California Motor Carriers May Settle Misclassification Liability

California motor carriers may relieve themselves from liability for penalties associated with the misclassification of drivers as independent contractors, provided they agree to reclassify their drivers as employees and pay applicable costs and penalties.

On October 10, 2015, California Governor Jerry Brown (D) approved A.B. 621, entitled the Motor Carrier Employer Amnesty Program (“Program”). The Program permits eligible motor carriers performing drayage services to enter into a settlement agreement with the California Labor Commissioner (“Commissioner”) which will relieve the motor carrier from liability for penalties associated with the misclassification of commercial drivers as independent contractors.

For these purposes, an “eligible motor carrier” means a motor carrier that on the day it applies to the Program is not a defendant in a civil lawsuit involving the misclassification of a commercial driver, and does not owe a penalty to the California Employment Development Department (“EDD”) for fraudulently or intentionally failing to timely file an unemployment insurance return or report.

To apply to participate in the Program, a motor carrier must first reclassify its commercial drivers as employees on or before January 1, 2016, and compensate each reclassified driver for their misclassification, among other requirements. If a motor carrier’s application is denied, its application will not be considered an acknowledgment or admission that it misclassified its commercial drivers.

Motor carriers that are accepted into the Program may negotiate a settlement with the Commissioner. Settlements must be executed before January 1, 2017, and require a motor carrier to agree to the following, among other items:

  1. pay all wages, benefits, and taxes owed to or in relation to the commercial drivers it reclassified as employees from the first date of the misclassification to the date the settlement is executed, but limited to applicable statutes of limitation;
  2. maintain any reclassified positions as employee positions;
  3. consent that future drivers hired to perform the same or similar duties as those reclassified as employees shall be presumed to be employees;
  4. immediately obtain workers’ compensation coverage; and
  5. if required, pay the Commissioner’s and EDD’s actual costs to review, approve, and monitor the settlement agreement.

The recovery obtained on behalf of a reclassified commercial driver pursuant to a settlement agreement will be tendered to the commercial driver on the condition that the driver release all claims against the motor carrier regarding the motor carrier’s failure to properly classify the driver. However, if a driver declines to accept the terms of the settlement agreement, the motor carrier will not be required to pay the amount acknowledged in the settlement agreement to be due to the driver. Nonetheless, the motor carrier shall still reclassify the driver as an employee and the driver shall be precluded from pursuing a claim for damages against the motor carrier.

Motor carriers that perform their obligations pursuant to the settlement agreement will not be liable for any penalties, interest, or taxes associated with the misclassification of drivers as independent contractors except for penalties associated with misclassification that was based on fraud or made with an intent to evade reporting requirements. The Commissioner is permitted to file a civil action against a motor carrier to enforce the settlement agreement. The Commissioner may collect its costs and reasonable attorney’s fees incurred to enforce a settlement agreement.

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