With leaders of both parties in Congress now talking about the squeeze on the middle class, they could look to the nation's ports. There, port truckdrivers' wages have been driven down and benefits taken away by an industry that is built on the lie that drivers are independent contractors. Taxpayers and other businesses are big losers here too, as companies dodge paying payroll taxes, including unemployment insurance and workers compensation.
The benefits to the firms that flout the law are clear. The companies avoid paying payroll taxes or having to comply with minimum wage and hour laws. One analysis calculates the cost to federal taxpayers to be $563 million a year. And that doesn't include the losses due to wage and hour violations, estimated at $850 million in California alone. About one-third of the nation's misclassified drivers work in California.
As federal and state agencies are beginning to rule, the notion that the port drivers are independent contractors is pure fiction. The drivers work for a single distribution company, which controls everything about their work — their hours, their shipments, the rates they are paid. The company supplies the trucks they drive, which bear the company name. These firms hand the drivers — most of whom are immigrants and often speak little English — take-it-or-leave-it contracts as a condition of getting work. The drivers must pay for leasing the trucks, fuel and maintenance, costs which the companies often deduct from drivers' pay. The bottom line for drivers is that they work an average of 59 hours a week, with take-home pay of under $29,000. The contractors earn 18 percent less than drivers who are hired as employees.
Responsible employers who comply with the law and pay drivers as employees lose, too, when they are forced to compete with firms who take the low-road business model.
The strike in Southern California is part of a new national effort to force employers to comply with the law. One prong is for drivers to file claims in states like California with wage and hour laws that are able to deliver relief. Drivers have filed more than 400 claims against companies under California's wage and hour law. The first 19 rulings resulted in an average award of $66,240, largely for wage and hour violations and illegal paycheck deductions for items like truck leases.
Federally, the issue of misclassification of employees as independent contractors can be considered by the Department of Labor, the National Labor Relations Board (NLRB) and the IRS.
The NLRB has ruled in several cases, including against two of the firms being struck now in Southern California, that the workers were employees and entitled to relief under labor laws, which do not apply to independent contractors. But while the NLRB can seek to stop retaliation against employees, it does not have the power to impose meaningful sanctions on companies that violate the law.
The IRS also ruled in one case that a driver was an employee, specifically rejecting the company argument that because the driver had signed an independent contractor agreement, he must be one.
Relying on individual claims at the state or federal level, before an array of agencies, will not bring decent wages and benefits to the workers or collect the taxes owed by the companies. Employers are resisting complying in every way possible. "It's all out war," one labor attorney told me. What's needed is national legislation, with enough teeth to compel enforcement.
Earlier this year, New York Gov. Andrew Cuomo (D) signed the New York State Commercial Goods Transportation Industry Fair Play Act, which would be a good model for federal action. The New York law lays out specific criteria for what constitutes an independent contractor in trucking and provides for both fines and criminal penalties for violating the law. Unfortunately, the record shows that these tough sanctions are the most reliable way to get irresponsible employers to comply with the law.
Of course, the industry will resist federal legislation, as it did in New Jersey, where Gov. Chris Christie (R) vetoed a similar bill last year. But as in so many cases, the predictable claim that the law will kill jobs is belied by the facts. In New York, the trucking industry has accepted the law, with the New York State Motor Truck Association saying that, "This legislation not only provides such a definition, but takes into consideration the unique characteristics of the transportation industry, enabling true independent contractors to continue working as such without being subject to a 'one-size-fits-all' definition."
The five-day strike in Southern California was halted on July 14, after Los Angeles Mayor Eric Garcetti negotiated a cooling-off period. The strikers agreed to return to work and the firms promised not to dismiss the drivers. The mayor's office said that the Harbor Commission would " ... investigate the serious allegations regarding worker safety, poor working conditions, and unfair labor practices."
But neither the port drivers nor the issues raised by their strike will go away. The issues raised by the port drivers' strike are like so many others the country faces in rebuilding the middle class. Will some companies be able to impoverish their workers, gain an unfair advantage against responsible competitors and rip off taxpayers? Or will policymakers understand the key to moving the economy forward is to assure that companies pay workers fairly, replacing low-wage economy-busting jobs with good economy-boosting jobs?
Kirsch is a senior fellow at the Roosevelt Institute and a senior adviser to USAction. Follow him @_RichardKirsch.