Vetting Motor Carriers
Client Alert
Over the past several years, there have been many examples of the need for companies acting as forwarders, and NVOCCs and customs brokers to properly vet the trucking companies they utilize in order to be assured that those companies are competent, have trained drivers and appropriate safety ratings from the Federal Motor Carrier Safety Administration and also possess adequate insurance coverage. There have been many examples of situations where persons injured have filed suit not only against the trucking company but also against the forwarder, broker or other intermediary who engaged the trucker. That is particularly the case in those situations where the trucking company does not have sufficient assets to cover the judgments that have been issued, some of which have resulted in multimillion-dollar awards.
Civil actions initiated by injured parties are not, however, the only reason why it is important to carefully review the background of trucking companies before retaining them. Among other things, there is a growing trend by various states to pass legislation that makes the parties who have engaged trucking companies responsible, financially, in situations where the trucker defaults on its obligations to its driver employees or even independent owner-operators.
For example, the State of California recently enacted a bill (SB-1402) that makes intermediaries and shippers liable to pay any judgments or assessments arising out of a trucker’s nonpayment of wages or expenses, inappropriate deductions, penalties for unpaid unemployment insurance or other judgments in favor of the drivers. This law, which just went into effect in January 2019, requires the California Division of Labor Standards Enforcement to post on its website each month a list of port drayage motor carriers who have been found to owe their drivers unpaid wages and expenses, failed to remit payroll taxes or paid workmen's compensation coverage, or who have misclassified owner-operators as independent contractors rather than as employees. The legislation further provides that anyone using one of these motor carriers after its name appears in the list "shall share with the motor carrier or the motor carrier’s successor all civil legal responsibility and civil liability owed to a port drayage driver for port drayage services obtained after the date the motor a carrier appeared on the list…."
The theory behind this legislation is that imposing this liability on customers of the offending motor carriers will cause them to cease using these companies and protect the rights of the drivers. This is not an insignificant issue, as drivers have been awarded more than $48 Million in the past several years against the trucker. This new liability imposed by SB-1402 now provides a mechanism by which forwarders, brokers and shippers could be compelled to pay those judgments if the trucker defaults.
Another recent and related trend by various states relates to the premiums for workers compensation insurance. There have been several recent illustrations where insurers have included the payments made by forwarders to trucking companies as if the drivers were employees of the forwarder for the purpose of determining unemployment compensation premiums. In a case that is currently pending in a New Jersey state court of appeals, a trial court determined that the insurer was entitled to demand of its ensured forwarder information pertaining to all of the compensation paid to its underlying truckers. The forwarder had challenged this demand on the basis that the trucking companies were independent contractors, each of whom was separately liable to comply with state law requiring unemployment insurance coverage, and that the forwarder should not be liable to cover those costs. The case is entitled, Fournier Trucking, Inc. v. New Jersey Manufacturer’s Insurance Company (Sup. Ct. NJ, Dkt. No. BER-L-2953-16). Although the court has not yet decided whether the forwarder is responsible for all of those premiums, the insurance carrier will now undoubtedly make that demand. Consequently, the litigation of the forwarder’s potential responsibility for covering unpaid insurance compensation premiums is going to remain an issue of growing concern.
These examples illustrate the importance of making sure that motor carriers, whether large or single owner-operators, have been vetted carefully, that they have all the necessary operating licenses, satisfactory safety records, and all required insurances. Otherwise, there is a significant risk that those costs could be passed along to the forwarder, broker or other intermediary.
There are a number of companies that provide this vetting service. One notable example is Ex Works, which provides this service free of charge for members of the National Customs Brokers and Forwarders Association of America, Inc. Regardless of which vendor is chosen, however, any cost that may be incurred in reviewing the background of the trucking companies utilized pales in comparison to the risk of not doing so.
If you have any questions, please contact us at 202.342.5277 or egreenberg@gkglaw.com.