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Industry solutions for AB5 compliance remain murky

Sept. 19, 2022
Experts still are trying to figure out how enforcement of AB5 could further impede capacity in California and whether a patchwork of similar laws across the country is inevitable.

Confused about how California’s Assembly Bill 5 will be enforced for trucking companies, brokers, and shippers? You’re not alone.

AB5, its three-part test, and exceptions to employee classification are not yet well enough understood for enforcement, according to trucking industry experts. That’s concerning as the legislation has the potential to create a patchwork of laws across the country that could generate downstream impacts for the supply chain.

A big question industrywide is whether other states will follow in California’s footsteps and adopt similar laws that essentially force independent owner-operators out of business. Nationwide federalization of the law could discourage some truck drivers from entering the industry, further slow the supply chain, and make goods more expensive to move from point A to B.

“The biggest concern is there is no bright line; it really isn’t clear how you resolve to comply with this law,” Greg Feary, Scopelitis Transportation Consulting (STC) president and managing partner, told FleetOwner. “California would presume you to just magically turn all these truck drivers into employees. But that assumes that they agree to be employees, and they don’t have to agree to be employees.”

In California, AB5 has placed into law an independent contractor test—better known as the “ABC” test. Carriers, brokers, and shippers will have to demonstrate that their business arrangements satisfy all three parts of this test.

See also: With California law, trucking operations face uncertainty

“Because the law is based on the presumption that none of them want to be independent contractors, the law is out of line or out of step with the reality of 2022,” Feary said. “It doesn’t consider the idea that there has been an enormous driver shortage in America at least as long as I have been practicing law—35 years.”

During FTR’s 2022 Transportation Conference, Anne Reinke, president and CEO of the Transportation Intermediaries Association (TIA), told Avery Vise, FTR’s VP of trucking, that TIA has put together a task force to review how AB5 will affect brokers’ relationships with owner-operators in California, the impact of the law on agents used by brokers, and the overall impact on capacity in California.

“We are obviously concerned about what the impacts are to capacity at large,” Reinke explained during a panel session on trucking regulations. “We’re very concerned about our relationship with owner-operators, and we’re concerned about our relationship with our freight agents, which currently are in the independent contractor model.”

Opponents of the legislation, including the California Trucking Association, maintain that AB5 was preempted by the Federal Aviation Administration Authorization Act (F4A), which prevents states from undermining federal deregulation of interstate commerce through a patchwork of state laws with respect to pricing, routing, or service of a motor carrier or broker.

This summer, the U.S. Supreme Court refused to consider an appeal challenging AB5. The bill, originally intended to affect "gig" economy workers, such as rideshare and food-delivery drivers provided exemptions to Uber, Lyft, and DoorDash workers in California. Independent truck driving, however, is not among those exemptions.

On Aug. 29, an injunction that prevented California from enforcing the strict worker classification law on the trucking industry was lifted, allowing the state to officially enforce the law. The California Trucking Association is pursuing a new injunction.

On Sept. 14, Scopelitis published a transportation brief noting that the U.S. solicitor general and at least one state appellate court have suggested that a business-to-business exemption could be satisfied by applying the multifactored Borello test, which was established by the California Supreme Court in 1989.

“Transportation businesses may use various strategies in an effort to comply with AB5, but a clear solution remains unknown,” according to STC’s briefing. “Such strategies may range from relying on a broker-carrier model where owner-operators obtain motor carrier authority, to dispatch management, to converting to an employee model (assuming owner-operators are willing to abandon their businesses), or even shuttering California operations. Thoughtful and informed implementation is just as important to a defensible model as selecting the best options. The legal developments to come will require thoughtful reactions.”

About the Author

Cristina Commendatore

Cristina Commendatore was previously the Editor-in-chief of FleetOwner magazine. She reported on the transportation industry since 2015, covering topics such as business operational challenges, driver and technician shortages, truck safety, and new vehicle technologies. She holds a master’s degree in journalism from Quinnipiac University in Hamden, Connecticut.

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