California law throws truckers in limbo
About 70,000 truck owneroperators who form the bedrock of California’s transport industry are in limbo as state-level labor rules start applying to them, creating another choke point in stressed U.S. supply chains.
Almost a dozen truckers told Bloomberg News they’re unsure how to comply with California’s Assembly Bill 5, which requires workers satisfy a three-part test to be considered independent contractors, or else be seen as employees entitled to job benefits. The trucking industry relies on contractors — who until now have had flexibility to operate on their own terms — and has fought to be exempt from state regulations for years.
California truck owner-operators must now comply with AB5 after the Supreme Court on June 30 refused to review a case challenging the legislation that sets out the tests for employment-status classification.
The California Trucking Association, which brought that challenge, estimates the law may push thousands of independent truckers off the road while they take the necessary steps to comply with the new regulations.
More than 70 percent of truckers serving some of the country’s largest ports — including Los Angeles, Long Beach and Oakland — are owner-operators, and AB5 will govern their relationships with carriers, brokers and shippers in most cases, according to the CTA.
“We have never gotten any good answers from anyone official in California on how this is supposed to be enforced or how our members can comply,” said Norita Taylor, the director of public relations at the OwnerOperator Independent Drivers Association.
The law comes into effect for truckers in the busiest months of the year as retailers stock up on back-to-school and holiday goods. At the same time, dockworkers and railroad workers are currently negotiating contracts with their respective employers. Additional transportation snarls would only worsen pandemic-era supply-chain chaos and add to inflationary pressures, threatening to slow economic growth.
“This denial couldn’t have come at a worse time,” said Eric Sauer, senior vice president for government affairs at the CTA. “We’re in peak harvest season. We’re also in peak construction season. And this is the time for peak holiday imports coming into the ports.”
Meanwhile, the Biden administration is looking forward to more detail and a plan of action from California, a White House official said.
Given the ambiguity on how AB5 will play out, it may force carriers to immediately downsize their contracted owner-operator fleets, or hire former owner-operators as company drivers effective July 7, said Kevin McMaster, vice president of carrier sales at Encinitas, Calif.based Flock Freight.
“This would cause a ripple effect in the industry, pushing many drivers who don’t want to apply for their own authority to lease out of state, likely in Arizona or Nevada, and even force some into retirement due to increased market pressures,” he said. “There will likely be pressure added on capacity in California that could exacerbate an already tough environment where drivers are at a premium.”