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Worse Than We Thought: Trucker Misclassification Costs the U.S. $1.4B Annually, Report Says

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According to a new report, misclassification of port truckers costs the nation $1.4 billion annually.  “The Big Rig Overhaul: Restoring Middle-Class Jobs at America’s Ports Though Labor Law Enforcement” was a collaboration between the National Employment Law Project (NELP), the Los Angeles Alliance for a New Economy, the Teamsters, and Change to Win.  The report shows how costly misclassification can be to the drayage industry, which has adopted the practice as part of its unofficial business model in order to keep labor costs down.  

Nearly 50,000 of the country’s 75,000 port truckers are labeled as independent contractors.  The report estimates that misclassification costs the average driver an astonishing $5,072 a month.  This institutionalized wage theft costs the American citizen as it depresses tax revenue and places increased burden on safety net programs funded by taxpayers.  

The report labels misclassification as “an unlawful scam amounting to billions of dollars in stolen back wages and lost tax revenue for federal and state governments”:

“As a result of the misclassification scam, port trucking companies are currently liable for an estimated $850 million in stolen wages per year in California alone,” according to the groups. “Nationally, the total cost of lost tax revenue, compounded with violations of wage and hour laws, is an estimated $1.4 billion annually.”

The report calls for legislation that would curb the practice in order to make trucking jobs a middle class staples.  In missclassifying workers, trucking companies are effectively chipping away at middle class jobs until they become poverty wage jobs.  As Jared Bernsteing, former Chief Economic Advisor to Vice President Joe Biden, notes:

For port truck drivers and many others in related occupations, proper classification can mean the difference between a decent, family-supporting job, and working in poverty.  By properly classifying workers as regular employees when that’s what they are, we can lift the paychecks of workers, add to public coffers with the resources they’re owed, and reverse a dangerous tilt in the economic playing field.”

Other major findings from the report include:

• State and federal courts and agencies reviewing employment arrangements in port trucking overwhelmingly conclude that the drivers before them are employees and that the label ‘independent contractor’ has little connection with the reality of these drivers’ work.

• By treating employee drivers as independent contractors, port trucking companies are violating a host of state and federal labor and tax laws, including provisions related to wage and hour standards, income taxes,unemployment insurance, organizing,collective bargaining, and workers’ compensation.

• Port drivers have filed some 400 complaints with the California Division of Labor Standards Enforcement (DLSE) for wage theft violations related tomisclassification.  Extrapolating from existing claims made under California state law,we conservatively estimate that port trucking companies operating in California are annually liable for wage and hour violations of $787 to $998 million each year.  The true figure probably lies in the middle of this range at around $850 million per year.

• We estimate the industry’s total federal and state liability for unemployment insurance fund contributions, workers’ compensation premiums, and income tax payments at approximately $563 million annually

The report calls on Congress to pass the Payroll Fraud Prevention Act, the Clean Ports Act of 2013, and the Fair Playing Field Act of 2012.  It is the belief of the report’s authors that together these three laws could “remedy legal conditions of employee misclassification and its damage to the American economy.”  

The Payroll Fraud Prevention Act is being championed by Pennsylvania Senator Bob Casey, Jr.  The goal of the law is to ensure that employees and independent contractors are properly classified according to the standards of the IRS.  In November, he chaired the hearing on the bill:

“Companies should not be able to cheat their employees out of fair compensation by deliberately misclassifying them.  This unscrupulous practice disadvantages law-abiding companies, impacts hard working middle class families and hurts our economy. That is why I have introduced the Payroll Fraud Prevention Act to help ensure all workers are accurately classified.”

The Clean Ports Act of 2013 would aim to lower air pollution in the communities around ports.  It has been introduced by New York Senator Karen Gillenbrand and Rep. Jerrold Nadler. The law is partially based on the Clean Truck Program implemented by the City of Los Angeles in 2008.  In just one year, the program replaced nearly 6,000 dirty diesel trucks with clean diesel models.  Gillenbrand and Nadler highlight the effect port pollution has on neighboring communities:

“Congress must act to provide New York, and cities all across the country, with the common sense tools they need to improve the quality of air and quality of life for millions of people,” said Senator Gillibrand “It’s time to update federal laws and allow our nation’s ports to help reduce diesel emissions and improve air quality for all New Yorkers by putting clean trucks on the road.”

“With an estimated 87 million Americans living in communities near ports which fail to meet federal air quality standards, Congress must take action to address the pollution generated by ports and port trucking,” said Congressman Nadler. “Pollution from dirty trucks greatly increase rates of asthma, cancer, and heart disease, creating a growing public health crisis. The Clean Ports Act will update federal environmental law to allow forward-thinking ports to implement clean truck programs that will improve air quality and decrease incidents of pollution caused illnesses.”

The third bill, the Fair Playing Field Act of 2012, seeks to end the “safe harbor” enjoyed by companies who misclassify workers.  It would also allow companies to correctly classify independent contractors as employees without exposing them to tax liability for the years they failed to do so — an amnesty of sorts.  The bill, introduced by Democratic Congressman Jim McDermott, would provide aide both to misclassified workers and the companies that correctly treat their employees as such:

“Misclassified employees are often denied access to critical benefits and protections like family and medical leave, overtime, minimum wage and unemployment insurance, and that’s just not fair.

Misclassification also leaves hard-working American families vulnerable to an uncertain economic future.  This tax loophole needs to be fixed so that employers who properly classify their workers are no longer at a disadvantage in the marketplace and so that workers get the rights that they deserve. My bill would also ensure that the government doesn’t lose out on billions of dollars in unpaid taxes.”

Through legislation and a public knowledge campaign, the coalition behind “The Big Rig Overhaul” has provided a framework for how to move forward in an industry where wage theft is tragically ingrained. Local and state budgets have been slashed budgets, but minimizing wage theft and misclassification is an opportunity for a bipartisan solution to depleted revenue.  The industry will need to change, but how long it will take is up to the amount of pressure politicians, and the American people, apply to change the status quo.  This report sets the bar for fair treatment of truckers. Read in in its entirety here.


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