The End of the Owner-Operator or is it a Political End-Game?

When the LA Ports “Clean Truck” Concession Agreement scheme was hatched in 2007, everyone involved understood the games and politics that were being played behind the scenes.

Under the moniker of “clean air at all cost”, as diesel emissions were claimed back then to cause 18,000 premature deaths annually in California, these incessant health claims were the only way to get public and political support to get rid of all the old junk trucks that worked around the ports. Thus the enviros, made-up of many powerful NGOs, and special interests in-turn paid for all the community activists – their end game was to get all new clean diesel trucks at the port, and eventually require all trucks to run on clean renewable – mainly electric by 2020 or 2025.

It’s my understanding that here were approximately 30 major motor carriers at the ports that were convinced to go along with a rather complicated and questionable scheme. They were provided free green grant funding for up to 75% of the cost of a new truck, and they in turn were allowed to lease the “granted” trucks at almost full price back to drivers as independent contractors.

The caveat in this agreement was that within about 5 years the drivers would have to be hired back as employees. Thus, providing these 30 motor carriers with an enormous windfall (at least for 5 years) at the same time satisfying the Teamsters (organized labors) ultimate end-game of eliminating the owner-operator (which are impossible to organize) and creating employee trucking companies which can be organized.

So the port motor carriers went along with the scheme (really having no other choice) knowing that they would legally challenge many parts of the agreement in court, specifically the ones that appeared to violate the FAAAA and of course the employee mandate. The FAAAA is a federal constitutional law that does not allow any state or political subdivision (like a port or a state) to pass a law that effects the “price, routes and services” of a motor carrier. There are certain limited exceptions to this, such as safety and insurance.

Everyone seemed to win and received what they liked or wanted – except for maybe the thousands of unrepresented drivers that became pawns through all of this.

One large construction transportation member who didn’t utilize owner-operators once refereed to these truck lease-back agreements as almost “not Christian – to do this to any person.” Most others with a conscience agreed.
Well, the 5 years are up and it’s time to pay the piper. Along the way there have been many legal twists and turns and what many like us guessed would happen – has!

The Hub Group (Brea CA), a mainly rail intermodal carriers which also services the port is also now the most recent recipient of a California legal action that has moved them to reconsider their leased-purchased owner-operator model. The company recently announced that it will quickly convert 350 former owner-operators into trucking company employees.

Previous to this settlement (in late August), the U.S. Court of Appeals in the 9th Circuit ruled that two separate classes of workers’ for FedEx in Oregon and California were also misclassified as independent contractors. Of course FedEx intends to appeal this decision to the U.S. Supreme Court, as it is at the foundation of its business model.

The FedEx decision came a day after the California Supreme Court affirmed a complaint by California’s Attorney General (AG) against yet another LA Port based intermodal trucking company (Pac Anchor Transportation with 75 trucks) claiming the company unfairly mis-classified drivers as independent contractors, violating state laws. By doing this, PAC Anchor illegally lowered their costs of doing business by engaging in acts of unfair competition. Further, on appeal, that Court reversed the trial court judgment (which concluded that the FAAAA did preempt the AG’s action) and held that “because the states unfair competition action is not related to Pac Anchor’s price, route, or service as a motor carrier, the FAAAA does not preempt this action against the state of California.”

I was curious as to how many times the AGs office (the state of California) has filed a claim against a private business who was one of many companies to agree to the same scheme called the Concession Agreement, utilizing a state business and professions code section relating to unfair competition from 1977. There’s way more to all of this than meets the eye.

So what does all of this mean?

Probably, that the California trucking industry direct or (indirect) leased-purchased owner-operator business model is kaput (German meaning: ruined, done for or finished!).

Hopefully, the construction industry non-leased owner-operator entrepreneurial business model can prevail through all of this. One thing that the intrastate owner-operator model must now over-come is the unfair competition test(s). If that test cannot be overcome, the owner-operator models here are probably doomed. Carriers better take a hard look at what you are doing these days, if you utilize owner-operators. Here is what was and will be analyzed by a court, at least here is what the court looked at in the Pac Anchor case:

The owner of Pac Anchor, “recruits drivers to drive trucks for his independent company. He enters into lease agreements with Pac Anchor in order to utilize the trucks and drivers he supplies. They classify drivers as independent contractors, even though they invest no capital, own no trucks, and do not use their own tools or equipment. The drivers rely instead on defendants to supply those items. Drivers are often employed for extended time periods, but they can be discharged without cause, have no operational control, have no other customers, take all instruction from defendants, and have no Department of Transportation operating authority or permits to engage independently in cargo transport. In addition, the drivers are an integrated part of defendants’ trucking business because they perform the core activity of delivering cargo.”

Ironically, the many minority owner-operator truckers that were caught-up for five long years in these schemes now associate the term “Clean Truck” with corporate welfare, corruption and abuse, and who can blame them for believing that. Also see Joe’s related stories on page 16.