INDEPENDENT CONTRACTORS

Court Rules Harbor Truckers To Be Independent Contractors

Reproduced with the Permission of Miles L. Kavaller

Some may remember the strike by drivers hauling containers from the Ports of Los Angeles and Long Beach approximately two years ago.  They complained bitterly about the delays in obtaining containers from the Port facilities and the minimal payment received for transporting this cargo.  Some of the owner-operators filed suit against virtually all of the carriers operating out of the harbor contending that they were employees and not independent contractors.  Their treatment as independent contractors, the owner-operators alleged, resulted in the improper deduction of many items from their compensation including workers' compensation, liability and cargo insurance premiums.  If successful, these owner-operator class actions would have radically altered the way trucking firms operated in the harbor. 

Last week, in a long awaited decision in the first case to be tried to a conclusion, a special three member panel acting as judges of the Los Angeles Superior Court issued a decision finding that these owner-operators were independent contractors.  The requirement in their contracts that they purchase or provide evidence of their own workers' compensation and other insurance, was  also upheld. 

Because owner-operators are independent contractors, trucking companies often require that they obtain their own motor truck cargo insurance or, as an administrative convenience, participate in the carrier's master cargo policy.  Periodic deductions from the contractors' settlements are made by the carriers for such insurance premiums.  However, the owner-operators claimed that the carrier's retention of money deducted from their settlements for cargo insurance, above and beyond the premiums paid directly by the carrier to the insurance company were both unfair and illegal under California's Unfair Business Practices Act.  The court rejected the owner-operators contention finding that this practice was neither illegal nor unfair under the California statute.  Further, the court ruled that the collection of premiums for this policy did not constitute the transaction of  insurance  which required a license under California law.  See Case No. BC 174508, Albillo, et al, v. Intermodal Container Service, Inc., et al. 

There are 27 similar cases now pending before United State District Court Judge Marianna Pfaelzer.  In those suits, the owner-operators have claimed that the leasing agreements violate the FHWA "truth-in-leasing" regulations (49 C.F.R. 376.12) and various state laws including California's Unfair Business Practices Act.  In a ruling issued on February 23rd of last year, Judge Pfaelzer held that federal law did not preempt California law and particularly the Unfair Business Practices Act on which the owner-operator plaintiffs relied.  However, the court also ruled that the owner‑-operator plaintiffs could not proceed with a lawsuit for damages in federal court until they first asserted their claims before the United States Dept. of Transportation and its Federal Highway Administration.  (As a matter worth noting, the Eighth Circuit Court of Appeals has ruled otherwise finding that owner-operators seeking damages for the violation of the FHWA "truth-in-leasing" regulations could sue for damages in federal district court.  See OOIDA v. New Prime, 193 F.3d 778 (8th Cir. 1999)).  None of the plaintiff owner-operators in these four cases have petitioned for relief at the FHWA.

On August 20, 1999 Judge Pfaelzer also issued two other important rulings.  First, the court rejected the plaintiffs' argument holding that the owner-operators were not assumed to be employees, as opposed to independent contractors, under either the ICC Termination Act or the truth-in-leasing regulations.  While carriers are required to exercise control and responsibility for leased equipment operating in their service, the truth-in-leasing regulations also state that they are not intended to affect whether the lessor or driver is an independent contractor or employee of the authorized carrier.  Thus, an independent contractor relationship can exist when a carrier-lessee complies with the provisions of the ICC Termination Act (49 U.S.C. 14701) and the FHWA's truth-in-leasing regulation (49 C.F.R. 376.12(C)(4).

In the second ruling, the federal judge found that those carriers which made various lines of insurance available to their owner-operators, did not unlawfully engage in the business available to their owner-operators, did not unlawfully engage in the business of insurance and were not subject to the licensing and other regulatory requirements of California law.  See U.S. District Court Case No. CV 98‑290 MRP, Renteria v K & R Transportation Inc.

Although the proceedings in both the state and federal court cases have not yet been completed, with certain minor issues remaining to be decided, the bulk of this litigation is over.  If other motor carriers conduct their operations and treat their owner-operators in a fashion similar to Intermodal's it is more than likely that the same result will be obtained.  Further, because the owner-operators will remain classified and independent contractors and not employees, their efforts, if any, toward unionization are not likely to be successful.