Some trucking representatives told the Intermodal Association of North America's (IANA's) annual conference in Long Beach Monday that limiting the ability of drayage companies to contract with owner-operators could cause trucking companies to leave the state. And it could lead to a drayage capacity shortage in Los Angeles-Long Beach, resulting in a diversion of discretionary cargo to other ports.
California Gov. Gavin Newsom indicated he will sign the bill, passed last month and known as Assembly Bill 5.
The message was the same at the Council of Supply Chain Management conference in Anaheim, where Werner Enterprises CEO Derek Leathers condemned the bill as an overreaction to shady business practices by punishing the entire industry. "I think it's absolutely the wrong medicine. I adamantly disagree with how California legislators have thought about the problem," Leathers said. "You don't address a few bad actors who did things that were outside of any normal person's definition of appropriate by changing the rules for good companies working with good workers who want to be owner-operators." Werner last year decided to eliminate the use of all owner-operators in California to comply with the stipulations of a court ruling that are now codified in AB 5.
The ultimate outcome from AB 5 could play out in other states where government agencies have been targeting the independent contractor model in occupations such as drayage.
However, there are California truckers that remain unconcerned with AB 5. Greg Stefflre, a trucking company owner and attorney who has done legal work for the American Trucking Association and California Trucking Association (CTA), said AB 5 - which has received national attention because it focuses primarily on high-profile "gig" economy jobs such as driving for Uber and Lyft - is not changing the owner-operator model under which his company Rail Delivery Services operates. AB 5, which is generating legal challenges even before it is scheduled to take effect on Jan. 1, could mean a lot to Uber, "but not to us," Stefflre told IANA. "I'm certainly not worried about my company."
AB 5 codified in law the 2018 ruling by the California Supreme Court in the case of Dynamex Operations West v. Superior Court that stipulates employers must use the "ABC test" to prove workers are independent contractors rather than direct employees.
In a number of industries, employers classify workers as independent contractors to avoid paying retirement and medical benefits, unemployment compensation, and various state and federal taxes. Governments, which do not want to lose sources of tax revenue, are increasingly targeting the independent contractor model.
The ABC test to determine independent contract status requires that an employer prove the worker is free from the control and direction of the hiring entity (prong A), that the work performed is outside the usual course of the company's business (prong B), and the worker is engaged in an independently established trade or occupation (prong C). Shawn Yadon, CEO of CTA, said prong B is expected to be the most difficult hurdle in the ABC test for drayage companies because they are engaged in trucking, although they do not own the assets. The owner-operators, however, own and drive the trucks, and they are free to turn down loads booked by the drayage companies, which demonstrates the companies do not exert direct control over the drivers.
The irony of erecting insurmountable hurdles to the independent contractor model is that many drivers prefer to be owner-operators. They want to choose when and how much to drive, and to have the ability to turn down loads that aren't especially lucrative, such as at marine terminals that are perpetually congested, some the speakers noted.
Challenges to AB 5 are based on the success of the trucking industry in fighting a requirement in the original Los Angeles clean truck program in 2006 that required companies calling at the port to hire drivers as employees. That requirement was struck down as a violation of the Federal Aviation Administration Authorization Act (FAAAA), which determined it preempts the federal government's authority over interstate commerce. The container is considered an instrument of interstate commerce.
Stefflre told the IANA session he expects no significant changes to the owner-operator model in trucking in California if the FAAAA remains the primary standard. "AB 5 is making a lot of noise, not a lot of change," he said.
Source: Journal of Commerce