California used to be the dream place to live and work. With its range of landscapes, beaches, mountains, pleasant weather, and fertile soil, people flocked to the Golden State to make a better, more enjoyable life for themselves and their families. In days past, “California or bust!” could be seen on the sides of wagons as people rushed West to seek their fortune in gold.
Now, however, it seems more accurate to say “Leave California or bust!” as many independent contractors find out that new Assembly Bill 5 (AB 5) could put thousands of owner-operated truckers and other drivers, such as those for Uber and Lyft, out of business.
Another one of Gov. Gavin Newsom’s schemes to come under fire, AB 5 makes it hard for companies to justify hiring independent contractors. In an op-ed for the Sacramento Bee, he wrote:
“Contributing to this imbalance is the misclassification of workers, where companies eager to save on labor costs identify workers as ‘independent contractors’ rather than employees. Workers lose basic protections like the minimum wage, paid sick days and health insurance benefits. Employers shirk responsibility to safety net programs like workers’ compensation and unemployment insurance. Taxpayers are left to foot the bill.”
Also known as the gig worker bill, AB 5 threatens the livelihood of many independent contractors as well as businesses that depend on them. First introduced in December last year, the bill and seeks to codify Dynamex Operations West, Inc. v Superior Court of Los Angeles. The case determined that Dynamex wrongfully classified its workers as independent contractors based on the assumption that “a worker who performs services for a hirer is an employee for purposes of claims for wages and benefits.” As a result, the ABC test was put into place.
According to HDT, “The ruling required companies to use a newly adopted ABC test to determine who is an independent contractor, which consists of certifying:
“A That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
“B That the worker performs work that is outside the usual course of the hiring entity’s business; and
“C That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.”
The Western States Trucking Association told its members during a meeting in May, “Most legal analysis of the ruling agrees the ABC test sets an impossible standard for most of our members to meet,” especially the B provision.
Shawn Yadon, CEO of the California Trucking Association (CTA), said that amendments could have helped protect the “70,000 predominantly minority-owned truckers currently operating as independent contractors.” He added:
“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.”
Labor unions have been pushing the bill, but, as Yadon noted, the bill doesn’t distinguish between a driver under a truck lease-purchase program and one who owns the truck outright. “It virtually destroys the independent contractor model for trucking.”
The state already suffers from residents and businesses moving on to greener – and less expensive – pastures, and AB 5 only worsens this trend. Yadon warned the bill will have consequences that extend beyond employment classification. “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.”
Joe Rajkovacz, director of governmental affairs for the Western States Trucking Association, told HDT that he heard from owner-operators that the well-known Swift Transportation company already was terminating owner-operator leases in the state.
According to CTA, there are more than 136,950 primarily small and locally owned trucking companies with small fleets and independent drivers in California. One of those businesses, AB Trucking, a small drayage company based in Oakland, is owned by Bill Aboudi. The businessman said that his company owns its own trucks but sometimes uses owner-operators for special accounts the company can’t handle on its own or during peak volumes.
“[AB 5] will have an impact on us accepting more work,” Aboudi lamented. “Most of the companies are pure owner-operator companies [that] will be destroyed, and the owner-operators will have no place to go – a complete disaster.”
The bill is set to go into effect on Jan. 1.