Larson & Gaston recently won a major transportation law defense victory on behalf of one of its motor carrier clients. Four of the carrier’s owner-operators filed claims with California’s Division of Labor Standards Enforcement (DLSE), claiming to be employees of the motor carrier rather than independent contractors. This is a common accusation in the ongoing wave of litigation overtaking the transportation industry. The drivers sought over $500,000 in damages and penalties. L&G, on behalf of its carrier client, petitioned to compel arbitration of the claims pursuant to the arbitration clauses appearing in the independent contractor agreements. The drivers opposed, arguing that the arbitration clauses were unenforceable because they were unconscionable and therefore their claims should be resolved at DLSE Berman hearings
The Los Angeles Superior Court in Long Beach determined that more evidence was needed to resolve the drivers’ claims that the arbitration agreements were unconscionable. The court held a two-day evidentiary hearing on the issue. L&G’s Victor Cosentino prepared and presented the case of the motor carrier. At the conclusion of the hearing, the trial court found that there was no unconscionability and ordered the cases to arbitration.
The drivers then petitioned the Court of Appeals for a writ of mandate to reverse the trial court’s decision. Though it was not briefed by the drivers, the Court of Appeals on its own raised the question of whether the Federal Arbitration Act (FAA) applied. When the FAA applies, it pre-empts the right to a Berman hearing. When it does not, California law applies and the Berman hearing must be held. The FAA contains an exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The Court of Appeals remanded the case back to the trial court to see if this exemption applied.
After the further briefing, the trial court held another evidentiary hearing, this one taking three days and concluding with over two hours of oral argument. Again, Victor Cosentino prepared and presented the carrier’s case. And again, the trial court sided with the carrier and concluded that not only did the exemption not apply, but also that the evidence established that the drivers were independent contractors.
This was a decisive victory for the carrier client. It also validated the guidance and counseling Larson & Gaston had provided to the client over the years that had allowed it to operate successfully with an owner-operator fleet despite the acute pressure experienced by the transportation industry over the last five years.
Motor carriers operating in Southern California face significant legal and financial risk surrounding the classification of their drivers. Sound legal advice on operations and an effective defense in court from experienced transportation law counsel are essential.