Last year, Assembly Bill 5’s (AB5) passage was met with widespread outcry and derision, seeing as it threatened irreparable harm to a broad swath of Californian’s working as freelancers and independent contractors, including the drivers within the freight industry. In an effort to stop it, an opposition coalition has arisen, and there are already several lawsuits seeking to overturn the ill-conceived bill.
But what does its passage mean for the freight industry, and what’re the chances it gets shot down? Below, we’ll discuss everything you need to know about AB5.
The Impending Impact of California's AB5 Law
In a completely unsurprising yet lamentable move, California legislators recently enacted their latest misguided attempt to regulate economic markets with the passage of Assembly Bill 5 (AB5). This bill, pushed by democratic assemblywoman Lorena Gonzalez and signed into law by California Governor Gavin Newsome, sought to codify the divisive California Supreme Court Dynamex Decision—which reclassified “misclassified” workers within the state.
Although AB5 was originally directed at “gig economy,” namely rideshare services such as Lyft and Uber, it has led to a host of potentially unpleasant consequences to practically every industry within the state. As mentioned, this started with the Dynamex Decision, which was a labor interest battle wherein:
“The state’s highest court adopted a new legal standard for determining whether workers should be classified as employees or as independent contractors for purposes of California wage orders. The court adopted the ‘ABC’ test—utilized by other jurisdictions—which makes it more difficult for businesses to classify workers as independent contractors as it presumptively considers all workers to be employees.”
Per the decision, employers would only be allowed to classify workers as independent contractors if it passed an ABC test:
A. The worker is operating freely from control or direction of the employer.
B. The worker performs work that is outside the typical fare that the business entity hires for.
C. The worker is typically active as an independent trade, occupation or business that is similar to the work performed.
If workers failed to satisfy ABC, they had to be treated as full-time employees, which meant they had to be protected under California’s wage laws and provided:
Healthcare
Minimum wage guarantees
Overtime pay
Meals and rest breaks
AB5 and The Freight Industry
As you might imagine, this policy would be disastrous for the freight industry. AB5 would have a particularly deleterious impact on smaller fleets, which rely heavily upon drivers functioning as independent contractors in order to compete with larger freight companies. Transport Topics notes one of the primary issues with the ABC testing:
“Specific concern lies with the ‘B’ prong, which requires that to be an independent contractor, the person ‘performs work that is outside the usual course of the hiring entity’s business.’ Most owner-operators contract their work with trucking companies whose primary business is trucking. That means the contracted drivers are arguably performing work ‘in the usual course’ of that trucking company.”
Ironically, this bill will cause more harm to the very workers and small businesses its proponents claim it wishes to protect, since AB5 would prevent them from willingly engaging in a voluntary transaction of services. Much to democrats evident chagrin, the largest uproar has come from drivers and other gig workers. These long-time independent contractors have universally panned the bill, saying it would prevent them from being able to continue making a livelihood. According to Supply Chain Dive:
“Many independent owner-operators have spoken out in the wake of AB5's passage to say they have no desire to work for a carrier full time, but rather want to maintain the status quo that allows them to work for multiple carriers and create their own schedules. Some protested the legislation in recent weeks, asking for an exemption.”
The bill’s nebulousness and potential legality has been put into question, since the freight industry requires drivers to regularly go across state lines. Naturally, that raises questions such as: would a driver who’s classified as an independent contractor in Nevada suddenly become an employee the moment they crossed state lines into California?
AB5 is on Hold
Complications like the one mentioned above are exactly why the California Trucking Association has filed complaints with federal courts stating,
“The ‘employment test’ in Assembly Bill 5 (AB5) violates the supremacy and commerce clauses in the United States Constitution… If AB5, which was signed into law by Gov. Gavin Newsom on Sept. 11, becomes law on Jan. 1 as scheduled, the ability of more than 70,000 truckers in California to provide services as independent owner-operators will be restricted.”
Fortunately, owner-operators can rest easy, at least for now, since the bill has been put on hold. Per Trucking Info, “U.S. District Judge Roger Benitez heard arguments under advisement but did not issue a decision. He has extended the temporary restraining order that was put in place Dec. 31, and it will be in effect until his ruling on the preliminary injunction. This could take days or a couple of weeks, according to a California Trucking Associations spokesperson.”
Moving Forward
AB5 is yet another reason why California businesses are fleeing the business-hostile state in unseen droves. While we do not yet know the outcome, both legal analysts and scholars believe that there’s a good chance that Benitez—a Bush appointed judge—as well as Trump appointed judges will view California’s latest attempt to push its progressive policy as unconstitutional. They posit that AB5 raises real constitutional issues in light of the Commerce Clause and F4A.
As of now, all we can do is wait and hope that the half-baked law is struck down or, at the very least, amended. That said, we at Trucking Proud will be sure to update you on any news that emerges in the coming days!
Sources
California Globe. CA Assemblywoman Lorena Gonzalez Taking Heat for Bill Killing Independent and Freelance Jobs. https://californiaglobe.com/section-2/ca-assemblywoman-lorena-gonzalez-taking-heat-for-bill-killing-independent-and-freelance-jobs/
JDSUPRA. One Year Later: Top Five Takeaways of the Dynamex Decision. https://www.jdsupra.com/legalnews/one-year-later-top-five-takeaways-of-55283/
Transport Topics. Perspective: What AB5 Means for California Trucking. https://www.ttnews.com/articles/perspective-what-ab-5-means-california-trucking
Supply Chain Dive. Judge extends restraining order temporarily exempting trucking from AB5. https://www.supplychaindive.com/news/judge-exempts-trucking-ab5/569674/
JOC. California Trucker Complaint Seeks to Overturn AB5. https://www.joc.com/port-news/us-ports/california-trucker-complaint-seeks-overturn-ab5_20191112.html
KFIAM640. It's Not Just People Leaving California These Days... Companies Are Too. https://kfiam640.iheart.com/content/2019-11-20-its-not-just-people-leaving-california-these-days-companies-are-too/
