations allows them to go back three and sometimes four years. This exposure can be huge, sometimes in the hundreds of thousands or millions of dollars, depending on the number of employees involved.
Unfortunately, as a result of two recent court cases, one in the federal court system and the other in California state court, trucking company employers’ liability and exposure has grown geometrically.

Meal & Break Periods Are No Longer Exempt

Dilts v. Penske – One of the main reason for the increased liability is a disturbing trend in state and federal courts finding that even interstate trucking companies (with employees in California) are not exempt from the states’ meal and rest break period laws (even) under the FAAAA, as was previously thought. The Federal Aviation Administration Authorization Act of 1994, known in the industry as the FAAAA or F4A, provides that a state or local government “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” (49 U.S.C. § 14501 (c)(1).)

Over the years, there has been growing litigation over what types of state and local laws are “related” to prices, routes and services. (In fact, CCTA has litigation pending in the Ninth Circuit arguing that the CARB On-Road Rule is related and therefore preempted.) A number of lower courts had earlier decided that under the FAAAA, trucking companies were exempt from California’s meal and rest break laws because compliance would significantly increase the cost of business (prices), would cause them to have to alter their delivery itineraries (routes) and could result in deliveries being delayed or perhaps not even being possible (services).

Unfortunately, those lower court rulings were appealed and two recent decisions have reversed the lower court reasoning.

The first case was decided by the Ninth Circuit Court of Appeals in early July. Dilts v. Penske, case #12-55705, presented the issue of whether the FAAAA preempts California’s meal and rest break laws in the context of employee truck drivers. California has passed laws and promulgated regulations which mandate that all employees get a 30-minute paid meal break for every five hours worked and a paid 10-minute rest break for every four hours worked. These meal and rest breaks obviously increase the costs associated with employee truck drivers and can also impact routes and services because if employee drivers are required to take frequent rest breaks, they may not be able to cover as many miles as they would otherwise and make it back to their terminal without running out of time, even violating their HOS.

Prior to the appeal, the trial court held that California’s meal and rest breaks laws were preempted by the FAAAA, meaning that the congressional statute trumped state law. The appellate court reversed that decision, holding instead that even if a state law increases costs for a motor carrier, the law was not preempted if it applied evenly to hundreds of different industries, i.e. not just trucking. Interestingly, the Ninth Circuit majority opinion went even further and declared that Dilts was not even a close case, rejecting all six arguments showing how the meal and rest break laws impacted prices, routes and services. Because the case had been on appeal after the defendants won on summary judgment, the case will now be returned to the lower court for trial.

Don’t Misclassify Your Leased Independent Contractors

People v. Pac Anchor Transportation – The second case was decided in late July by the California Supreme Court in a unanimous decision. In People v. Pac Anchor Transportation, case #S194388, a complaint was filed against the trucking company alleging it failed to comply with a number of employment law requirements as their independent contractors were found to be employees. The drivers didn’t own the trucks they drove; they didn’t use their own tools or equipment and didn’t invest any capital. They could be “discharged without cause, had no operational control, had no other customers, took all instruction from company management, and had no Dept. of Transportation operating authority or permits to engage independently in cargo transport. Since they were misclassified and employees, the court determined that the company violated all the following laws and regulations:

  • Failure to pay unemployment insurance taxes
  • Failure to pay employment training fund taxes
  • Failure to withhold state disability insurance taxes
  • Failure to withhold state income taxes
  • Failure to provide worker’s compensation
  • Failure to provide employees with itemized written wage statements
  • Failure to ensure payment at all times of California’s minimum wage

The complaint alleged they were in fact employees, and should have been paid and treated as such, and brought the case under California’s Unfair Competition Law or (UCL) found in CA. Bus. & Prof. Code §17200.

The trial court initially ruled in favor of the trucking company and found the claims preempted under the FAAAA. However, the California Supreme Court instead found that the UCL was a law of broad general application, not specifically targeted or “related to” motor carriers, and thus was not preempted by the FAAAA. Additionally, the court concluded that the legal claims about failure to pay or withhold taxes had nothing to do with the transportation of property.

The court said, “Even if California’s UCL action has “some indirect effect” on Pac Anchor’s prices or services, that effect is “too tenuous, remote, [and] peripheral” for federal preemption to apply.

Pay Stub Protection Could be Your Demise

As a result of the decisions in Dilts and Pac Anchor, the shield from liability previously provided by the FAAAA is now very much in doubt. Making matters worse, is a recent piece of legislation that makes it easier for employees to make claims against employers for technical violations of the Labor Code. Labor Code section 226 requires employers to provide certain information on a wage statement, or pay stub.

Specifically, the following nine categories of information must be provided on one sheet of paper or statement (front and back):

  • Gross wages earned
  • Total hours worked by the employee (except salaried exempt employees)
  • Piece rate units earned and the applicable piece rate, if paid on a piece rate basis
  • All deductions
  • Net wages earned
  • Inclusive dates of the pay period
  • Name of the employee and the last four digits of his/her social security number or employee identification number
  • Name and address of the legal entity that is the employer
  • All applicable hourly rates during the pay period and the corresponding number of hours the employee worked at each hourly rate.

For many trucking companies with employee drivers this new reporting requirement was sometimes very costly to change their accounting and payroll documents.

While these requirements have been on the books for a while, the fact that now even leased purchased independent-contractors can now be deemed employees despite the FAAAA, means that more trucking companies will find themselves under attack for failing to comply with section 226.

Even worse, section 226 was recently changed to make it even easier for an employee to show damages. Specifically, the failures to provide a clear easy to read wage statement with all the noted information above, creates a presumption that the employee suffered injury. Once again, if a company is found to have misclassified employees utilizing leased trucks to independent contractors, it likely will have also failed to provide them with the wage statements that are typically provided only to employees.

Even if an employer provides a wage statement, an employee is still deemed to have suffered injury if the employee cannot “promptly and easily” (i.e. without reference to other documents) the amount of gross and net wages, the amount of deductions, and the name of the employer, among other things. Thus, if there are any errors in the wage statement, even if the employee was correctly paid, the employee will be deemed to have suffered an injury and can sue the employer.

Section 226 also allows employees to get a statutory sum of $50 for the first pay period of violation, and $100 for each subsequent pay period, up to a maximum of $4,000. Moreover, the statute allows employees to seek the award of costs and attorney’s fees. A bill was introduced this year to allow employers to collect attorneys’ fees when they prevail in a frivolous action brought by a plaintiff under section 226, i.e. for nonmaterial violations.

Unfortunately, that bill died in committee, so there is no disincentive for plaintiffs’ attorneys to bring lawsuits, as they know companies will have an incentive to settle to avoid the cost of defending the suit and risk paying for the other side’s attorneys as well.

Regarding meal and rest breaks; it is important now for employers to document that their drivers took the required time-off. If you are using timecards at the terminal, you should also have your drivers submit a written “time sheet” verifying their compliance with the law – at least and until the U.S. Supreme Court weighs in.

We believe every employer should now review their entire employment practices and payroll reporting scheme and remember that you must always pay employees Portal-to-Portal! If you don’t know what that means, you better get counsel.

This post is also available in: Spanish