March 7, 2014

Stakes raised in driver classification debate as New York state law takes effect

Statute breaks new ground to determine who's an employee and who isn't.

By Mark B. Solomon

A law that takes effect Tuesday in New York state will make it dramatically harder for businesses to classify a commercial truck driver hauling more than 10,000 pounds of gross vehicle weight as an independent contractor instead of an employee.

The "New York Commercial Goods Transportation Industry Fair Play Act," signed into law in January by Gov. Andrew Cuomo (D), requires companies to pass one of two tests in its entirety to prove a worker is legally functioning as an independent contractor. The first, known as the "ABC Test" after the three subsections of the law, has three requirements which all must be satisfied. The second, known as a "separate business entity" test, contains 11 requirements that must be met to prove a worker is deemed a separate business and thus be classified as a contractor.

The bill was sponsored in the state Assembly by Assemblyman Keith L.T. Wright and in the state Senate by Sen. Diane J. Savino. Both represent different boroughs of New York City. The bill, which passed the legislature last summer, had the support of organized labor and the New York State Motor Truck Association, the state's primary trucking trade group.

At the time of the bill's signing, Cuomo suggested it be amended to require a 90-day effective period rather than the original 60-day period. An amended version was approved by the state Assembly but as of today had not been signed by the Governor.

In the past, state courts determined a worker's classification primarily on the degree of control an employer exercises over an affected worker. While that legal marker is part of the ABC test, other hurdles must also be cleared for a contractor classification to stand.

The New York law's objective is "to severely limit a commercial goods transportation contractor's ability to classify its carriers as 'independent contractors,'" wrote Christopher M. Curran and Salvador D. Simao, attorneys at Ford & Harrison, LLP, in an article published in early February.

In an e-mail today to DC Velocity, Simao said the law is the "most stringent enacted to date" by any state to govern the legal classification of a transportation worker. Simao said the law "creates a presumption that a worker in the industry is an employee" unless the supposed employer can prove otherwise.

The New Jersey legislature had passed a similar bill that affected drivers in the drayage and parcel industries. However, Gov. Chris Christie vetoed it last year.

The New York law deals harshly with violators. So-called "non-willful violators" will be hit with thousands of dollars in fines depending on the frequency of the violations. "Willful violators" will face even stiffer fines and, in the case of repeat offenders, possible imprisonment. A company found guilty of willfully breaking the law would be barred from bidding on any public works contracts for one year. Corporate officers and large stockholders will be held personally liable if they allow a willful misclassification to occur.

Eric Su, a New York-based attorney who represents employer interests, said the law would apply to transport companies not domiciled in New York as long as they compensate drivers that have a state-issued commercial drivers license (CDL). There is also no distinction between whether those drivers operate in interstate commerce or just within New York's borders, Su said.

The bill is aimed to help resolve what its supporters say is a long-running worker classification problem in the state. An investigation found that there were 35,000 misclassified workers of all types in New York between 2007 and 2010, resulting in $457 million in unreported wages during that time. New York, like other states trying to recover from the Great Recession and grappling with high legacy pension and health care expenses, is trying to stanch the flow of lost tax dollars by tightening worker classification standards, among other steps.

Advocates of the legislation said workers improperly classified as contractors lose access to rights such as company-paid health insurance, vacation time, unemployment benefits, workmen's compensation insurance, and employer contributions to Social Security and Medicare. In the trucking industry, contractors are required to buy and maintain their own equipment, and pay for fuel, insurance, and other expenses.

The issue of worker classification has coursed through the transportation and logistics industry for years. The most visible example is FedEx Corp.'s 15-year fight to classify the drivers at its FedEx Ground parcel delivery unit as independent contractors rather than company employees. The battle has sparked dozens of class-action suits against the Memphis-based carrier, as well as a multiyear legal wrangle with the Internal Revenue Service (IRS). FedEx has said that the IRS had approved the contractor model for tax purposes in the mid-1990s.

In their article, Curran and Simao said federal agencies have said they plan to "tighten the net around employers and reap the billions of dollars in uncollected taxes due to worker misclassification." Employers also face a new regime of federal-state cooperation where agencies share information on investigations, they wrote. "A drop of blood in the water from a single agency investigation could cause a feeding frenzy of enforcement actions against an employer," according to the attorneys.

Given organized labor's strong support of the bill, companies should also brace for more union organizing efforts among workers who are now more likely to be classified as company employees, they added.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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