AGTA 2009 Fall Meeting Staying Non-Union & Independent:The Current Legal Environment for Independent Contractors www.marronlaw.com Catalina Landing 320 Golden Shore, Suite 410 Long Beach, California 90802 (562) 432-7422 (562) 432-8682 Presented by Paul Marron, Esq. Tuesday, September 22, 2009
Table of Contents • Employee Systems Are Not Effective Tab 1 • Unionization Does Not Meet Industry Needs Tab 2 • The “IC” Model Does Work Tab 3 • Efficiency Tab 4 • Higher Driver Earnings Tab 5 • Safety Tab 6 • Better Customer Service Tab 7 • Joint Interests of Airports & Industry Tab 8
Independent Contractors Are The Industry Standard “The use of independent contractor drivers in the U.S. taxicab, limousine, paratransit and shuttle transportation modes…has become the standard business model.” Report entitled “Using Independent Contractor Drivers,” by Dr. Ray Mundy
Independent Contractor Drivers Offer Major Advantages Dr. Mundy reported in 2005 that when SuperShuttle, Inc., the nation’s largest shared-ride airport van service, converted from an employee-driver model to its present non-employee driver model: “[A]irports reported better service levels, customer complaints dropped, and the accident incident rate fell by 65%.”
Employee Systems Are Not Effective In the shared-ride industry, the employee model is less effective than the independent contractor model because: • It is not economically feasible to use employee drivers. • Drivers make more money as independent contractors than as employees. • Employee drivers have minimal incentive to be productive, resulting in inefficiency. • Independent contractor drivers have a strong incentive to provide outstanding customer service to ensure repeat business and referrals. -Conclusion based on multiple studies
Employee Systems Are Not Effective The use of employee drivers has particular concerns for providers of on-demand passenger transportation. An employee-based provider carries high costs, including vehicle maintenance, fuel, and insurance, and also suffers from low productivity and lower revenue compared to its independent-contractor-based competitors. This results from the unique nature of the industry: shared-ride transportation contains inherent inefficiencies because of its close association with airport schedules. There are natural fluctuations in productivity based on flight times – thus, many drivers are needed for the early morning rush, intermittently throughout the day. Employee drivers working an 8-hour shift will thus have periods of low productivity, resulting in extreme inefficiency.
Employee Systems Are Not Effective Independent contractor drivers, by contrast, can schedule their work according to demand. They work the early morning rush, conduct personal business in the afternoon, and return to work as demand increases. Not only does this model result in more efficient transport, it also reduces miles driven and pollution. A large fleet of employee-operated vehicles will operate 24 hours per day, in 8-hour shifts, no matter the demand. An independent fleet, however, targets its operations to times when demand is highest, and thus reduces emissions during the slower periods.
Employee Drivers Are Not Economically Feasible: The Case of Golden State Transit For the period of 1935-1973, Yellow Cab had a legal monopoly on taxi transportation to and from Los Angeles International Airport. Yellow Cab used an employee driver model. In 1981, Yellow Cab, which had been renamed Golden State Transit, faced financial collapse due to the low revenue and high cost of its unionized employee model.
Employee Drivers Are Not Economically Feasible: The Case of Golden State Transit Golden State’s owner attempted to negotiate with the drivers’ union in order to lower costs, and to avoid bankruptcy and the loss of hundreds of jobs. The union refused to negotiate, and Golden State’s drivers went on strike. The strike was timed to coincide with the Los Angeles City Council’s renewal of Golden State’s operating permit. The City Council informed Golden State that it would not renew its operating permit until it cooperated with the union, effectively mandating an ongoing unionized employee driver workforce.
Employee Drivers Are Not Economically Feasible: The Case of Golden State Transit Golden State sued the City Council for impermissible favoritism under the National Labor Relations Act. The case reached the Supreme Court 5 years later. The Court declared that the City Council had exceeded its authority by interfering with Golden State’s employment matters. Golden State then sued the City Council for violation of its federal rights. This case did not settle for another three years.
Employee Drivers Are Not Economically Feasible: The Case of Golden State Transit In the end, the City Council’s action took eight years to resolve, and resulted in court award of over $10 million to Golden State. While it waited for resolution, however, Golden State had to declare bankruptcy because of the low revenue and high cost of employee drivers, and went out of business. Dr. Mundy points out: “Public officials proclaiming the value of employee drivers…fail to understand that it is not economically feasible to use employee drivers. The current industry fare structure would have to be increased to such a high level to meet costs, that fares would not be competitive.”
Employee Drivers Are Not Economically Feasible: The Case of Golden State Transportation The case of Golden State raises another potential expense associated with the employee driver model: union organizing and collective bargaining. Research indicates that support and funding for the majority of current efforts to secure “employee” status for on-demand drivers are backed by a union taskforce or union organizers. The on-demand shared-ride transportation industry is unique in its reliance on customer demand, which is unevenly distributed during certain operating hours and has a high potential for inefficiency. Interacting with union representatives adds another layer of inefficiency and cost, which further lowers revenue.
Unionization Does Not Meet the Needs of Airport Transportation in the On-Demand Industry “In a major study of unions and the American workplace, Professor Barry Hirsch of Georgia State University found that unionized companies suffered not only lower profits but lower investment in physical and intangible capital and slower growth…. [T]he cost of labor for the Big Three [auto manufacturers Ford, Chrysler & GM] has been 50% higher than labor costs for the nonunion, foreign-owned auto plants elsewhere in the United States. This burden has driven GM and Chrysler to the verge of bankruptcy.” Investor’s Business Daily March 11, 2009
Unionization Does Not Meet the Needs of Airport Transportation in the On-Demand Industry Unionization also presents an issue of major concern to airports and regulatory bodies: As illustrated in the case of Golden State Transit, a union can order a work stoppage, or strike, at any time. This could have the effect of bringing airport ground transportation to a complete halt. • In 2003, the Los Angeles transit mechanics’ union went on strike, stranding an estimated 500,000 people in the city every day that the strike continued. • In 2008, the 10 busiest airports in the United States, alone, transported over 1 million passengers per day. A strike of drivers at any one airport in the country could shut down ground transportation indefinitely.
Unionization Does Not Meet the Needs of Airport Transportation in the On-Demand Industry A threshold issue for collective bargaining and union organizing is employee status. The National Labor Relations Act provides that collective bargaining is only available to employees, not independent contractors. Thus, only employees are able to participate in an organizational campaign and to strike when an employer does not accede to the union’s demands. Court decisions and the National Labor Relations Board have confirmed for more than sixty years that independent contractors do not have the right to unionize.
Unionization Does Not Meet the Needs of Airport Transportation in the On-Demand Industry This is because independent contractors are owners of their own businesses, and not under the control of an employer. Their work is marked by entrepreneurial opportunity, including the ability to set their own hours; hire their own employees; and purchase, sell and transfer assets (including their entire business, if they so choose). In FedEx v. NLRB, the District of Columbia appellate court emphasized that this entrepreneurial opportunity is the hallmark of independent contractor status. The Court found that the existence of this opportunity meant that Fed Ex delivery drivers were not employees of Fed Ex, but independent contractors. Courts nationwide have thus found that this entrepreneurial opportunity, which exists in even greater degree in the case of taxis and airport shuttle franchises, makes their drivers independent contractors, also.
Unionization Does Not Meet the Needs of Airport Transportation in the On-Demand Industry Numerous court decisions establish the ongoing propriety of independent contractor business operations in the on-demand transportation industry: • The Ninth Circuit Court of Appeal found that SIDA of Hawaii, a taxicab company using an independent contractor model to serve Honolulu International Airport, was not required to negotiate with the local union on behalf of its drivers. • The Seventh Circuit found that Party Cab Co. in Illinois properly used independent contractors to operate its taxis. • A state appellate court in San Diego, California, recently confirmed that U.S.A. Cab properly categorized its drivers, including those serving the airport, asindependent contractors because they were not under the cab company’s control.
The IC Model Does Work The independent contractor-driver model has been proven to offer substantial benefits to drivers and the customers they serve. The IC model results in improved: • Efficiency • Driver salaries • Safety • Customer service & satisfaction
The IC Model Does Work: Efficiency SuperShuttle reported a drastic reduction in turnover when it converted from an employee model to an independent contractor model: Turnover of SuperShuttle drivers was reduced from 200% annually to just 10%. -TLPF 2005 study
The IC Model Does Work: Efficiency In 1996, the case of Prime Time Shuttle was decided by the California Public Utilities Commission (PUC). The PUC determined that Prime Time’s independent contractor model for providing airport transportation service in Southern California was a proper method of doing business.
The IC Model Does Work: Efficiency Prime Time offered evidence, supported by a study conducted by LAX, that it transported 17% more airport passengers per year when it changed to a non-employee driver model. The LAX study showed fewer vans traveling through the airport, which indicated that Prime Time was transporting more passengers per outbound run. The PUC noted that “Prime Time has produced substantial evidence that its efficiency in transporting passengers has improved with the use of nonemployee drivers, in effect reducing congestion.”
The IC Model Does Work: Efficiency Prime Time’s switch to independent contractors also had a clear benefit consistent with green initiatives of airports nationwide: • By transporting more passengers per van, vehicle emissions were reduced, and less fuel was consumed. • Studies also demonstrate that independent contractors perform better routine maintenance on their vans, lowering emissions and preserving fuel efficiency.
The IC Model Does Work: Higher Driver Earnings A major shared-ride transportation provider in Phoenix advised officials at Phoenix Sky Harbor Airport that the company was not able to sustain the employee-driver model and remain in business. The company asked to utilize an independent contractor model. The Airport agreed to the change, but commissioned a study to compare drivers’ income and other issues under the employee and independent contractor models.
The IC Model Does Work: Higher Driver Earnings The study revealed that driver incomes rose from $8.13 to over $12 per hour when drivers were converted from employees to independent contractors. Further, the study found fewer customer complaints, and reported that the drivers were “extremely pleased” with the change. In the Prime Time case, Prime Time offered evidence that its drivers made as much as 50% more as independent contractors than they did as employees. Prime Time’s numbers showed that drivers made an average of $33,725 per year as independent contractors. As employees, they had made an average of only $22,270.
The IC Model Does Work: Safety The California Public Utilities Commission further acknowledged that Prime Time “substantially improved its safety and efficiency since shifting to its current reliance on charter-party subcarriers.” Prime Time explained that its independent contractor operations were safer than its employee driver operations: • In 1992, under the employee driver model, Prime Time averaged 12.74 accidents per million miles driven. • In 1993, under the independent contractor model, the number dropped in half, to 6.7. • In 1994, still under the independent contractor model: 7.8
The IC Model Does Work: Better Customer Service The PUC also concluded that “the weight of the evidence is that Prime Time’s service has improved overall” since changing to a nonemployee driver model. Dr. Mundy agrees: “Some of the best examples of documented high levels of service from independent contractor-drivers come from airports.”
The IC Model Does Work: Better Customer Service There are some simple reasons that independent contractor drivers are able to provide superior customer service: • Independents, like employees, maintain a professional appearance in order to build goodwill for the provider’s brand. • Independents, like employees, benefit from a uniform dispatch system that provides a consistent customer experience. • Independents, unlike employees, have a vested interest in repeat business and referrals from their passengers. • Independents, unlike employees, have a vested interest in efficiency – their earnings are based on their productivity and the number of passengers they transport.
The IC Model Does Work: Better Customer Service In its Prime Time decision, the PUC acknowledged that a nonemployee driver “strives to be in the right place at the right time in order to efficiently carry as many passengers as possible (thereby maximizing earnings), whereas employee drivers, whose principal compensation is an hourly wage, gain comparatively little benefit from outstanding performance and suffer little detriment from mediocre performance.”
Joint Interests of Airports & Industry Restricted entry ensures that the number of vehicles servicing airport passengers matches, but does not greatly exceed, market need. This results in: • Greater efficiency, as the number of passengers per vehicle increases • Reduced congestion and vehicle emissions • Increased cooperation between airport management and drivers, who experience shorter wait times and, in turn, bring in greater revenue.
Joint Interests of Airports & Industry There is no question that airport and shared-ride transportation providers have the same interests. While the latter have the added concern of profitability, both benefit from outstanding customer service, customer satisfaction, safety, and efficiency. The independent contractor model provides mutual benefit to airports, drivers and companies operating within this industry.
Marron Lawyers 320 Golden Shore, Suite 410 Long Beach, California 90802 (562) 432-7422 (562) 432-8682 fax www.marronlaw.com Marron Lawyers is a California-based law firm with a national practice focusing on the on-demand transit industry, including political and regulatory issues affecting the industry, regulatory matters, serious accident/OSHA matters, insurance coverage, and regulatory audits from state employment departments, workers’ compensation and taxing authorities. Our national practice includes representation of clients in such diverse areas as Washington, D.C.; San Francisco; Los Angeles; Portland; Denver; Baltimore; Nashville; St. Paul, Minn; Anchorage and Kansas City.