Sunday, September 07, 2008

A Building Legal Storm

Attorney general Brown sues 2 port trucking firms over labor practices

California Atty. Gen. Edmund G. Brown Jr. filed lawsuits against two small trucking companies on Friday on grounds they allegedly deprived drivers of benefits and "cheated the state of California out of thousands of dollars in payroll taxes."

Brown said in a statement that the lawsuits filed in Los Angeles County Superior Court signaled a crackdown on trucking companies at the adjacent ports of Los Angeles and Long Beach that classify drivers as independent contractors to circumvent state employment taxes and labor laws, and have an unfair advantage over competitors

Fed Ex Ground has been sued successfully on this basis in multiple jurisdictions. I suspect the California AG is hoping to establish a precedent for truckload carriers (which would be huge). In addition to the state potentially collecting millions in back taxes from trucking firms in the state, it would open the door for Port truckers to organize for better wages, something they are unable to do as "independent contractors".

This may also be a means to preempt the American Trucking Association's challenge to the Ports of Los Angeles' and Long Beach's plans to require all drayage operators to use employee drivers. Most of the current drayage fleets will not survive settling up with the State for back taxes.

The precedents are working their way through the industry. I suspect the first National Truckload carrier targeted will have a lease-purchase/captive finance program, pay a flat rate per mile, and have forced dispatch. Each of those makes the driver a bit more like an employee (with, as one wag put it, a 100 thousand dollar lunchbox).

Rapidly rising costs and the soft freight market are going to change the lease purchase business model rapidly. I expect the looming legal fights will just accelerate the process. Many "independent contractors" are in multi year leases/loans for traditional square nosed tractors which are now uneconomical to operate and are losing value rapidly (much like the used SUV market is imploding). Pre-buying new trucks to avoid 2008 emissions rules, the collapse of construction (a common 2nd home for the traditional design trucks),and marginal operations exiting the business have loaded up the used truck lots. Exports of used trucks will help, but it is going to take time for the market to clear. Tighter credit conditions will also be a drag.

No comments: