Labor, Liability and Laws: How California’s New Labor Bill Will Begin Shipping Liability to 3PLs in 2019

February 27, 2019Newsletters Transportation Industry News

The California legislature passed Senate Bill 1402 (SB 1402) on August 31, 2018, which creates the possibility of shifting liabilities to third-party logistics that work with California port drayage motor carriers. Governor Jerry Brown signed the bill into law on September 22, and it has gone into effect on January 1, 2019. The legislation will be added to Section 2810.4 of the Labor Code, and will drastically change the relationships 3PLs have with these motor carriers and their drivers.

After January 1, the bill mandates that the Division of Labor Standards Enforcement post on its website the “names, addresses, and essential information for any port drayage motor carrier with unsatisfied final court judgment, assessment of the Employment Development Department, or any order, decision or award . . . finding that a port drayage motor carrier has engaged in illegal conduct including, but not limited to, failure to pay wages, imposing unlawful expenses on employees, failure to remit payroll taxes, failure to provide workers’ compensation insurance, or misclassification of employees as independent contractors with regard to a port drayage commercial driver.”

The bill also makes the customers of these port drayage motor carriers, such as 3PLs, jointly and severally liable for unreimbursed expenses, future unpaid wages, damages and a range of penalties which are found to be owed to commercial drivers. However, the law does list a range of exceptions that allow these customers to escape liability, such as when it relates to an employee covered by a collective bargaining agreement that expressly provides for wages, work hours and conditions, a process to resolve disputes and a waiver of joint and several liabilities.

Prior to entering into any agreement with a customer, every port drayage motor carrier will be required to notify the customer, on a Division of Labor Standards Enforcement-approved form, about the website; any judgments against it for unpaid wages, expenses, damages and penalties; and the above-mentioned potential for joint and several liability for future judgments.

The bill itself cites a USA Today Investigative Report, a four-part series that was released in the latter half of 2017 and focused on the exploitation of thousands of drayage drivers in California. The report compares these drivers to “modern-day indentured servants” who are forced to work for companies in an effort to get out of the debt they had no choice but to accrue by financing their own trucks.

SB 1402 was created in the aftermath of Dynamex Operations West, Inc. v. Superior Court of Los Angeles, a California Supreme Court case that held that the “ABC” test is an appropriate standard to use when determining whether a worker is “properly considered the type of independent contractor to whom the wage order does not apply” under the suffer or permit to work definition. See 4 Cal. 5th 903, 916–17, 416 P.3d 1, 7 (2018), reh’g denied (June 20, 2018). Utilized in other jurisdictions, the ABC test considers a worker “an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.” Id.