Port truckers have gained two key victories, but the pain of deregulation persists

In Mitt Romney and George Will's America, hard work is the key to success, and those who don't make it—the 47 percent of “takers”—are simply people who, for whatever reason, just don't work hard enough. But try telling that to the roughly 100,000 truckers servicing the nations ports, who typically work 50- or 60-hour weeks, yet make so little as so-called independent owner-operators that their families commonly rely on some forms of public assistance—particularly for healthcare—and they sometimes even receive negative paychecks. There's a chronic shortage of truckers nationwide, with turnover rates as high as 97 percent reported in one quarter last year—and port truckers make significantly less than their long-haul counterparts. But there's been no increase in pay to attract more truckers, as economic textbooks might have you expect. To the contrary, as Neil Irwin wrote in the New York Times:

Even as trucking companies and their trade association bemoan the driver shortage, truckers — or as the Bureau of Labor Statistics calls them, heavy and tractor-trailer truck drivers — were paid 6 percent less, on average, in 2013 than a decade earlier, adjusted for inflation. It takes a peculiar form of logic to cut pay steadily and then be shocked that fewer people want to do the job.

In short, the atomized world of struggling port truckers provides an excellent microcosm of what's wrong with deregulatory, neoliberal economics. Which is why we should pay more attention to two key victories port truckers in Southern California won in January, both of which are rooted in the frayed, but still enduring framework of New Deal social democratic labor policy, which, in the spirit of John Locke's social contract, recognizes workers' rights as part of the fabric of civilization, not reducible to the totally commodified logic of the neoliberal marketplace, which too many mistakenly identify with Adam Smith. These two recent victories, small though they may seem, are deeply embedded in a long history of struggle to determine which vision shall prevail of how to create a good and just society.

The first victory, on Jan. 9, was the unionization of Shippers Transport Express, the first fruits of a series of mostly one- and two-day strikes last year, initially focused on just three companies until expanding dramatically at the end of the year. Shippers is only the second port trucking firm to unionize, following the Toll Group in 2012, but confidential negotiations continue with eight other companies that were struck last year, so it's clearly a harbinger of more change to come. “This has been a long struggle and we are grateful that Shippers agreed to remain neutral during our campaign to become Teamsters,” said Mike Acosta, a port trucker employed by Shippers.

But Shippers was only neutral toward the end, and because it needed a graceful way to surrender after losing a key pretrial decision in federal court in late September that went in the truckers' favor. That's the perfect lead-in for the second victory of the month, on Jan. 28: a court case upholding a $2 million wage theft ruling by the California labor commissioner against Pacer Cartage, on behalf of seven employees who were found to be improperly classified as “independent owner-operators,” which was also the key issue that brought Shippers to the table. It's taken quite some time, but rulings from all sorts of venues are inexorably starting to converge—state labor boards, the IRS, the National Labor Relations Board, state trial courts and courts of appeal, and now federal appeals courts as well.

In the Pacer Cartage trial, the fantasy world of neoliberal economics, with every man a Donald Trump in the making, collided head on with reality, which was much closer to the old sharecropper model of capitalism, as San Diego Superior Court Judge Jay Bloom recognized in his ruling. "Pacer presented testimony through its witnesses and experts that painted a rosy scenario of [truck drivers as] venture capitalists who could profit through this lease arrangement as independent contractors. However, this scenario was not supported by the evidence," Bloom wrote. Trucker drivers' capital stake was utterly illusory, he noted: "[T]he day the truck left the dealer, it had a negative equity situation. Moreover, when the drivers left Pacer there was no evidence they had any equity built up that was returned to them. In most cases, they just turned over the keys."

The roots of the problem go back to the Carter-era deregulation of the trucking industry, as Rutgers labor studies professor David Bensman explained in his 2009 report for Demos, “Port Trucking Down the Low Road: A Sad Story of Deregulation.” In that report, Bensman wrote:

Deregulation has created an unsustainable freight moving industry in the United States. All the hallmarks of deficient public policy can be found along America’s logistics chain—bad jobs, environmental degradation and injustice, wasted energy, economic inefficiency, public health problems, blighted real estate, inadequate infrastructure and holes in the domestic security net. The port trucking sector... is the most obviously broken sector in the industry.

At its most basic, the deregulated market system simply ignored all costs, all impacts that didn't show up in market interactions—a practice that inevitably favored those who did the most to pass their costs along to others. Deregulation was pushed by industry, but had progressive (not just neoliberal) support initially as well, Bensman noted:

The Motor Carrier Act of 1980, was hailed by liberals and the business community alike as a triumph of policy reform. Senator Kennedy and Ralph Nader led the reformers who charged that trucking regulation meant high rates for consumers, and monopoly profits for businesses.... Civil Rights organizations argued that deregulation would lower barriers that impeded African Americans from gaining a just share of decent trucking jobs.

But that's not the way things played out, as deregulation brought about a widespread race to the bottom, supercharged by high profits based on externalizing unpaid costs, including public health and safety, and the environment. Negative impacts Bensman cited, and expanded on, included:

• Making highway travel more hazardous
• Triggering an environmental crisis
• Degrading the quality of port truck driver jobs
• Externalizing enormous costs onto the public
• Creating an inefficient logistics and goods movement system

Regarding externalized costs, he noted:

• Diesel emissions cause significant harmful health impacts, estimated by one study to cost the state of California $20 billion annually.
• More than a quarter of port truck drivers surveyed in New Jersey rely on public clinics or emergency rooms for healthcare because they lack health insurance.
• Drivers’ family members often forgo routine preventive care that leads to serious health problems, putting additional and avoidable strains the health care system.

Ironically, things got even worse for Southern California port truckers following the implementation of two similar clean truck programs at the twin ports of L.A. and Long Beach, which were part of a broader cleanup of port pollution affecting every aspect of port operations—ships, rail, trucks, cargo-handling equipment and port construction projects. This cleanup, in turn, had been forced on the ports by a small but determined group of activists, who both mobilized widespread community support and won a key legal victory—colloquially known as “the China Shipping case”—in California's Court of Appeals, leading to a historical settlement that finally forced the ports to start taking environmental costs seriously. The original clean trucks planning process, from 2006 through 2008, responded to truckers organizing and gaining broad community support, aided in part by the Teamsters and the Change to Win labor confederation, as well as the Los Angeles Alliance for a New Economy, a major local social justice organization. Interestingly, the Natural Resources Defense Council, which had represented the community activists in the China Shipping case, was an active participant in crafting the truck plan, and ended up co-arguing the case for it in federal court.

“We want change now. We want it yesterday,” port trucker Luis Ceja told the rally of several hundred truckers and community supporters in March 2007. “I hate that my truck pollutes and there is nothing I can do. We need to change,” he said. “We’re getting sick, we’re dying, little by little.” Later, in a press teleconference, he spoke of the truckers' economic desperation: “We can't afford a new one [truck] and it’s impossible to fix.”

Responding to this reality, following a long process of consultation, the L.A. plan originally called for all truckers to be treated as employees, with companies taking on both the costs and benefits of adopting new technology—though with a massive multi-agency clean truck subsidy worth hundreds of millions of dollars overall. It was designed to benefit everyone, and making truckers into direct employees was a key part of the plan's whole architecture, which two methodologically different economic studies said was important for the plan's long-term success.

One study, specifically commissioned by the Port of L.A., came from Boston Consulting Group, where Mitt Romney worked before starting Bain Capital. But the more insightful study was done by Jon Haveman of Beacon Economics. “The employment relationship is an essential element in creating incentives to use trucks efficiently and keep them well maintained,” Beacon explained in a press statement. The report described port pollution as “a classic externality problem.” Haveman told me at the time. “An externality occurs any time there is an economic activity which impacts people who aren’t directly involved in that transaction.” Premature deaths from diesel pollution—numbering in the hundreds annually at the time—were an extreme example of such externalities.

But there was a related problem, as I reported then: “Those at the heart of the market, the truckers, are powerless to express their strong preference for increased efficiency.” That powerlessness “is part and parcel of the pollution problem,” Haveman added. “Solving the efficiency problem is one important step for solving the pollution problem. If the pollution problem were internalized, there would be a much stronger movement toward reducing those inefficiencies.”

Shifting to a company/employee model could significantly reduce the size of the port trucking fleet, since each truck could be used by multiple drivers, just one of five key efficiency gains the report cited:

1. Increased matching of inbound and outbound loads.
2. Increased pressure on terminal operators to reduce wait times.
3. Higher safety standards, both in maintenance and operation.
4. More slip-seating (trucks driven more than one shift by more than one driver).
5. Better use of off-peak pickup and drop-off opportunities.

Haveman was a strong believer in markets—but not a market fundamentalist. Markets weren't magic in his eyes. They had to be properly designed to work properly, just like any human invention. He cited the hyper-efficiency of UPS and FedEx delivering millions of packages to millions of locations as a successful example of a trucking market working properly, with port trucking representing the opposite dysfunctional extreme, simply moving single containers from one point to another, but with no efficiency whatsoever. “Only 12 percent of the trucks flowing into ports carry loaded containers for export, even though exports make up a full third of overall traffic by weight,” his report noted, for example.

The movement of empties highlighted the inefficiencies involved. “Over 40 percent of the arriving trucks carry nothing (‘bobtail in’) and over 40 percent leave the port with nothing (‘bobtail out’), presumably en route to pick up an export, an empty container, or a chassis,” Beacon noted. As a result, “many container trips to and from the port require four turns—two to deliver the container out and return bobtailing, and two to bobtail out and return with an empty container.” As “independent” contractors, individual truck drivers were the only ones suffering directly as a result of this, but without any power to do anything about it. So everyone else suffered indirectly, instead, including everyone slowed down to a crawl by needless excess congestion—commuters as well as port truckers and other commercial vehicles. LA's total cost of congestion was estimated at $23 billion in 2013, and the twin ports are the single biggest source of highway traffic.

Thus, while opponents argued against the port plan as an intrusion into the market, Beacon viewed it as a way to make markets work as they should—giving trucking companies both the incentive and the power to increase efficiencies that would thereby increase truckers' pay. That's just what the Port of L.A. argued in court—that it needed to make the trucking market work properly in order to compete successfully with other ports.

But the plan was killed by the American Truck Associations. ATA litigation against the Port of L.A. resulted in that provision being tossed out by the 9th Circuit Court in September 2011, and Long Beach scuttled that key part of its plan in advance, in order to avoid litigation. As a result, truck drivers ended up being forced into sham long-term lease-purchase arrangements for low-polluting trucks, which in reality they would never own, and—as Judge Bloom noted—rarely even gain any equity in.

The basis for the ATA prevailing goes back to the deregulatory framework first put into place in 1980, as Bensman describes, but its roots go back to an even earlier law, the 1978 Airline Deregulation Act, and the contemporary legal foundation is the 1994 Federal Aviation Administration Authorization Act, which “preempts” regulations by state or local entities regarding the “price, route, or service of any motor carrier,” with a few relatively narrow exceptions, none of which anticipated the magnitude and kind of harm that port trucking has caused. This sort of provision is typical of the neoliberal mind-set, which sees the unimpeded functioning of large corporations as the only thing worth prioritizing, and doesn't want any local jurisdictions getting in their way.

To overcome these objections, which were anticipated from the beginning, the Port of L.A. adopted an approach first proposed by the NRDC, drawing a distinction between itself as a government/regulatory body (a self-funding department within the City of L.A.) and the financial reality that it is a “market participant” in the commerce it was seeking to reorganize under the Clean Trucks Program. Indeed, the NRDC lawyer arguing the case, David Pettit, pointed out that NRDC had sued the port to force it in this direction, and would sue it again if such a plan weren't in place—a clear indication that the Port of L.A.'s actions were guided by a desire to have its business run smoothly, free from legal challenges, as well as compete with other ports. Furthermore, the Port consciously modeled its truck plan on similar plans regulating airport taxi and limousine service, with a similar system of licensing and documentation, which clearly was allowable under the FAAAA.

But this line of argument was rejected by a 9th Circuit Court panel in 2011, and other aspects of the plan were further disallowed when the Supreme Court ruled on the case in June 2013. The language used was, typically, heavy on legal precedent, and very light on the side of the actual real-world implications of what was being argued. The comprehensive protections of the Clean Trucks Program were simply too far outside the mind-set that had been created by three decades of neoliberal lawmaking and regulation to be seriously considered.

What has changed since then has been the resurrection of traditional workers' rights protections, first established federally during the New Deal. Key to that resurrection has been the detailed refutation of the myth that port truckers are independent business owners, and key to that refutation was a December 2010 report, “Big Rig: Poverty, Pollution, and the Misclassification of Truck Drivers at America’s Ports,” which Bensman co-authored with Rebecca Smith of the National Employment Law Project and Paul Alexander Marvy of Change to Win. That report first consolidated the results of a number of studies done in the previous three years examining the conditions of port truckers on the East, West and Gulf coasts. Altogether, this reanalysis covered 2,183 workers at seven major ports. In each of these studies, the same picture had emerged—that of an exploited, underpaid workforce, in a badly broken system that also polluted the air and impaired the health of surrounding communities. Despite being designated “independent owner-operators,” they function just like employees, but without the protections of labor law.

But even consolidated into one national report, that extensive survey-based evidence, compelling enough for news stories, was not strong enough and sufficiently detailed to prove a case in court. Which is why the report also included a totally new investigation, to add specific detailed proof of the broad picture drawn by the mass surveys. It was based on IRS employment law, and extensive two-hour interviews, plus reviews of employment documents, with more than 50 workers from six ports. The report left no doubt that port drivers were clearly being misclassified as “independent owner-operators,” At the time, I reported that it cited three key points in the law:

• Port drivers are subject to strict behavioral controls. Trucking companies determine how, when, where, and in what sequence drivers work. They impose truck inspections, drug tests, and stringent reporting requirements. Drivers’ behavior is regularly monitored, evaluated, and disciplined.
• Port drivers are financially dependent on trucking companies that unilaterally control the rates that drivers are paid. Drivers work for one trucking company at a time, do not offer services to the general public, and are entirely dependent on that company for work. Like other low-wage employees, drivers’ only means for increasing their earnings is to work longer hours.
• Port drivers and their companies are tightly tied to each other. Drivers perform the essential (and most often sole) services of the trucking companies they work for. Drivers work for years for the same company; use company signs and permits; represent themselves to others as being from the company; and rarely offer their work independently of the company.

With this body of research already done, it was suddenly much more feasible to bring legal challenges. As a result, cases began to be brought before state labor law courts on both the Atlantic and Pacific coasts, plus some federal actions, as well. Individual truckers also began to file civil suits, charging wage theft. There was so much legal activity—almost all of it successful—that NELP and Change to Win partnered with the Los Angeles Alliance for a New Economy to issue a follow-up report, “The Big Rig Overhaul: Restoring Middle-Class Jobs at America's Ports Though Labor Law,” in February 2014.

The report featured a foreword from economist Jared Bernstein, formerly Vice President Joe Biden's top economic adviser. Setting the stage, he wrote, “What you’re about to read is a microcosm of one of the foremost challengs facing the American economy and the workers who keep it running: the fight for a decent pay in return for hard work,” adding that, “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.” But he also added a significant note of hope: “With this update, we begin to see something you don’t see nearly enough of these days: a beginning of a story about economic justice, as cases against misclassifying employers are being brought and being won.”

Cases reviewed included state labor law enforcement actions in California, Washington state and New Jersey, with some cases appealed to higher jurisdictions, along with federal enforcement actions by the Internal Revenue Service, the Department of Labor and the National Labor Relations Board. But it wasn't just encouraging anecdotally. “Given the positive findings from already-adjudicated complaints and the growing number of pending driver complaints, these filings have the potential to be transformative,” the report stated. “The industry’s potential liability for the labor and tax law violations these complaints address runs in the billions of dollars.”

In California alone, the report noted, “Some 400 port drivers have filed labor law complaints with the California Division of Labor Standards Enforcement (DLSE), the most in an state,” with decisions in 19 cases, averaging $66,240 per driver and $4,266 per driver per month, and pending claims even higher than that. Based on those claims, the report conservatively estimated that port trucking companies were liable for wage and hour violations of $787 million to $998 million each year in California, with a most likely mid-range total of $850 million. The report also estimated the industry’s total state and federal liability for unemployment insurance, workers’ compensation and income tax at about $563 million annually, for an overall total of $1.4 billion annually, “with non-quantified costs likely exceeding the figure significantly.”

“We counted the cost of wage theft just for California,” co-author Smith explained to me at the time. “We did not look at the wage theft that may be happening in other states and we didn't look closely at the laws of other states and how they might deal with deductions, because one of the huge costs in California is that California law says that employers cannot deduct things like the cost of trucks. So, that was one of the reasons that the wage theft that you have is so high in California. Because not the same amount of enforcement is going on elsewhere, we couldn't really quantify that.”

Reporting at the time, I noted, “Attorneys bringing the most recent class-action lawsuits cited the Clean Trucks Program as causing the illegal conditions in California, but the report indicates that severe worsening would be a more accurate description.” As Smith explained, “It created this condition where businesses could both require that a worker buy a truck from them—with finance conditions, which made it almost impossible for the worker to ever own the truck—and sign an independent contract or agreement.” This situation was richly illustrated by one Southern California case cited in the report, involving the company Seacon Logix. In that case, Smith said the judge “easily understood it. He said these are two contracts that are totally intertwined. You can't just buy truck and you can't just work, you have to do both. And when you lose the job, you lose the truck.”

But the story was not just about port truckers, Smith insisted. Their struggle is part of a much bigger struggle, challenging a business model that “really contributes to inequality… in a number of industries: misclassifying workers as independent contractors, engaging in sham franchise agreements and other illegal practices,” she said. Fields like landscaping, janitorial services and construction typically involve a “whole chain of contractors… and at the bottom of that chain, you will find workers who are often misclassified. There is starting to be a fair amount of resistance to those business models across industries and the recognition that those business models are a large part of growing inequality in our country, the deterioration and degradation of work in our country.”

That was just under a year ago. And the port trucking industry's best hope then was that they might be able to use the FAAAA to preempt all the state and federal laws and regulations they were violating to the tune of more than a billion dollars a year. But it hasn't turned out that way. Quite the opposite, in fact.

Last July, in Harris v. Pac Anchor, the California Supreme Court unanimously held that the FAAAA did not preempt California's unfair competition law [UCL] in a case involving misclassification of drivers as independent contractors. The main thrust of the argument was that (a) preemption was not intended to casually sweep aside traditional state powers—only specifically relevant ones, [“we ‘start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress'”]; (b) there was no evidence that Congress specifically intended to preempt this power; and (c) the regulation of unfair competition applied to all business in generally, not specifically to trucking companies [“The UCL does not mention motor carriers, or any other industry for that matter; it is a law of general application”].

That same month, a three-judge panel of the federal 9th Circuit reached a similar conclusion in the case Dilts v. Penske Logistics. As the summary of that decision explained:

The panel reversed the district court’s dismissal, based on federal preemption, of claims brought by a certified class of drivers alleging violations of California’s meal and rest break laws. The panel held that California’s meal and rest break laws as applied to the motor carrier defendants were not “related to” defendants’ prices, routes, or services, and therefore they were not preempted by the Federal Aviation Administration Authorization Act of 1994.

The Dilts decision directly led to Shippers' decision to not fight unionization. On Sept. 30, U.S. District Court Judge Beverly Reid O’Connell ruled on motions for summary judgment from both sides. First, she found in favor of the truckers' key argument, affirming that “Plaintiffs have satisfied their burden of establishing an employment relationship with STE.” O’Connell then built on Dilts in denying Shippers' motion to dismiss the suit based on FAAAA preemption.

With the neoliberal shield of the FAAAA removed, Shippers wisely chose to stop fighting the change and embrace it instead. Rather than continue to fight a losing battle in court, they announced a transition to an all-employee workforce in November, to begin on Jan. 1, and they subsequently agreed to stay neutral as the workers organized.

“Shippers’ transition to an employee-based business model is a crucial step in the drayage industry’s efforts to modernize, make the ports more efficient, and reduce congestion at the ports and on our freeways,” said STE general manager Kevin Baddeley, betraying no hint of the bitter struggle that had preceded the decision. “On unionization, we took a neutral position because we respect our drivers’ right to form a union,” he said. “Finally, through our productive dialogue with the Teamsters, we anticipate we will be able to improve operational efficiencies and stabilize our driver workforce.”

“This historic agreement represents an important step in drivers’ efforts to reform the drayage industry, and demonstrates clearly that labor and management can work together constructively to find solutions to challenges facing the industry and to the injustices facing the drivers,” said Fred Potter, director, International Brotherhood of Teamsters Port Division. “As Teamsters, Shippers drivers will now begin the hard work of negotiating a first contract to assure that they earn a fair day’s pay for a hard day’s work.”

A month later, the first negotiated contract was announced, with hourly pay increased 17 percent from $18 to $21 per hour, time-and-a-half overtime after 40 hours per week, full medical insurance, including vision and dental, covering individuals and their families – 100 percent of premiums paid by the employer, retirement security via a defined benefit pension plan, eight paid holidays and four paid sick days, and employment protections via a grievance procedure or conflict resolution process, plus a “just cause” requirement before drivers can be disciplined or fired. In short, it guarantees a secure lower-middle-class job, given the local cost of living.

In light of all the above, the Pacer Cartage ruling is just what might be expected. It's in line with both the California State Supreme Court, and with the 9th Circuit, the top federal court, aside from the Supreme Court itself. But Pacer's corporate parent, XPO Logistics, still says that it plans to appeal the decision. "We believe the drivers in question are properly classified as contractors, and that this case is without merit," XPO's chief operating officer Troy Cooper said.

It's a bizarre claim, given that virtually no court in the last few years has agreed with that position. The few decisions that have favored trucking companies—such as the lower court decision overturned in Dilts—have favored them based on preemption, the now-rejected idea that the FAAAA flatly overrules general labor laws and other workplace and business regulations. They have not held that drivers are contractors, as nothing in the evidentiary record supports this now-discredited claim. But it continues to be good sound-bite material, and for now—unless the lawless Roberts Court chooses to intervene—that's all that the trucking companies have left.

Truckers, on the other hand, have the battered but enduring protections of labor laws that past generations of workers struggled and died for. What they've won is a protection against commodification, against being reduced to nothing but things in the marketplace. Neoliberal ideologues may be horrified at this prospect. But economists like Haveman continue to argue that markets actually work better when we internalize all the costs incurred to all involved in the social contract. And their even more basic argument for equity is neither new nor subversive. In "The Wealth of Nations," Adam Smith himself wrote:

Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.

If the ghost of Adam Smith smiles down at anyone at the ports of L.A. and Long Beach today, it's newly organized truckers at Shippers Transport Express. The more others who join their ranks in the days and year ahead, the more broadly he will smile.