California’s governor is anticipated to approve a new law that critics argue will hinder, if not entirely eliminate, the ability of trucking companies in the state to utilize independent contractor owner-operator truck drivers.
The Concerns Over Assembly Bill 5
If this bill is signed, the California Trucking Association warns that Assembly Bill 5 could force tens of thousands of owner-operator truckers, who provide vital services for agriculture, retail, and various industries, out of business.
Overview of AB 5
Passed by the California State Assembly in May and later by the Senate on September 10, AB 5 codifies last year’s Dynamex decision from the California Supreme Court. This decision introduced an ABC test to classify independent contractors, which could effectively abolish the owner-operator model in the state. Reports indicate that Governor Gavin Newsom supports this bill, which would come into effect on January 1.
Understanding the Dynamex Ruling
The Dynamex ruling established that certain workers should be classified as employees rather than independent contractors, requiring companies to use an ABC test that includes the following criteria:
- The worker is free from the control of the hiring entity.
- The work performed is outside the usual course of the hiring entity’s business.
- The worker is engaged in an independently established trade or business.
Many legal experts believe the ABC test presents unrealistic standards for most trucking companies, particularly concerning the second criterion, which poses challenges for drivers.
Impact of AB 5 on Benefits
The Los Angeles Times has called AB 5 a comprehensive revamping of California employment law. Unlike the Dynamex ruling, which was limited to wage-related issues, AB 5 would also grant employees benefits like workers’ compensation, unemployment insurance, and paid family leave—concerns that have raised alarms in the trucking sector.
Exemptions and Industry Reactions
While the bill includes an exception for some owner-operators in the construction sector for a two-year grace period, many in the trucking industry argue that AB 5 overgeneralizes and punishes compliant operators for the misdeeds of a few. The California Trucking Association has expressed frustration that it could lead to the downfall of legitimate independent contractors.
Next Steps for the Industry
With AB 5 looming, owner-operators and motor carriers are strategizing their next moves. Some may relocate or look for alternative work because the changes could exacerbate the existing driver shortage in California. Furthermore, there are ongoing discussions about potential lawsuits and legislative amendments aimed at mitigating the impacts of the new law.
