One of the bills signed into law by California Governor Edmund G. Brown from the most recent legislative session aims to hold customers accountable when hiring trucking companies that have a record of Labor Code violations. Under SB 1402, customers who utilize trucking companies to deliver goods from California’s ports may be held jointly and severally liable for certain Labor Code violations committed by those trucking companies. Here is the explanation for the need for this new law: “Holding customers of trucking companies jointly liable for future labor law violations by port drayage motor carriers who they engage, where the customer has received advance notice of their record of unsatisfied judgments for labor law violations, will exert pressure across the supply chain to protect drayage drivers from further exploitation.” And “Customers have the market power to exert meaningful change in the port drayage industry that has eluded California drivers for more than a decade.”

The new law adds section 2810.4 to the California Labor Code, and gives California’s Division of Labor Standards Enforcement (“DLSE”) authorization to create a list of port trucking companies that have failed to pay final judgments, tax assessments or tax liens for certain Labor Code violations (e.g., for failing to pay truck drivers’ wages, imposing unlawful expenses on employees, failing to remit payroll taxes or to provide worker’s compensation insurance, and misclassifying employees as independent contractors) and will post that list to a website. The DLSE is to update the website by the fifth of each month. The agency will also remove any trucking company from the website within 15 business days after it determines there has been full payment of any unsatisfied judgment or that the trucking company has entered into an approved settlement dispensing with the judgment.

Significantly, each and every customer that engages or uses a port trucking company listed on the DLSE’s website during a given workweek will be held jointly and severally liable with that trucking company for the full amount of all unpaid wages, unreimbursed expenses, damages, and penalties, including applicable interest, which are found owed by the trucking company to its employees for that workweek. Customers’ liability under this law is determined by the Labor Commissioner following a hearing, or by the court in a civil action brought by the Labor Commissioner or the trucking company’s employees.

Customer is defined as: “a business entity, regardless of its form, that engages or uses a port drayage motor carrier to perform port drayage services on the customer’s behalf, whether the customer directly engages or uses a port drayage motor carrier or indirectly engages or uses a port drayage motor carrier through the use of an agent, including, but not limited to, a freight forwarder, motor transportation broker, ocean carrier, or other motor carrier.”

Customer does not include any business entity with a workforce of less than 25 workers, the state or any political subdivision of the state, and any business entity (marine terminal operators are specifically mentioned) whose business is “incidental to the transportation of the freight for the customer, receives, makes available, or exchanges intermodal equipment, loaded or unloaded, or conducts any other transaction of equipment subject to an equipment interchange agreement with a motor carrier who is a signatory to an equipment interchange agreement.”

Port drayage or trucking services are defined as: “the movement within California of cargo or intermodal equipment by a commercial motor vehicle whose point-to-point movement has either its origin or destination at a port, including any interchange of power units, chassis, or intermodal containers, or the switching of port drayage drivers that occurs during the movement of that freight. It shall not include employees performing the intra-port or inter-port movement of cargo or cargo handling equipment under the control of their employers.”

The new law specifies four instances when joint and several liability does not apply:

• A trucking company’s employees are covered by a bona fide collective bargaining agreement (as long as the agreement expressly provides for wages, hours of work, working conditions, a process to resolve disputes concerning nonpayment of wages, expenses, damages, and penalties, and a waiver of the joint and several liability provided by this new law);

• A customer and the port trucking company had an existing contract for services at the time the trucking company was listed on the DLSE’s website and the customer terminates the agreement within 90 days following the trucking company’s listing;

• A port trucking company is not listed on the DLSE’s website at all; and

• A port trucking company has satisfied the conditions for removal from the DLSE’s website prior to the time period for which the joint and several liability is alleged.

SB 1402 goes into effect on January 1, 2019, and is a wake-up call to all California companies that hire port trucking companies. Truckers subject to Labor Code violations which could cause their customers to become jointly and severally liable are obligated to timely report those obligations to their customers, but failure to do so is not a defense by the customer to joint and several liability. Companies must now add another provision to their business partner due diligence process and make sure their truckers are fully compliant with California’s labor laws — or risk substantial liability for their failures.