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AB5 passage upends California’s independent trucking model

Truckers may seek work in other states if bill is signed. Credit: Jim Allen/FreightWaves

Lawmakers in California’s Senate have approved legislation that many independent truck drivers fear will drive a stake through their business, forcing them to shut down or move to another state.

The “Employees and Independent Contractors” bill, known as AB5, passed the Senate on September 10 by a vote of 29-11 without a carveout amendment for freight-hauling owner-operators. The bill, if signed into law by California Governor Gavin Newsom, is intended to protect workers employed in the so-called “gig” economy economy – such as with ridesharing companies Uber and Lyft – from being exploited by being denied certain wage and healthcare benefits.

But the bill will also make it virtually impossible for two trucking companies to contract together, according to owner-operator representatives, thereby imposing significant liabilities on companies that contract with owner-operators.

“AB5 could have been amended to address worker misclassification issues, as well as protect the 70,000 predominantly minority-owned truckers currently operating as independent contractors,” said Shawn Yadon, CEO of the California Trucking Association (CTA). “There is no reason why protecting workers does not include defending the right of tens of thousands of drivers who have built their businesses around the independent owner-operator model, invested hundreds of thousands of dollars in their trucks and have operated their own businesses for decades.”

Yadon said that fallout from the legislation could mean tens of thousands of owner-operator truckers in agriculture, retail and other sectors will go out of business. The implications could also extend beyond employer misclassification and into driver supply and demand, he said.

“Like the rest of the nation, California is experiencing a shortage of truck drivers. This measure will aggravate the problem by removing thousands of drivers from rosters as many have indicated they will move to other states or seek a different line of work all together.”

AB5, which passed the California Assembly in May, codifies the provisions of a 2018 California Supreme Court decision, Dynamex Operations West Inc. v. Superior Court of Los Angeles, which established a new test for classifying workers. 

The decision was notable for its so-called “ABC test,” three provisions that the court said should be used to determine if a worker is an employee or an independent contractor. It is the “B” prong of that test that throws a wrench into the trucking owner-operator model, because it is being interpreted by the industry as meaning a trucking company could not hire an independent owner-operator or a driver on lease and consider them a contractor.

Labor applauds decision

The reaction from CTA and others that represent freight-hauling independent contractors contrasts with that of the International Brotherhood of Teamsters. The union considers passage of the bill a win in its fight to organize port drayage drivers, who it claims are exploited by employers through misclassification.

Teamsters considers passage a win in fight to organize port drivers.
Credit: Jim Allen/FreightWaves

“Misclassification is an attempt to weaken the power of workers, including the thousands of truck drivers in California who deserve a living wage and full rights as employees,” said Teamsters General President Jim Hoffa.

“With this vote, the California Senate has taken a strong stand with workers who should earn a living wage and have the protections to which they are entitled.”

The union noted that port truck drivers working at NFI/Cal Cartage in Southern California, which has been the target of the union over the past year, went on an “unfair labor practices” strike at the Port of Los Angeles. Drivers at the port and at the adjacent Port of Long Beach have been challenging their misclassification as “independent contractors” and exercising their rights as employees, according to the Teamsters.

Holding out hope

The Western States Trucking Association (WSTA), which had fought for a trucking carve-out alongside CTA, recently dropped its appeal in the U.S. Ninth Circuit Court of Appeals challenging the state supreme court’s Dynamex decision, arguing that it was preempted by federal law. By stepping away from the case, however, it will allow a federal lawsuit filed on behalf of CTA – which had been held in abeyance pending the outcome of WSTA’s appeal – to move forward, according to WSTA’s director of government affairs, Joe Rajkovacz.

“We were going to be appealing an adverse ruling, but the judge said he didn’t see this as a preemption issue,” Rajkovacz told FreightWaves. “The CTA case doesn’t have that issue, and the judge still has to make a decision on it. So it would certainly be more beneficial for industry to have a federal judge come up with a different ruling from the bench than what happened in our case.”

Rajkovacz added that while all indications point to Newsom signing the bill, WSTA will be asking members to contact the governor’s office before he’s obligated to sign or veto it by October 13. “It’s a last-ditch effort,” he said, “otherwise, in many respects, it will end the owner-operator model in this state as we know it.”


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John Gallagher

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of freight transportation. He has covered rail, trucking and maritime issues since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable Magazine. He graduated from Florida State University majoring in English and business.