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California trucker group files first challenge to AB5 law restricting independent contractors

The California Trucking Association refiled a lawsuit challenging a state law, AB5, set to take effect on Jan. 1. Photo: Jim Allen/FreightWaves

As truckers wrestle with a new California law, AB5, that seeks to limit independent contractors, a trucking organization based in the state has filed a new challenge to a sweeping labor law that will affect them on Jan. 1.

The California Trucking Association (CTA) refiled its legal challenge Nov. 12, stating that more than 70,000 independent truckers will be unable to work under the new law, Chris Shimoda, vice president of government affairs of CTA, told FreightWaves.

Starting Jan. 1, 2020, the Employee and Independent Contractors law, AB5, goes into effect. It stems from the California Supreme Court’s decision against Dynamex Operations West Inc., a package and document delivery company.

The court found that Dynamex misclassified delivery drivers as independent contractors rather than employees and that all California-based companies that use independent contractors must use the “ABC test,” a three-pronged test to determine whether a worker is an employee.

Trucking companies must prove a worker is free from the control and direction of the hirer in connection with the performance of the work; the worker performs work that is outside the usual course of the hiring entity’s business; and the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

“Given the realities of trucking, it would be impracticable, if not impossible for CTA’s motor-carrier members to provide interstate trucking services by contracting with independent owner-operators and to simultaneously comply with California’s onerous requirements for employees,” according to the CTA’s amended complaint filed in the U.S. District Court for the Southern District of California.

“We’re really doing this because we believe the owner-operators have the right to continue their businesses and want to continue to be independent truckers. They don’t want to be forced to become company drivers,” Shimoda told FreightWaves. “At the core of the trucking industry of this fight is that 80% of our drivers don’t have college educations, and so the pathway for them to become entrepreneurs and to become part of the middle and upper-middle class that has been an opportunity is to own multiple trucks and become part of the American dream.”

“We’re going to fight this one because we believe owner-operators have a right to continue their businesses,” Shimoda said. “They want to continue as owner-operators.”

Prior to CTA’s recent lawsuit, New Prime Inc. said it is among the recent mega-carriers offering relocation packages to current independent contractors who live in California or said it will convert them to company drivers. The carrier states it isn’t seeking to add any new contractors who live in the state under AB5.

“Unfortunately, the net income for the company drivers is notably lower than our independent contractors in California,” Steve Crawford, general counsel of New Prime, headquartered in Springfield, Missouri, told FreightWaves.

“AB5 has certainly presented unfortunate issues for our company and our fleet,” Crawford said. “Like many others in our peer group, we have obviously ceased affiliating with any new independent contractors that live in the state of California or would run exclusively intrastate.”

New Prime is offering a relocation package based on longevity with the carrier to move from California. Crawford said California contractors are being offered $1,000-$5,000 to leave the state and continue working for the carrier.

He admits it isn’t a good deal for some drivers who own homes in California.

“If these drivers are homeowners, our relocation package isn’t going to be good for them, but if they are just renting an apartment and they have to pay a lease-breakage fee to move out of state, it certainly would be beneficial,” Crawford said.

Crawford said Prime has received numerous calls from its competitors as the motor carriers sort out what impact AB5 may have on their businesses.

“This is a time when competition sets itself at the side and the industry kind of struggles with issues like this together,” he said. “It’s no secret that California is not a business-friendly state.”

Landstar System of Jacksonville, Florida, is one of the large carriers that recently sent out a letter or contacted its business capacity owners (BCOs) or leased owner-operators based in California, outlining their options regarding AB5.

According to the Landstar letter sent out Nov. 4, its leased owner-operators can move out of state and provide the company with proof of a new driver’s license, get their own authority, or deliver a load into California, but they can’t pick up a load in the state.

“Due to the uncertain legal environment created by the new law, Landstar will be reaching out to each BCO and operator who has a California-based address on file with Landstar to discuss some options relating to the potential impact of the new law,” the letter read. “It will be up to each interested California-based BCO or operator to make its own informed business decisions with respect to how it wishes to react to AB5.”

Ivan Mikhov of Sacramento, California, said he loves his job as a leased owner-operator to Landstar. He has worked for the company for nine years and said he will leave the state he has lived in for more than 17 years in order to continue working for Landstar.

“I guess we will relocate because I don’t see a way out of this,” Mikhov told FreightWaves. “I love working for Landstar because the agents call me directly when they have a load. They know me.”

Mikhov, his three kids, dad, brothers and sisters all live in Sacramento. His family moved from Ukraine 17 years ago. However, he said he will sacrifice his close family bond to continue working for Landstar.

“My brother had his own authority for a while, but he came back to Landstar about nine months ago because it’s really hard to be on your own right now,” he said.

He recently paid off the newer Volvo truck he was forced to buy to comply with emissions regulations implemented by the California Air Resource Board (CARB).

“I really don’t see myself doing anything else,” Mikhov said.

AB5 is affecting carriers of all sizes, including Landstar, said Joe Rajkovacz, head of government affairs for the Western States Trucking Association (WSTA).

“This is indicative of Landstar arriving at the same conclusion that many other motor carriers not based in California have arrived at recently,” Rajkovacz told FreightWaves.

Rajkovacz said out-of-state carriers who lease with California-based owner-operators can’t pass the B prong, which is why some mega-carriers are cutting them loose.

“The state of California is trying to superimpose its will on the federal government, but I believe the federal courts may fight this, but it’s going to take a few years,” Rajkovacz said.

Michael Lotito, co-chair of think tank Littler Workplace Policy Institute, said the disruptions to the California economy “are likely to be massive as a result of AB5.”

“AB5 is the most radical reformation of the employer/employee relationship in history,” Lotito told FreightWaves.

One Schneider National driver, headquartered in Green Bay, Wisconsin, told FreightWaves Schneider’s California-based owner-operators are being called and have been given the options to get their own authority, move out of state or become company drivers.

Another owner-operator living in San Bernardino County, California, said she has received no word from her carrier, Roadrunner Transportation Systems, about the impact AB5 may have on her business, but she fears the worst.

“My husband and I are team drivers, and we make good money leased to Roadrunner,” Valerie Lopez told FreightWaves. “We recently bought a house here in California and don’t want to move, but there is no way we can make the same money if we have to transfer to a company driver or leave the company.”

Read more stories by FreightWaves’ Clarissa Hawes

Clarissa Hawes

Clarissa has covered all aspects of the trucking industry for 16 years. She is an award-winning journalist known for her investigative and business reporting. Before joining FreightWaves, she wrote for Land Line Magazine and If you have a news tip or story idea, send her an email to [email protected] or @cage_writer on X, formerly Twitter.