The California Supreme Court’s May 2018 decision in Dynamex v. Superior Court has had far reaching implications and put California employers in the transportation industry on their heels to come up with a workable solution to the independent contractor vs. employee classification problem. The Dynamex ruling, which we discussed in The Sidebar, established the so-called “ABC” test as California’s new standard for determining whether a worker is an independent contractor or an employee. In the context of trucking, this means a leased owner-operator or a company driver. The “B” prong of the “ABC” test states that if a worker’s tasks are part of the business’s core functions, then that worker should be classified as an employee, not as an independent contractor. For trucking, this means that if a fleet, whose core business is for-hire trucking, gives loads to an owner-operator, then the owner-operator should be classified as an employee.
In March 2019, Swift Transportation, one of the Country’s largest trucking companies with a heavy presence in California, entered into a class action settlement of up to $100 million dollars with 19,000 current and former truck drivers to end a nearly 10-year legal fight over drivers claiming they were misclassified as independent contractors and should instead have been classified as company drivers. The settlements, equating to an average of more than $5,000 per class member, will be based on length of employment, which goes as far back as 1999, the ultimate number of eligible class members, and other factors. Members of the class include any drivers who entered into an independent contractor agreement with Swift and who also had a lease agreement with Swift subsidiary, Interstate Equipment Leasing, prior to Jan. 1, 2019.
Due to the increasingly challenging legal environment and to avoid future similar lawsuits, Swift also ended its independent contractor program in California in March of this year. Swift allegedly gave its independent contractors the option of becoming company drivers (i.e., employees) or obtaining out-of-state address and running more than 50 percent of their business miles outside of California (to remain owner-operators).
One work-around Dynamex, short of re-classifying employees and/or fleeing the State, has been for motor carriers to set-up brokerages separate from their trucking operations and for leased owner-operators to convert to independents. Under the traditional independent contractor model, single-truck operators without authority leased their trucks to motor carriers with authority. Under the new model, new independents would obtain their own authority and become independent owner-operators, running freight for a motor carrier in a relationship with its brokerage, whether existing or newly formed.
The work-around of carriers setting up brokerages separate from their trucking operations and of leased owner-operators converting to independents offers a resolution, but not an ideal one. Federal Motor Carrier Safety Administration resources are already limited in their ability to conduct timely new entrant audits, as required by law. An influx of independents under this work-around would only further exacerbate the issue.