Hub Group Announces Plan to Classify Calif. Drayage Drivers as Employees

This story appears in the Sept. 15 print edition of Transport Topics.

Hub Group Inc. said it has decided to voluntarily categorize drayage drivers in California as employees, taking a different stance from other fleets around the country that continue to insist that intermodal truckers are contractors.

The company said its Hub Group Trucking unit will convert the driver status after deciding to settle lawsuits filed in California that challenged drivers’ independent contractor status.

Hub, which ranks No. 8 on the Transport Topics Top 100 list of U.S. and Canadian for-hire carriers, does not plan to change the driver status elsewhere, President Mark Yeager said Sept. 10.

“We’re not planning on abandoning our owner-operator model in other jurisdictions, and we won’t unless we have to,” said Yeager, whose company had 2,928 drivers nationwide, with 770 as employees. “We’d be willing to look at company drivers [elsewhere], but the owner-operator model has been the model in drayage.”

Hub’s move runs counter to efforts by the Harbor Trucking Association in Southern California and nationwide efforts by American Trucking Associations to preserve the classification of intermodal truckers as contractors.

ATA successfully challenged efforts to reclassify drivers serving the Port of Los Angeles as employees in a long-running court case that was won by ATA at the U.S. Appeals Court level in 2011.

ATA declined to comment last week on Hub’s status change.

Hub’s steps followed shortly after a federal appeals court ruled that workers at FedEx Corp.’s Ground unit were employees. That decision ran counter to nearly all other rulings on the classification issue, FedEx said in an Aug. 27 statement.

One suit against Hub dates to 2009, when driver Salvador Robles challenged his independent contractor status, leading a bid to create a class action. A second legal action was filed in San Bernardino County in the state’s Superior Court, according to Hub. In California, 30 of Hub’s 370 drivers are employees.

The company generates about half of its revenue from intermodal freight. The rest comes from brokerage and logistics management.

Hub Group said in a Sept. 9 Securities and Exchange Commission filing that it believed the workers were properly classified as independent contractors.

The suits will cost $9.5 million if all drivers accept their offer, adding that “a substantial number of the independent contractors” already have accepted settlements. A specific number wasn’t disclosed.

“We did it [settled] because there was a fair amount of uncertainty in the legal climate in the state,” Yeager said. “We felt it was the most prudent thing to do, and it’s been successful so far.”

Yeager also said rail service worsened in July and August, contributing to Hub’s lower earnings forecast.

“It strikes me that a different approach to operational planning is going to be necessary” to more effectively move freight, Yeager said on a Sept. 10 webcast with RBC Capital Markets. “A number of major lanes are bottlenecks now.”

“Right now, we’re struggling at 15 days [delivery time], which for us is bad,” Yeager said, adding that Hub Group was at 13.6 days at the end of the second quarter.

In the Los Angeles case, ATA fought the port’s effort to require employee status, an approach that was favored by the city’s former Mayor Antonio Villaraigosa.

Employee status also has been sought in an ongoing organizing effort by the Teamsters union that has been focused on Southern California truckers, since workers can become union members only if they are employees.

In recent months, drivers there have filed dozens of unfair labor-practice complaints and conducted a brief strike against several carriers.

Hub also said the employee status will raise costs for drivers in the Los Angeles and Stockton areas. Expenses will vary based on factors such as claims, repairs and fuel, the company’s statement said.

Additional costs for the employee status transition were estimated at

2 cents to 4 cents per share, or as much as $1.5 million. The settlement will cost an additional $1 million in legal fees and related costs, Hub Group’s statement said.

In total, the costs from the status change, settlements and rail delays could lower Hub Group’s 2014 earnings by as much as 14 cents per share. That represents a decline of about 7%, based on the Bloomberg News survey of analysts following the company.