With Assembly Bill 5 signed into law, trucking firms in California are now assessing the impacts and figuring out how to comply with the fast-approaching January 2020 deadline.
In September, legislators in California approved a bill (AB-5) requiring companies like Uber and Lyft to treat contract workers as employees. It’s a “move that could reshape the gig economy and that adds fuel to a yearslong debate over whether the nature of work has become too insecure,” the New York Times reports
Under the measure, which is expected to go into effect January 1, 2020, if a company exerts control over how they perform their tasks—or if their work is part of a company’s regular business—then workers must be designated as “employees” versus “contractors,” according to the New York Times.
As of January, employers in California must use the ABC test when legally classifying a worker as an independent contractor. It must prove the worker is free from the control and direction of the hiring entity, performs work outside the scope of the entity’s business, and is regularly engaged in work of some independently established trade or other similar business.
Port Trucking Implications
It didn’t take long for trucking industry officials to jump into the conversation around California’s new gig-economy law. Industry groups say the measure that passed the state’s legislature would upend road transport business across the state, WSJ’s Jennifer Smith reports.
Of particular interest are the port trucking operations that support California’s goods-movement economy. That’s because the bill requires certain industries to meet tough standards to classify a worker as a contractor (versus an employee).
LA Times points out that hiring workers as employees rather than contractors can add 20% to 30% to labor costs, and that many of the 13,000 truckers that serve the ports of Los Angeles and Long Beach are currently classified as “owner-operators” and independent contractors. It says that a few carriers are already moving over to an all-employee model, or one that encourages contractors to take out their own permits and insurance.
“Most, however, are hoping that a California Trucking Assn. lawsuit will reach the U.S. Supreme Court and preempt AB-5 under a federal law that governs interstate commerce,” Harbor Trucking Association’s Weston LaBar told the LA Times. “It is going to be years before we have an understanding of how — or even if — AB-5 applies to the port trucking community.”
New Law, New Rules
At its core, the new legislation is meant to help hundreds of thousands of independent contractors become employees to earn a minimum wage, overtime pay, and other benefits. It will do this by requiring companies to classify gig economy workers as full-time employees based on a test that determines whether they qualify as contractors or not.
“Uber, Lyft, and many food delivery companies are not happy with the new law. These companies argue that their business model hinges on drivers remaining independent contractors,” ARC Advisory Group’s Chris Cunnane points out in Logistics Viewpoints.
“This is likely due to the fact that if they were classified as employees, costs would rise significantly, and the total valuation of these companies would suffer,” Cunnane continues. “It does seem funny to argue that a delivery worker is not part of the company’s main business. Either way, this ruling could have a serious trickle-down effect across the country when it comes to crowdsourced last-mile deliveries.”
Navigating the Intricacies
While many U.S. trucking companies hire their own company drivers, most also rely on independent drivers that own or lease their equipment to supplement their operations. The independent owner-operator model is especially prevalent in port trucking operations, Smith notes in Trucking Industry Raises Alarms on California Gig Economy Legislation, where companies say drivers have the ability to make more money than they might as employees.
The California measure “effectively prohibits an owner-operator from working directly for a motor carrier,” Western States Trucking Association’s Joe Rajkovacz told WSJ. His group filed a federal lawsuit challenging California’s application of the standard from the 2018 court case to the trucking industry. The group’s suit was dismissed earlier this year, Smith reports.
California’s governor may have signed AB-5 into law, but the final word isn’t out yet on this landmark gig-economy bill. “California Assembly Bill 5 is signed, but the battle about who is classified as an employee or independent contractor in California may be far from over,” Mark Anderson writes in Litigation likely over gig economy bill, says trucking industry official.
There are exemptions in AB-5 for some job classifications, including construction trucking, but that is a carve-out for Teamsters, Rajkovacz told the Sacramento Business Journal. “Many of California’s independent owner-operators will face a loss of work from the law change,” he said. “Or they will just ignore it.” Other companies may opt to leave the state or hire out-of-state contractors. “This is a great experiment,” Rajkovacz said, “and we are the lab rats.”