Transportation Newsletter - Fall 2013 by Smith Moore Leatherwood

FALL 2013

TRANSPORTATION NEWSLETTER

Inside This Issue P. 2

SC High Growth Small Business Access to Capital Act

P. 3

Terminating Drivers Who Refuse to Haul Alcohol Violates Their Religious Rights: So Says the Equal Employment Commission

P. 4 P. 6

Team Updates Employees or Contractors? The fight moves to New York and New Jersey

P. 6

New Product May Help Motor Carriers With Independent Contractors

P. 7

Combating Excessive Nonconsensual Towing Charges

P. 7

SC Inland Port Moves Toward Completion

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MAP-21 AND THE EFFECT ON BROKERS AND INTERMEDIARIES Moving Ahead for Progress in the Twenty-First Century Act (MAP-21) was signed into law by President Obama and goes into effect October 1, 2013. There are numerous provisions in the law’s 584 pages which will lead to 29 new rulemakings, 39 program changes and 15 reports. The first of these changes focus specifically on how the law affects brokers. The most well-known provision in the law is that it increases the broker’s surety bond requirement from $10,000 to $75,000. This surety requirement applies to freight forwarders as well. Brokers are still at liberty to choose from the BMC-84 surety bond or the BMC-85 trust fund to satisfy these requirements. One of the lesser publicized changes is how MAP-21 affects the surety. Rules established for the surety require a surety to respond to a claim within thirty (30) days. Additionally, there are attorney’s fees for a prevailing party on litigating a disputed claim. The surety also faces penalties up to $10,000 for violating statute. There is, however, some relief for the surety in that MAP-21 outlines a process and procedure for a surety in the event a broker is found to be insolvent, triggering the surety bond. Insurance companies and banks that monitor these trusts must familiarize themselves with these rules and ensure strict compliance.

Another often-discussed issue regarding MAP-21 is that carriers are prohibited from brokering freight unless they also have brokerage authority. In other words, the argument that carriers have the inherent authority to broker loads is now removed. True interlining of freight is still allowed. So long as a carrier actually touches the freight, it is not engaging in brokerage operations. One should note that when MAP-21 was first passed, there were references to exceptions which would allow carriers to broker during peak periods. At that point, a technical corrections bill was envisioned, but at the writing of this article, we are not aware of any technical corrections bill. Another widely-spread concern was that MAP-21 required separate entities. The language in the statute does require separate authority for motor carrier and brokerage operations. Some have interpreted this to require separate companies. While this is the best CONTINUED ON PAGE 2>>

>> CONTINUED FROM PAGE 1 practice, the Federal Motor Carrier Safety Administration has not gone that far. Another requirement for brokers is that an officer of the company, not just an employee, must have three years of experience in the brokerage industry and must demonstrate knowledge of industry rules, regulations and practices. At this time, there are no regulations outlining how a brokerage applicant would make that proof. The penalties for unlawful brokering are up to $10,000. This is a potential liability on partners and officers of the broker. There is also a section in the statute that says that there will be civil liability for “injured parties” for violation of this subsection, 49 U.S.C. § 14916. There are several challenges currently in place to enforcement of MAP-21 on its effective date of October 1st. The Transportation Lawyers Association wrote a letter to Administrator Ferro asking to delay enforcement because no regulations have been promulgated upon which brokers can attempt to comply. The Transportation Intermediaries Association has opposed this request. There is also a civil suit that has been filed by the Independent Property Brokers and Agents against the Administration in Ocala, Florida. There are many unanswered questions about the effect of MAP-21. It appears that MAP-21 does not prohibit co-brokering, or brokering between two authorized freight brokers. At least one commentator has indicated that a shipper may not place a broker’s name on a bill of lading. While it is the best practice not to place the broker’s name on the bill of lading, we are not convinced that MAP-21 prohibits this practice as long as the driver identifies the carrier on the bill of lading. Finally, one should remember that MAP21 would not apply to intrastate or exempt commodities, unless specifically adopted by your state. There are certainly many unanswered questions with MAP-21 and we will be monitoring the development of the regulations as they are promulgated.

SC High Growth Small Business Access to Capital Act The South Carolina High Growth Small Business Access to Capital Act was signed into law on June 14, 2013 and provides tax incentives to investors in new South Carolina ventures. The goal of the Act is to support the economic development goals of South Carolina by improving the availability of early stage capital for emerging high-growth enterprises in South Carolina. Investors qualifying for the tax credit (angel investors) must be accredited investors, as defined by the SEC, who are either an individual that is a SC resident or a nonresident subject to SC income tax, or a pass-through entity which is formed for investment purposes, has no business operations, does not have committed capital under management exceeding $5 million, and is not capitalized with funds raised or pooled through private placement memoranda directed to institutional investors. To be eligible for the credit, an angel investor must have invested in a qualified business. A qualified business is defined as: • • • • •

a SC corporation, LLC, or partnership that is headquartered in SC organized no more than 5 years before the investment was made employing no more than 25 employees in SC at the time investment was made having a gross income of $2 million or less primarily engaged in manufacturing, processing, warehousing, wholesaling, software development, information technology services, research and development, or a business providing services set forth in S.C. Code §12-6-3360(M) (13), and is not substantially engaged in: • retail sales; • real estate or construction; • professional services; • gambling; • natural resource extraction; • financial brokerage, investment activities, or insurance; • entertainment, amusement, recreation, or athletic or fitness activity for which an admission or fee is charged.

Under the new legislation, an angel investor will receive an income tax credit equal to 35% of its qualified investment, half of which can be applied in the tax year the investment was made and the other half of which is applied the second year. The total amount of credits allowed under the Act cannot exceed $5 million for all taxpayers per year, and each individual investor’s total credit cannot exceed $100,000 per year. The tax credit does, however, have a few strings attached. The value of the credit will be recaptured when the angel investor realizes a capital gain from the sale of the qualified investment. If an angel investor recognizes a net capital gain on the sale or exchange of credit assets (capital assets with respect to which an angel investor is allowed to take the tax credit) in any year, then the investor will not be able to take the capital gain deduction under S.C. Code §12-6-1150 with respect to that gain. This effectively increases the capital gain tax rate for gains on the qualified investments. If the investor recognizes a capital loss on credit assets during any year, then the amount of income is increased by the amount of those losses up to the amount of the credit taken with respect to the assets. This tax credit regime will first apply to investments made after December 31, 2012. Link to the Bill: http://www.scstatehouse.gov/sess120_2013-2014/bills/3505.htm Link to Article on Upstate Carolina Angel Network website: http://www.upstateangels.com/south-carolina-backs-entrepreneurs-with-access-to-capital-act/

Terminating Drivers Who Refuse to Haul Alcohol Violates Their Religious Rights: So Says the Equal Employment Commission

On May 29, 2013, the Equal Employment Opportunity Commission (“EEOC”) filed suit under Title VII of the Civil Rights Act of 1964, alleging a motor carrier unlawfully discriminated against two Muslim former employees who refused to transport alcohol because it was contrary to their sincerely held religious beliefs. EEOC v. Motor Carrier C.A. 13-cv-1240 (C.Dist. Ill. May 29, 2013). The Complaint alleges that the motor carrier violated the law by refusing to accommodate those beliefs and by firing them for their refusal.

In a press release dated the same day, the EEOC wrote that “Our investigation revealed that the motor carrier could have readily avoided assigning these employees to alcohol delivery without any undue hardship, but chose to force the issue despite the employees’ Islamic religion.” The five-page Complaint seeks an injunction preventing religious discrimination, an order that the company institute policies to provide equal employment to employees regardless of religion, back pay, and compensatory and punitive damages. In 2010, another national carrier settled a similar lawsuit filed by a Muslim truck driver, who alleged that it was contrary to Islam for him to consume, possess, or transport alcohol or tobacco. There, the driver alleged that he informed the carrier of his beliefs when he was hired and that because fewer than five percent of the company’s shipments contained alcohol, it could have accommodated his beliefs. The provision of Title VII on which the EEOC bases its claim makes it unlawful for

an employer “to discharge any individual ... because of such individual's ... religion.” 42 U.S.C. § 2000e-2(a)(1). “The term ‘religion’ includes all aspects of religious ... practice ... unless an employer demonstrates that he is unable to reasonably accommodate to an employee's ... practice without undue hardship on the conduct of the employer's business.” 42 U.S.C. § 2000e(j) (emphasis added).

Under Title VII, in a religious accommodation case, an employer must, to an extent, actively attempt to accommodate an employee's religious expression or conduct even if, absent the religious motivation, the employee's conduct would supply a legitimate ground for discharge. Chalmers v. Tulon Co. of Richmond, 101 F.3d 1012, 1018 (4th Cir. 1996). For example, an employee who is terminated for refusing to work on Sundays can maintain an accommodation claim even if other nonreligious employees were also fired for refusing Sunday work, and even though the employer's reason for the discharge—the refusal to perform required Sunday work—is legitimate and nondiscriminatory (because the Sunday work rule applies to all employees, regardless of religion). If the employee has notified the employer of his religious need to take Sundays off, the burden rests on the employer to show that it could not accommodate the employee's religious practice without undue hardship. Typically, religious accommodation suits involve religious conduct, such as observing the Sabbath, wearing religious garb, etc., that result in indirect and minimal burdens, if any, on other employees and

the employer. Cf. Wilson v. U.S. West Communications, 58 F.3d 1337, 1342 (8th Cir.1995) (accommodation required when employee wore a religious button that bothered co-workers indirectly). An employer can often accommodate such needs with little inconvenience. Whether an accommodation is required— or whether it constitutes an undue hardship—is a fact specific inquiry that will vary from case to case. However, the case law suggests that an employer is obligated at least to consider and suggest accommodations that do not significantly disrupt its workplace or contravene its rules or policies. For example, in TWA v. Hardison, 432 U.S. 63, 97 S.Ct. 2264, 53 L.Ed.2d 113 (1977), the Supreme Court held that the employer, TWA, could not reasonably accommodate the employee's refusal to work on his Sabbath without undue hardship. TWA, however, made several efforts to accommodate the employee. Job swaps, change of days off, and shift transfers were all attempted before TWA concluded that any further accommodation would create an undue hardship. Thus, because federal law requires that sincerely held religious beliefs be accommodated, before rejecting out of hand a requested accommodation of such a belief, the prudent employer will consider and document what solutions are available and engage in an interactive process with the employee. Where the burdens are minimal, if the religious belief is apparently sincerely held, courts may conclude that refusing to make the accommodation violates federal law.

Fall 2013 Transportation Team

Starting Lineup JON BERKELHAMMER

GSO ERIK ALBRIGHT

GSO JON BERKELHAMMER

GSO RICK COUGHLIN

GVL

JULIE EARP

ZANDRA JOHNSON JASON MAERTENS

KRISTEN NOWACKI

WIL

STEVE FARRAR

FREDRIC MARCINAK

ROB MOSELEY

MANNING CONNORS

GVL

GSO

MIKE BOWERS

GSO

GVL

CHS

JAY HOLLAND

ATL

GVL

TRACY MARION

ATL BOB PERSONS

KEVIN MCCARRELL

GVL JACK RIORDAN

* Team Leader *

GVL

JOSEPH ROHE

KURT ROZELSKY

GVL PETER RUTLEDGE

RAL MARC TUCKER

The Road Ahead • • • • • • • • •

Kurt Rozelsky will be attending the Arkansas Trucking Conference September 25-27th, where Smith Moore Leatherwood is a sponsor. Rob Moseley will attend the SCTA’s Board Retreat in Columbia, SC on October 1-2nd. Rob will be presenting and strategizing on tort reform in the next legislative agenda. SCTA's new proposed lobbyists include Steve Spurrier and Dabo Swinney, since no one in SC is thinking about anything other than football at this point. The next edition of SMC3’s Transportation Contract seminar will be in Chicago on October 2nd. For more information, go to http://www.smc3.com/smc3/academy/courses-contractlaw.htm. If you register, enter the discount code “Moseley." One of the few places where dropping that name is a positive. Kurt will be attending the DRI Annual Meeting and Trucking Committee meeting October 16-18th in Chicago, IL. Rob will be attending the ATA Management Conference and Exhibition in Orlando on October 20-22nd. Rob will be leading the Top 10 Session and looking for the best bass fishing holes. That same week, Rob will be presenting on recent insurance, underwriting, and safety issues for the inaugural Motor Carrier Insurance Educational Foundation Annual Meeting on October 23-24th. Rob will be going to Phoenix, AZ November 6-7th for the CIC Truckers II meeting where he will give a presentation on rare desert flowers in the global warming era. No, not really – would you believe insurance coverage cases? Kurt will be moderating a panel on Ethical Obligations to the Driver, the Company, and the Carrier at the Transportation Law Institute on November 8th in Los Angeles - yes, that is a long way to go to see Kurt talk. Mark Tucker and Kurt will invade Mickey Mouse-land for the TIDA Annual Meeting November 13-15th in Orlando, FL.

Making Tracks • • • • • • • • • • • •

Rob spoke on legal issues facing the trucking industry at the Truckload Carriers Refrigerated Division at the Foxwoods resort in Connecticut, July 10th-12th. He got a “chilly” reception. Marc Tucker and Rob Moseley attended the NCTA Management Conference July 14th-16th in Isle of Palms, SC. Rob presented on issues affecting trucking companies today (or at least on July 15th). From July 25th-27th, Jack Riordan attended the SCDTAA Summer Board Meeting at the Grove Park Inn in Asheville, NC. As Chairman of the Trucking Subcommittee, Jack led a Trucking Breakout Session during the meeting. Marc Tucker continues to attend the NCTA Safety Council Down East Chapter meetings in Wilson, NC Steve Farrar and Kurt Rozelsky attended the Federation of Defense and Corporate Counsel (FDCC) annual meeting in Colorado Springs, CO July 28th-August 3rd. Rob participated in the TCA Webinar on CSA- 2 Years later on August 8th. The American College of Transportation Attorneys met on August 23rd in Chicago. Rob, along with Steve Powers of TN, moderated the meeting. Can any form of the word “moderate” be used in conjunction with Rob? Rob spoke about the FMCSA’s Safety Management Cycle. Marc Tucker attended the NCTA Safety Council Conference in Myrtle Beach, SC over Labor Day weekend. Rob led a discussion on the Safety Management Cycle on a webinar presented by Hireright on September 11th. See Article on this topic at http://www.smithmoorelaw.com/fmcsa. Rob and Kurt presented the first SML webinar on MAP-21 on September 12th. Stay tuned for more webinars after the high level of interest shown on this one. On September 12th, Marc Tucker presented at the NCTA Seminar on Transportation Spills and Emergencies in Greensboro, NC. Rob attended the SCTA’s "Call on Washington" September 17-19th in which business leaders meet with federal legislators and other authorities to discuss current issues facing the trucking industry.

Congratulations

STEVE FARRAR

The SML Transportation Team congratulates Steve Farrar for being elected the Secretary Treasurer of the Federation of Defense and Corporate Counsel (FDCC) and as President in 2016-2017. He moves into the position after serving on the Board of Directors and as former Vice-President for the organization.

TRANSPORTATION TEAM: NEWEST 2013 DRAFT PICK

KRISTEN NOWACKI Greenville, SC

Greenville, SC

Welcome to Kristen Nowacki , our newest member of the Transportation Team. Kristen has joined us in Greenville. She previously served as Judge G. Ross Anderson, Jr.’s law clerk and is a recent SC Bar admittee. Kristen received a Bachelor of Arts in Religion with a minor in Ethics from Emory University and her Juris Doctor, Magna Cum Laude, from the University of Notre Dame. Please join us in welcoming Kristen!

Congratulations to the follow members of the Transportation team who have been named to The Best Lawyers in America . • •

Erik Albright Jon Berkelhammer

• •

Rick Coughlin Julie Earp

• •

Steve Farrar* Rob Moseley*

• •

Jack Riordan Kurt Rozelsky

* Also selected by their peers as part of Greenville Business Magazine's 2013 Legal Elite.

Employees or Contractors?

The fight moves to New York and New Jersey New York and New Jersey are the latest battlegrounds in the union-led fight to classify owner-operators as employees rather than independent contractors. In this instance, the efforts focused on workers in the drayage (port) and parcel delivery industries. New Jersey In New Jersey, the General Assembly and State Senate each passed a bill (A1578 and S1450, respectively) that are collectively known as the “Truck Operator Independent Contractor Act.” The bills were backed by the International Brotherhood of Teamsters and other prolabor groups, and passed along party lines (Democrats pro, Republicans against). Governor Chris Christie (R) has not publicly indicated whether he will veto the legislation. Assemblyman John Wisniewski attached a statement to the bill, stating that the bills “create a presumption that a work arrangement in the drayage trucking or parcel delivery trucking industry is an employer-employee relationship unless the party receiving the services can overcome the legal presumption of employment.” If passed, the bills would allow individuals to file individual or class actions against employers, and would allow labor organizations the right to bring class actions. The bills also prohibit retaliation for exercising rights under the bills. The proposed criminal penalty for violating the bill, if enacted into law, is equivalent to second-degree criminal charges, and the monetary penalties, which are potentially significant, may be levied against employers (including officers, agents, foremen, and other employees) who misclassify workers as independent contractors.

The New Jersey Senate Labor Committee released a statement about the bill, saying “trucking services performed in the drayage trucking industry or parcel delivery industry by an individual for remuneration are deemed to be employment unless and until it is shown to the satisfaction of the Dept. of Labor and Workforce Development that: 1. The individual has been and will continue to be free from control or direction over the performance of that service, both under his contract of service and in fact; 2. The service is either outside the usual course of the business for which the service is performed, or the service is performed outside of all the places of business of the employer for which the service is performed; and 3. The individual is customarily engaged in an independently established trade, occupation, profession or business.” 4. The union has advocated for the legislation on the grounds that many employers allegedly intentionally misclassify owner-operators as independent contractors in order to avoid paying for benefits associated

with social security, unemployment, and Medicare. Of course, if the bills pass, these owner-operators would become part of the employee pool, thereby increasing the number of potential union members. This bill was vetoed just before publication time but the fight in NJ is not over. New York The bills passed in New York, on the other hand, seem a bit more centered politically. According to truckinginfo.com, the bill (A5237/S5867, known as the “New York State Commercial Goods Transportation Industry Fair Play Act”) as originally drafted would have reclassified most independent contractors as employees. However, a last minute deal amended the language such that “there should be no impact on the lease-purchase provision,” according to Kendra Hems, president of the New York State Motor Truck Association. “Our language here in New York will still allow a lease-purchase between a carrier and an independent contractor, even if it is the carrier that the independent is contracted directly with,” Hems said.

New Product May Help Motor Carriers with Independent Contractors Recently, we became aware of an insurance product which provides errors and omissions coverage for a motor carrier who mishandles an aspect of the independent contractor relationship. Normally, independent contractors have the option of purchasing insurance products through the motor carrier. It is certainly possible that the motor carrier’s employees could make mistakes in placing non trucking, occupational accident or physical damage coverage. The errors and omissions coverage would protect the motor carrier in the event the motor carrier improperly canceled or failed to obtain coverage as instructed by the contractor. This particular product is marketed by Trinity Risk. They can be reached at 855-ASK-TRINITY, (that’s 855-275-8746).

Combating Excessive Non-consensual Towing Charges A growing concern of many carriers is the imposition of grossly excessive towing and recovery charges assessed by commercial towing companies following motor vehicle accidents. Complicating this situation is a patchwork of laws and regulations—or lack thereof—that may or may not exist at local and state levels and conflicting interests of potential concerned parties (including equipment owners and the respective physical damage insurance carriers, cargo owners and possible lienholders). Additionally, there is often a rush to timely recover vehicles and cargo that may be detained by the towing company. Given this complicated situation, it is imperative that carriers move quickly to develop information and move toward resolution of the charges and recovery of their equipment and cargo. As such, we recommend the following actions to be started as soon as possible following a loss:

of the accident, cargo manifest, photographs, itemized towing bill, and the identity of the responding police and fire departments. 2. Demand Release of the Vehicle— carriers should immediately make a written demand for release of their equipment and cargo. 3. Quickly Involve Legal Counsel— because of the varying local laws and regulations that may affect resolution of the towing charges, storage charges and towing liens, it is imperative that carriers involve counsel quickly following a loss. For example, not all states provide for a lien for towing and recovery services, though unscrupulous towing companies may claim otherwise. If the towing company refuses to release the equipment and cargo in the absence of a lien, then a legal claim for conversion of property may arise.

1. Develop Information—this includes obtaining and assembling copies of the accident report, the precise location

There are of course other considerations to weigh when deciding how to respond to an excessive tow bill. In some cases, economic

realities simply may not support opposing the bill—even where it is unreasonable. In making these decisions, carriers must consider the amount actually in dispute (including the degree of overbilling) and the legal costs involved with fighting the charges. In some cases, it simply will not prove cost effective to retain legal counsel to fight excessive charges. However, there are a number of steps a carrier can take to contest the charges themselves, including lodging a complaint with the law enforcement agency managing the towing rotation or threatening retention of legal counsel if the towing company refuses to reduce its unreasonable and excessive charges.

SC Inland Port Moves Toward Completion The South Carolina State Ports Authority (“SCSPA”), in a partnership with railroader Norfolk Southern, is nearing completion of its Inland Port currently under construction on a 100-acre site in Greer, South Carolina (located between Greenville and Spartanburg). This facility and rail terminal, currently slated for opening in October 2013, is intended to improve the efficiency of intermodal container movements between the Port of Charleston and other Southeastern states, providing an estimated capacity of 100,000 FEU per year. This project is part of SCSPA’s 10-year, $1.3 billion capital improvement plan that includes new equipment aimed at servicing the largest ships currently operating in the international trade, as well as upgrades to existing terminals and information technology systems.

benefits of utilizing rail service between the Port of Charleston and the Inland Port. With the exception of three dieselpowered RTG (rubber-tire gantry) cranes that are being relocated from the Port of Charleston, the facility will utilize electric material handling equipment, including electric RTGs. The Inland Port will begin service on the heels of SCSPA’s announcement of a 9% increase in container volume through the port in FY2013. Upon completion, the new Navy Base Terminal in Charleston will additionally increase container capacity by an estimated 50%. Just this past week

Norfolk Southern released its Inland Port Rail Service Schedule, which provides overnight service in both directions five days per week. The trains are scheduled to depart from the Inland Port at 9pm Monday through Thursday and arrive in Charleston by 6am the following morning, and 9pm on Saturday and arrive in Charleston by 6am Monday morning. Likewise, trains will depart Norfolk’s Seven Mile Yard in Charleston at 10pm Monday through Friday and arrive at the Inland Port by 6am the following morning. Cutoff times have not yet been released, but are expected soon.

Integral to SCSPA’s Inland Port facility are concerns for emissions reductions and a reduced carbon footprint. In fact, SCSPA has developed an emissions calculator to aid clients in quantifying the air quality

Transportation Industry Team We represent both large and small trucking companies as insureds on behalf of numerous national insurance companies and as self-insureds. In addition, the firm has served for many years as outside General Counsel for a nationally recognized commercial vehicle insurer and is experienced in all aspects of transportation law including issues involving federal and state statutes and regulations promulgated by the former Interstate Commerce Commission (ICC), the successor Surface Transportation Board, the Department of Transportation and the Public Service Commission. As part of the array of transportation services provided to firm clients, an after-hours emergency response team is standing by to service clients with urgent needs following a catastrophic accident.

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Smith Moore Leatherwood LLP Attorneys at Law The Leatherwood Plaza 300 East McBee Avenue, Suite 500 Greenville, SC 29601 T: (864) 242-6440 F: (864) 240-2474 www.smithmoorelaw.com