What Are the Implications of AB5 with Peak Looming?

Implications of AB5

Updates to California labor rules could affect approximately 70,000 truck owner-operators.

Many truckers are unsure how to comply with California’s Assembly Bill 5 (AB5). The law requires application of a three-part test “ABC test” for Labor Code and Unemployment Code claims. The trucking industry has relied historically on contractors, who in turn have had the flexibility to operate on their own terms.

According to the California Trucking Association (“CTA”) more than 70% of truckers working at major US ports are owner-operators. California AB5 will now shape their relationships with carriers, brokers, and shippers. California has the highest population of any state and the law has the potential to be highly disruptive to trucking operations across the country.

The development of California Assembly Bill 5

Popularly known as the “gig worker bill”, AB5 is a piece of California legislation that was signed into law and set to go into effect on January 1, 2020, requiring companies that hire independent contractors to reclassify them as employees, subject to several exceptions. The bill stems from a ruling by the California Supreme Court in the Dynamex case that the definition of an independent contractor in California should follow the ABC test.

Under AB5, the ABC test presumes employee status unless the hiring entity demonstrates all three of the following:

A – The worker is free from control and direction of the hiring entity, both under the contract and in fact;

B – The worker performs work that is outside the usual course of the hiring entity’s business; and

C – The worker is customarily engaged in an independently-established trade, occupation, or business of the same nature as the work performed by the hiring entity.

The ABC test is more likely to define a worker as an employee rather than an independent contractor and, for the owner-operator model as it has historically existed, the B prong is thought to present the biggest challenges for trucking. As carriers navigate the new restrictions, perceived violations of the law will likely be litigated on a case-by-case basis. AB5 is not specific to any one industry and how trucking operations can evolve to satisfy the ABC test is still uncertain. There has been no clear guidance yet provided by the state of California on the matter and many companies are waiting to get a clearer picture.

Independent truckers respond to the new law

There are some trucking companies that switched to an employee business model in recent years, as the possibility of new legislation loomed on the horizon. Those that were unprepared are choosing to sell, close, or move operations out of California. Many older owner-operators are reporting they will be retiring instead of jumping through the hoops of the new restrictions. Younger independents are choosing to either leave the state or leave trucking altogether.

Hundreds of owner-operators who move containers at the ports of Los Angeles and Long Beach participated in a work stoppage Wednesday, July 13 to protest AB5. Some of the drivers turned off their trucks, blocked terminals, or staged slow rolls to express their frustration. Many drivers have stated that they don’t want to become an employee but were caught up in the chaos of pandemic and didn’t see AB5 coming down the line. Trucking companies in the area notified customers to expect potential freight delays due to the protest.

AB5 could create considerable challenges in the port drayage sector, which has been one of the bottlenecks in recent port congestion. A significant exodus of drivers could have a negative impact on an already disrupted supply chain. With peak retail season around the corner, drayage is firing on all cylinders to get goods on the shelf in time for back-to-school and holiday shopping.

Port of Oakland ballpark, ILWU contract negotiations and more

The Howard Terminal at the port of Oakland may soon be replaced by a ballpark for the Oakland Athletics major league baseball team. The 56-acre terminal has been used as overflow parking for containers and trucks. The port has been busier than ever before and as shipping traffic grows, there are concerns about losing the space.

Unlike Los Angeles, the Bay Area has a dense population within a finite amount of space so the loss of the terminal could create a bottleneck for trucks entering and leaving the port. Companies will be forced to divert to other yards (like ITS’ location in Richmond) or possibly even divert their cargo to ship to the east coast.

The proposed $12 billion project at the terminal would also include 3,000 residential units, office and retail space, hotel rooms, and an indoor performance center. While still far from breaking ground, votes have weighed heavily in favor of the mixed-use project. Members of the public are pushing to keep the sports team in the area and the jobs that accompany it, due to the recent relocation of both the NBA Golden State Warriors and the NFL Raiders.

On July 1, 2020, the labor contract representing more than 22,000 dockworkers between the International Longshore Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) expired. Negotiations on a new deal have continued to move forward, with no contract extension but a good faith agreement that cargo and normal operations will keep moving forward. The ILWU represents port workers in California, Oregon, and Washington, with more than 40% of US incoming containers moving through the ports of Los Angeles and Long Beach. The PMA represents shipping lines and terminal operators at 29 west coast ports.

Working with a trusted logistics provider

As a third-party logistics company, ITS Logistics has built its business model to work under constant changes to the supply chain, such as legislation like AB5 from the start. We work to build quality relationships with our carriers, while also employing our own fleet of professional truck drivers on the east and west coasts.

While the future of the new California ruling remains uncertain, ITS has resources available to help relieve pressure in your supply chain today and in the future.

How can we help you?