On September 10th California state senate passed AB5, proposed legislation that would set tougher standards for determining which workers can be properly classified as independent contractors. Governor Gavin Newsom is supportive of the bill that would go into effect on January 1, 2020.
The bill which was originally taking aim at ride-sharing companies Uber Technologies Inc. and Lyft Inc., is having unintended consequences. It could affect more than 1 million workers in the state, including some owner operators, reclassifying many of them as employees rather than contractors. Being classified as employees, means that drivers would be entitled to rights and benefits, including wage minimums, health benefits, and paid leave. From a transportation perspective, in certain circumstances, drivers would be designated as employees instead of contractors if a company exerts control over how they perform their tasks or if their work is part of a company’s regular business.
Those who support the measure, contend that it will address employment abuses in the transportation industry. They site that companies like Uber, Knight- Swift Transportation Holdings Inc. and XPO who have recently paid millions of dollars in overtime and wage claims to settle worker misclassification lawsuits. A California federal judge recently granted preliminary approval to a $16.5 million settlement last week in which XPO Logistics will pay 847 plaintiffs who accused the company of driver misclassification in a lawsuit filed in 2016.
The plaintiffs claimed XPO skirted obligations such as paying the minimum wage, paying for overtime, compensating for expenses related to employment and providing meal breaks. The complaint said the workers, by their terms and conditions, are employees and not contractors.
Delivery drivers claim they are not given the level of autonomy one would expect for an independent contractor. The suit contends that XPO maintains the ability to determine when and where drivers pick up deliveries, the uniforms drivers wear, what kind of vehicle they drive and what kind of insurance drivers use.
The settlement amounts to approximately $70 for each day these drivers worked for XPO. The average estimated payment will be $14,222. This decision is pending a hearing on Oct. 16, 2019 to determine if the settlement should be given final approval. In March of this year Knight-Swift Transportation Holdings agreed to a settlement in a class action lawsuit involving roughly 20,000 drivers over claims that the drivers were improperly classified as independent drivers rather than full employees.
The passing of AB5 in California coupled with the recent settlement by Knight- Swift Transportation Holdings Inc. and XPO represent signs that these carriers, and others, may be forced into incurring additional costs that are not in their current business model. Shippers need to monitor these actions because they may ultimately result in higher shipping costs.
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