Laws limiting independent contractors shine spotlight on driver leasing companies

Although a federal court has indefinitely blocked AB5 from taking effect in the California trucking market, the law, as well as similar legislation emerging in other states, has more freight companies looking for solutions.

Goodyear, Arizona-based Contracted Driver Services (CDS)  has been approached by several carriers that previously worked in California with 100% owner-operators, according to April Ray, vice president of marketing. 

CDS “definitely has our eyes on AB5,” she said. The law would increase the company’s engagement in California, according to Ray, “since a lot of carriers will need to replace carriers with W2 employees.”

Like many staffing agencies, CDS hires drivers as employees who are eligible for healthcare and other benefits.

Several “alternative” staffing models could be useful for trucking companies looking to solve the independent contractor conundrum, said Gary Feary, president of the trucking law firm Scopelitis, Garvin, Light, Hanson & Feary.

One option is an entity known as a professional employment organization (PEO). These organizations function essentially as outsourced human resources, payroll and compliance departments, and can serve as “co-employers” with the fleet owner.

Say a motor carrier is doing business with a fleet owner, and because of AB5 that carrier will only continue the relationship if the fleet owner has employees. In that case, the fleet operator might enter into an agreement with a PEO that includes leasing the PEO’s drivers “to comply with California law,” Feary said.

“Now the motor carrier is doing business with a business, and that business has employees,” he explained. “So the question of whether the driver is an independent contractor or an employee is taken off the table.”

Driver leasing comes with caveats, Feary warned. A major sticking point for companies considering transitioning owner-operators to leased drivers revolves around what happens with the trucks. Fleets may be able to rent the vehicles, but generally speaking a framework for managing trucks as well as drivers has yet to be developed.

If there is an uptick in driver leasing as a result of AB5, Feary speculated, “the PEOs that have figured out the truck part of that will have the advantage.”

Trillium’s Howard echoed that sentiment.

“If you’re a manufacturer and have trucks of your own and 10 owner-operators, driver leasing may be a chance to transition the fleet,” he said. Nevertheless, leasing “is the right fit for some, not for others,” Howard said. “They may say it’s not worth it, and the equipment is a challenge.”

Laws tightening restrictions on owner-operators aren’t the only reason staffing firms are seeing an uptick in business. As consumer expectations for fast shipping increase and the supply chain gets bigger and more complicated, the “need for quick access to talent has never been greater,” Howard said.

Quality Driving Solutions, a subsidiary of trucking personnel supplier CPC Logistics, has grown from a few offices four or five years ago to nearly 15 in the past few years, according to Jeff Hart, CPC’s vice president for North American sales.

The subsidiary works with every segment of trucking — dedicated, private fleets and trucking companies — mostly supplying drivers on a temporary basis.

CPC’s biggest growth driver, according to Hart, comes from supplying thousands of permanent drivers to private fleet operations.

“Because of the dynamics in the marketplace, more companies have chosen to start private fleets with us this past year,” Hart said, noting that 2019 was a record year in CPC’s 45-year history.

He cited higher costs, market volatility, service challenges and meal period laws as reasons shippers “have decided to bring those functions in-house through us.”

Intensifying regulatory and administrative challenges in the trucking industry come with a “silver lining,” said Hart, whose arsenal includes a full slate of recruiting managers and in-house counsel. “They are not a burden to us because that’s all we do.”