New State Law Puts Shipping Customers at Risk

Governor Jerry Brown recently signed SB 1402, which quickly has shippers, particularly larger retailers, facing new levels of potential liability. The bill means retailers will now be held jointly liable when the trucking companies they hire for port drayage services violate state employment laws.

The law comes at a time with ongoing claims by truck drivers alleging they are being misclassified as independent contractors rather than employees. While the legislative findings in the bill seem to target motor carriers that abuse the independent contractor model, nothing in the legislation is limited to such carriers and in fact carriers with employee drivers also are subject to the new legislation.

The bill requires the California Division of Labor Standards Enforcement (“DLSE”) to create a list of trucking companies with unsatisfied wage and hour judgments against them and update it regularly. If a retailer or other shipping customer hires a company on this list, it will be jointly liable for any future violations by the company during the time the customer uses the company. To be clear, the law does not create automatic liability for the customer for past violations by the shipper. In fact, numerous conditions must exist before there is liability:

• A motor carrier needs to have a judgment, tax assessment, order, determination or award against it for unpaid wages, misclassification, or several other listed violations.
• The motor carrier must have failed to satisfy that judgment by paying the successful plaintiff or taxing agency after the period for an appeal has expired.
• The DLSE must have posted the name of the motor carrier on the list on its website.
• The customer must hire a motor carrier on the list to perform port drayage services (other transportation services are not affected by this bill).
• The motor carrier, while hauling cargo for the customer, must again violate California’s labor laws.
• A driver or the Labor Commissioner must give 30 days notice to the customer of the potential joint and several liability before commencing a civil action (though notice does not seem necessary for an administrative proceedings).
• A driver or the Labor Commissioner must then commence a legal proceeding based on those new violations and a court or state agency must find that the alleged violations occurred.

When these conditions are met, the customer will be jointly and severally liable for violations that occurred specifically with regard to drivers hauling the retailer’s cargo.

The law contains certain exceptions and limitations on the customer’s joint and several liability for the motor carrier’s violations and notice requirements from the DLSE and opportunities for motor carriers to be removed from the list.
The new law, together with the recent California Supreme Court decision in Dynamex Operations West v. Superior Court, be part of an ongoing shift in the State of California toward forcing truck drivers to be treated as employees. Trucking companies will now have pressure from retailers to be certain they are operating in a way that will not subject the retailers to any liability.

SB 1402 adds to the due diligence required for retailers and other shipping customers when they hire trucking companies. The customer and shipper still can negotiate indemnification provisions to protect the retailer against this liability. Of course, the targets of this legislation are “dead-beat” motor carriers who are on the DLSE’s list because they failed to satisfy their judgments. Indemnification from such motor carriers may not be worth very much. This will likely drive retailers to be more selective in their choice of motor carriers, looking for established companies with good reputations, that are not on the list.

Trucking companies worry the new law could lead to further increased regulation (both the DLSE and California’s Economic Development Department are authorized under the new law to adopt new regulations to administer and enforce the new law). SB 1402 also compounds the increasing regulatory burden of businesses in California. The biggest risk for the state, of course, is that it will potentially cause shippers to use ports outside California if other states have less restrictive laws. Additionally, as the ports expand rail systems to move cargo from the ports by train, customers may tend to favor those means of transportation over trucking because of lower legal liability risks, reducing the need for truck drivers and harming the people the legislation was ostensibly intended to help.

Going forward, it’s clear California is focused on these issues and companies operating in the trucking and shipping industry needs to a have an experienced employment and transportation lawyer on their side to stay informed on the continuing changes and ensure they don’t find themselves running afoul of this new law.