A worker misclassification case involving intermodal giant Hub Group Inc. has settled, just shy of the 10-year anniversary of when it was first filed.
The two-part settlement totals roughly $5 million.
The case, which was settled in a federal district court in Tennessee, dealt with activities for Hub’s drayage operations in California, with drivers who serviced Hub Group saying they were employees, not independent contractors, and were entitled to compensation benefits as if they were on the payroll.
And the combined one-two punch of the Dynamex decision and potentially the state’s AB5 law appears to have played a role in the settlement.
In court documents filed last week, there are several references to California’s changing legal approach toward laws regarding the hiring of independent contractors and that the shifts were incentivizing the parties to settle.
The case was originally filed Jan. 25, 2013, so the final approval of the settlement came about six weeks before the 10-year anniversary of that original filing.
Settlement talks formally began in August 2019, according to court documents. The original case was filed against Comtrak Logistics, Hub’s (NASDAQ: HUBG) drayage subsidiary, which later took the Hub name, as well as affiliated Hub companies.
According to the court records, a deal was struck “only after (Hub and related defendants) ceased their practice of hiring independent contractor drivers in the state of California.” That step was done so after it was requested by the plaintiffs, “thus obviating any concerns arising from future misclassification (of) California drivers,” the brief said.
At another point in the brief, the plaintiffs’ attorneys say that “the risks of continued litigation (are) further increased because the governing law within California on the question of independent contractor status has also been an ever-evolving issue through the pendency of this case.”
“That issue has tended to evolve in a manner favorable to the employee claims, if those laws and decisions are not then themselves preempted by federal law,” the brief adds.
Court documents include a reference to the Dynamex case, more formally known as Dynamex Operations West vs. Superior Court. The Dynamex case was decided in April 2018, and it established the ABC test for determining independent contractor status in the state. The three-pronged ABC test is considered to be highly favorable toward defining a worker as an employee.
The B prong in particular is problematic for truckers: “The worker performs work that is outside the usual course of the hiring entity’s business.” A trucking company — like a drayage firm — hiring independent truck drivers would face a high possibility of being in violation of the B prong.
The ABC test was then codified into California law, beyond the precedent of the Dynamex decision, with the passage of AB5. California Gov. Gavin Newsom signed AB5 into law September 2019. Settlement talks in the Hub case began in earnest a month earlier and there is no indication the timing of the two were related. But AB5 was part of the worker classification landscape at the time.
A check of various documents filed in connection with the case does not show any references to AB5 but several to Dynamex and the ABC test, which is at the heart of Dynamex.
In the settlement, U.S. District Court Judge Samuel Mays writes that the original lawsuit “provided an additional benefit (to the plaintiffs) in that it caused defendants (Hub and subsidiaries) to change their allegedly unlawful business practices.”
Mays makes another reference to the California lawbook on independent contractor status by noting that “the risks of continued litigation are increased because California law governing independent contractor status is continually evolving,” echoing the plaintiffs’ statement on the state’s law.
Mays notes that the four individual plaintiffs filed the initial suit against the now name-changed Comtrak, Hub Group and Hub Group Trucking. The initial suit was filed in federal district court for the Eastern District of California. “(Plaintiff Salvador) Robles filed this lawsuit … alleging essentially that Comtrak should have classified drivers as employees,” the judge’s summary says. “Robles alleged that because the drivers were misclassified, they are owed considerable compensation for unpaid wages, missed medal and rest breaks, unreimbursed business expenses and various other related statutory penalties and damages.”
The rest of the history of the case includes some defendants settling while others chose not to do so. A settlement with Comtrak involved 632 out of 683 of the members of the class action that was expanded beyond the original four plaintiffs. Settlements in the cases ranged from $3,000 to $45,000.
Judge Mays’ recap also notes that besides Dynamex, another key driver classification case rooted in California — Dilts vs. Penske Logistics — was ruled on by a federal appellate court in 2014 and “largely favored plaintiff truck drivers with similar misclassification claims.” That case mostly involved questions of rest and meal breaks and the question of federal preemption of state laws by the Federal Aviation Administration Authorization Act, the so-called F4A. The original injunction that blocked AB5 from being implemented in trucking, later reversed on appeal, was on the grounds that AB5 conflicted with F4A.
The Hub Group settlement was agreed to earlier this year, according to court documents. But the process for approving that settlement took several additional months. The final settlement was filed with the federal district court for the Western District of Tennessee last week. The case also saw its venue changed to Tennessee, as Comtrak invoked a “venue-selection clause in the governing contracts,” Judge Mays writes. Under a venue selection clause, according to numerous definitions, the parties in litigation agree that any disputes in a specific contract will be transferred to an agreed-upon venue.
When this clause is present, the parties involved have agreed that subsequent disputes regarding the contract will be brought into a specific venue.
There were three original plaintiffs in the case. Ultimately, the case against Hub Group, Hub Group Trucking and Comtrak Logistics was elevated to a class action. Comtrak is the former name of Hub’s drayage subsidiary.
The case dragged on long enough that Judge Mays, in recapping its history, referred to “many years of procedural and substantive legal developments.” They were complicated by the schism of most drivers settling early with Hub but still leaving a substantial number who did not. It ultimately led to the settlement talks that began August 2019.
The final tally: the Hub-related defendants are paying $4.75 million in their settlement. Most of that money will go to a group called the “Robles subclass,” named after one of the defendants. That group includes 51 drivers who didn’t reach an earlier settlement with the Hub defendants. The remaining 632 who earlier cut a deal will receive a “modest component” of the settlement fund and will see their earlier agreed-upon settlement figure receive a 10% “bump.”
There was another settlement of $150,000 for an action brought under California’s Private Attorney Generals Act (PAGA), which has been cited as a possible route for AB5 enforcement actions to be brought.
Representatives of Hub did not respond to requests for comment.