United States: New California Law Exposes Maritime Sector To Liability For Drayage Carriers Who Owe Drivers

J. Michael Cavanaugh and Eric Lee are Partners and Daniel L Burkard is an Associate in Holland & Knight's Washington D.C. office

Co authored by Samuel D. Dougan

Statute Could Hold Customers of "Blacklisted" Drayage Motor Carriers Jointly and Severally Liable for Non-Payment of Employee Wages

Under an amendment to California labor statutes that becomes effective in January 2019, beneficial cargo owners (BCOs), shippers and other "customers" engaging port drayage motor carriers (PDMCs) that default on obligations to pay employees will be jointly and severally liable for the sums the PDMCs fail to pay to or for the benefit of their drivers.

Highlights of the New Law

For purposes of the statute, a "customer" means any business entity, regardless of form, that engages or uses a PDMC to perform port drayage service on the customer's behalf. Importantly, this definition applies even where the customer indirectly engages or uses the drayage motor carriage through the use of an agent (i.e., freight forwarder, broker, ocean carrier or other motor carrier). The statute defines "port drayage services" as the movement within California of cargo or intermodal equipment by a commercial motor vehicle whose point-to-point movement has either its origin or destination at a port – including any interchange of power units, chassis, or intermodal containers – or the switching of port drayage drivers that occurs during the movement of that freight. Port drayage services do not include intra-port and inter-port movements of cargo.

The recently enacted California Senate Bill (SB)-1402, introduced by state Sen. Ricardo Lara, requires the California Division of Labor Standards Enforcement (DLSE) to publish a "blacklist" (to be posted on its website) identifying PDMCs with any unsatisfied judgments. PDMC defaults may include failure to pay wages, imposing unlawful expenses, failure to remit payroll taxes, failure to provide workers' compensation insurance or misclassification of employees as independent contractors. Also, the law provides DLSE with the authority to adopt necessary regulations and rules to administer and enforce its provisions.

The new law will be implemented as California Labor Code Section 2810.4(b)(3). This statute states that a customer contracting with or using a drayage provider on the DLSE "blacklist" shall share all civil legal responsibility and civil liability owed to a driver for services obtained after the date the drayage trucking company appeared on the "blacklist." The joint and several feature of the law is especially problematic for customers of a blacklisted PDMC, because it permits the unpaid drivers to claim the entire amount owed from a single "deep pocket" source, who must pay the full damages amount, then seek contribution from any other entity that used the PDMC after it was blacklisted.

The law prohibits businesses and PDMCs from taking any adverse action against a commercial driver for providing notification of a violation, filing a claim or a civil action. The law also requires businesses and PDMCs to provide DLSE with information within their possession to verify compliance with applicable state laws. For any unsatisfied judgment, PDMCs would be provided with notification at least 15 business days before appearing on DLSE's website. PDMCs are required to notify contracting businesses of any unsatisfied judgments within 30 days, prior to providing services.

However, the law exempts certain businesses engaged with PDMCs. There are a few entities that are specifically exempted from liability under the statute, including state and local governments, businesses with less than 25 employees and marine terminal operators (MTOs). Also, the law does not impose joint and several liability on businesses involved with PDMCs whose employees are covered by a collective bargaining agreement, or to businesses who wish to terminate an existing contract. Where a logistics contract exists at the time the trucker is first added to the "blacklist," there is a 90-day grace period for joint and several liability.

Takeaways and Considerations

In response to this recently enacted statute, customers of PDMCs should diligently review the DSLE blacklist and refrain from engaging in business with blacklisted companies to avoid the incursion of joint and several liability. While the statute does not go into effect until January 2019, impacted entities should create protocols to ensure that they are prepared to vet drayage carriers. It is advisable that vetting protocol include, at a minimum, reviewing the California DLSE website every 45 to 60 days. If an engaged drayage carrier appears on the "blacklist," the customer should terminate its engagement with the drayage carrier to avoid incurring liability to the drayage carrier's truckers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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