The recent adoption of Assembly Bill 5 by the California legislature is creating a new focus on the issues related to independent contractors and truckers. As passed, the bill presents a three-part, or ABC, test to evaluate whether a trucker is truly an independent contractor or an employee.
Already in Enforcement Phase
The U.S. Supreme Court chose not to hear the case of California Trucking Association vs. Bonta in June of this year, allowing the new law to become effective. The bill requires truckers and other independent contractors, such as physicians, attorneys, insurance agents, and others, to satisfy each of the three conditions. These include:
- The person is free from the control and direction of the hiring entity, both in contract and in fact.
- The person performs work that is outside the usual course of the hiring entity’s business.
- The person is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
According to a statement issued by the CTA, this bill has serious ramifications, stating “In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation.”
The current status of enforcement of the law is unclear, and the new legislation has raised a series of unanswered legal questions. Marc Blubaugh, a partner with Benesch, Friedlander, Coplan & Aronoff, a transportation and logistics group with operations in California, stated at a recent seminar on AB5, “One hopes there is a de facto soft enforcement for a period of time, but it is coming,” Blubaugh said. “You don’t want to find yourselves in the crosshairs when that happens.”
The unsettled situation has firms and independent contractors struggling with how to best respond and prepare for enforcement. The CTA has been very vocal in pointing out the damage its members believe this legislation will have on their operations and the overall logistics chain.
Matt Schrap of the Harbor Trucking Association reinforced these sentiments in speaking of independent truckers, “If they want to be employees, there are thousands of jobs they could take advantage of,” he said. “We have owner-operators making $5,000 a week or more. To give that up to go make $30 an hour is a hard pill to swallow.”
Impact On California and Other States
The trucking industry has been watching this development closely, and the law has already created early shifts in trucking patterns.
Tim Denoyer, Vice President of Research at ACT, shared at the seminar that early DAT information shows fewer shipments coming into California since AB 5 went into effect. He indicated that early evidence is that shipments and freight are being staged outside California. He further indicated that the law is providing motivation for drivers to leave California or the trucking industry.
All this disruption is affecting the trucking infrastructure immediately while the coming CARB laws that will tighten emission restrictions in California go into effect in January 2023. A perfect storm is arising with a lack of new trucks that are compliant along with older, less efficient trucks currently costing more than that unavailable new truck.
With this gloomy picture, Blumbaugh made it clear that the immediate concern is a lack of clarity over how the AB5 test will be applied and what situations will or will not qualify or bring about penalties. He makes it clear that although there is a lack of court action or clear legal definitions, the exposure for companies and drivers exists now and grows daily.
The situation will be closely monitored by trucking firms nationwide to evaluate the impact in California and any trend for other states considering such legislation.