Wrongly classifying drivers could mean jail in New York State

A new law that took effect last week in New York State could mean significant financial penalties and/or jail for companies that knowingly misclassify employee-drivers as contractors.

According to the text, the law is designed to ensure drivers, particularly those who work for companies such as FedEx and UPS and port truckers, are properly classified as employees of the company where appropriate.

The bill, passed last summer, adds article 25-C, the New York State Commercial Goods Transportation Industry Fair Play Act, to existing state labor law. A “commercial goods transportation contractor,” (i.e. company) reference repeatedly in the law, means “any sole proprietor, partnership, firm, corporation, limited liability company, association or other legal entity permitted by law to do business within the state who compensates commercial vehicle drivers who possess a state-issued commercial driver’s license to transport goods in the state of New York.”

According to the law firm of Tully Rinckey, the law “creates a presumption of employment in the commercial goods transportation industry,” under which people “performing commercial goods transportation services for a commercial goods transportation contractor shall be classified as an employee.”

The law creates exemptions, the law firm notes, from this presumption for independent contractors and “separate business entities.”

Penalties for violating the law include a $2,500 civil penalty per misclassified employee and/or up to 30 days in prison or up to a $25,000 criminal fine for a first offense and a $5,000 civil penalty per misclassified employee and/or up to 60 days in prison or up to a $50,000 criminal fine for all subsequent offenses.

So what is a contractor under the provisions of the law? According to the text (the full version of which can be found here), the driver would be considered an employee of any company unless the individual driver is a “separate business entity,” is “free from control and direction in performing the job, both under his or her contract and in fact,” the “service is performed outside the usual course of business for which the service is performance,” and the “individual is customarily engaged in an independently established trade, occupation, profession, or business that is similar to the service at issue.”

The basis for the law, according to the bill, is a Cornell University School of Industrial and Labor Relations study that found nearly 40,000 employers misrepresented the statuses of more than 700,000 workers in New York between 2002 and 2005.

“Misclassification rates are disproportionately high in the trucking industry,” the bill states. “Port truck drivers and delivery truck drivers (e.g. FedEx and UPS drivers) are often improperly classified as independent contractors.

“Unlike real independent contractors, these workers are subject to stringent behavioral controls and are financially dependent on the company. Such drivers who functionally operate as employees are classified as independent contractors and therefore deprived of proper social security benefits, healthcare, workers’ compensation, unemployment benefits, minimum wage protections, rights to join a union, and the right to a safe and healthful workplace,” the bill notes.

The bill also points out that ports, in particular, are requiring truckers to operate more environmentally friendly vehicles but many port truckers simply can’t afford the investment.
“By correctly classifying truck drivers as employees, the burden of purchasing new trucks would be put on the companies; employees would enjoy their proper rights as intended by the law, and environmental conditions at ports would improve,” the bill concludes.

Trucking firms that use contractors in the state of New York, particularly those operating in the ports, need to review their operations and contracts if they haven’t already done so to avoid paying penalties which can add up quite quickly. For drivers, of course, this could a boon to wages and working conditions, but it is a double-edged sword. Companies may alter contracts to comply with the law or stop doing business with independent contracted drivers altogether.

Time will tell.

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