California labor standards are beginning to apply to some 70,000 truck owner-operators, who make up the backbone of state’s transportation business, creating another bottleneck in already strained supply lines.
Under Assembly Bill 5 (AB5), workers who fail to pass a three-part test will no longer be classified as independent contractors and must treated as employees, entitling them to benefits from their employers, according to a report Friday (July 8) from Bloomberg.
For years, the trucking industry has pushed to be excluded from AB5 since it relies on contractors. Over 70% of truckers moving goods at California’s big ports are owner-operators.
Uber, Lyft, and DoorDash were among the companies targeted by the AB5 law, which was passed in 2019. But those gig-worker companies, along with professionals such as musicians, freelance writers and architects, were exempted from the new regulations.
A temporary injunction had been granted to the trucking industry, suspending the application of AB5 to truck owner-operators. However, the Supreme Court declined to hear the trucking industry's lawsuit June 30, which put an end to the injunction’s validity.
In response, carriers may be obliged to decrease their contractual owner-operator fleets or engage former contractors as employee drivers as of July 7 due to the uncertainties surrounding the implementation of AB5.
The timing is bad. Back-to-school and holiday merchandise are shipped to retailers at this time, as are agricultural products. Contract negotiations between dockworkers and railroad workers are taking place at the same time. With the post-pandemic supply-chain turmoil and inflationary pressures, more transportation snarls could hinder economic growth.
Read more: Biden Bats Back Trump-Era Rule To Prevent Gig Worker Reclassification
Bloomberg reported that drivers who don’t want to be employees or incur the costs of obtaining operating authority will exit the market, according to CEO Matt Schrap of the Harbor Trucking Association, located in Long Beach, California, the nation’s largest container port. Schrap estimates that switching from the owner-operator arrangement might cost drivers up to $20,000 per year in registration fees and insurance premiums.
However, the law is not opposed by everyone. The International Brotherhood of Teamsters, for instance, states the law will avoid misclassification and ensure that independent contractors receive appropriate compensation for their work.
In the aftermath of the pandemic, both New York City and New Jersey, home to the nation’s second-largest port complex, have taken steps to govern independent contractors. Legislation aimed at regulating the labor market has also been suggested in Washington and Massachusetts. The California experiment will be closely followed by these other states.
For all PYMNTS TechREG coverage, subscribe to the daily TechREG Newsletter.
