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California Bill Means 'End for Independent Trucking' in State

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Deborah Lockridge, Heavy Duty Trucking (HDT)  /  September 11, 2019

California’s governor is expected to sign into law a bill that critics say would make it difficult, if not impossible, for trucking companies in the state to use independent contractor owner-operator truck drivers.

If signed into law, Assembly Bill 5 “will put tens of thousands of owner-operator truckers, who service agriculture, retail and other industry sectors, out of business," said the California Trucking Association in a press release.

AB 5 originally passed the California State Assembly back in May, and was passed late in the evening Sept. 10 by the state Senate. It codifies last year’s Dynamex California Supreme Court decision into law, establishing an ABC test to determine status of an independent contractor that would all but eliminate the owner-operator model in the state.

According to published reports, Democratic Gov. Gavin Newsom has signaled support for the measure, which would take effect on Jan. 1.

It started with Dynamex

The state supreme court last year ruled in a case involving Dynamex, a courier company, that certain workers should be presumed employees instead of independent contractors when evaluating wage and hour classification in class action cases. The ruling required companies to use a newly adopted ABC test to determine who is an independent contractor, which consists of certifying:

  • A That the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;

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

  • C That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

“Most legal analysis of the ruling agrees the ABC test sets an impossible standard for most of our members to meet,” the Western States Trucking Association told its members last May, with the sticking point being the “B” provision.

Joel M. Van Parys, an attorney with Carothers DiSante & Freudenberger, explained in an analysis for Truckinginfo.com before AB5’s passage that “in order to pass 'prong B' of the Dynamex test, a company must show that a worker is performing work outside of the usual course of the company’s business. If a company’s business is trucking, transportation or logistics, then it will be very difficult for truck drivers to pass this part of the test. In addition, the drivers would have to have independently established businesses or provide trucking services to other companies.” 

The Los Angeles Times, which called AB5 a “sweeping bill rewriting California employment law,” explained that while the Dynamex decision applied only to rules governing minimum wages, overtime and meal and rest breaks, AB 5 goes further. The legislation would entitle those classified as employees under the ABC test to benefits such as workers’ compensation, unemployment and disability insurance, paid sick days and family leave.

The legal firm Scopelitis, Garvin, Light, Hanson & Feary, in an email alert, noted that other than some owner-operators providing services in the construction industry, trucking and gig-economy companies did not receive stand-alone exemptions, “making it likely that such businesses will be subject to the ABC test unless they can satisfy the difficult business-to-business exception.”

Construction exception

One amendment in the bill allows drivers working within the construction industry to continue operating as independent truckers for a two-year grace period, according to CTA.

Joe Rajkovacz, director of governmental affairs for the Western States Trucking Association, told HDT in an interview that some of its members, many of whom are in the construction industry, might have a path forward thanks to a deal cut by United Contractors with organized labor. “The only way for an owner-operator in construction trucking to exist – we’re talking someone with their own authority – is they have to contract directly with a contractor licensed by the state of California. That as you can imagine has all of our broker members fit to be tied.”

‘The sins of the few’

The bill was pushed by labor unions, who have long wanted to organize drivers at the state ports, but cannot because federal law prohibits independent contractors from joining unions.

And there is little doubt that there are some trucking companies in the state who have abused the independent contractor model, as highlighted in what the industry criticized as a lopsided USA Today report in late 2007.

However, AB5 took a broad-brush approach in banning the use of independent contractors rather than addressing the abuses.

“The sins of the few have been extrapolated to the many, and that’s unfair,” Rajcovacz told HDT.

The state’s trucking industry had sought to work with legislators to carve out an exception for legitimate independent contractors. Many workers were exempted, among them doctors, dentists, lawyers, engineers, accountants, architects, Realtors, travel agents, graphic designers, and investment advisors – but not trucking, nor “gig” workers such as those for Uber and Lyft.

“AB 5 could have been amended to address worker misclassification issues, as well as protect the 70,000 predominantly minority-owned truckers currently operating as independent contractors,” said Shawn Yadon, CEO of the California Trucking Association, in a press release issued by the association. “There is no reason why protecting workers does not include defending the right of tens of thousands of drivers who have built their businesses around the independent owner-operator model, invested hundreds of thousands of dollars in their trucks and have operated their own businesses for decades.” 

CTA had advocated for changes to AB 5 that would still allow legitimate trucking owner-operators, including requirements for operating authority, ownership of vehicles, exclusivity and transparency about pay. “These changes would have set a clear criterion and established independence in a way that protected employees from misclassification without hurting entire sectors of the business community,” CTA’s release said.

In an interview, Yadon told HDT that the bill does not distinguish between a driver who's acting as an independent contractor under a truck lease-purchase program and one who owns his or her own truck outright, independent of a deal with the motor carrier they drive for. “It virtually destroys the independent contractor model for trucking," he said.

When asked if he thought legislators truly understood what they were doing to the trucking industry, Yadon told HDT, “The predominant voice of the truckers in Sacramento have been from the owner-operators.... I believe that awareness was made clear [to legislators], not only by the CTA, but also by those dozens and dozens of owner-operators who showed up at committee hearings and testified, gave their own story of how they were building their businesses. So I believe it was pretty clearly stated from a variety of sources, and most importantly from the independent drivers themselves. I would not say there was a lack of understanding.”

In California, more than 136,950 trucking companies remain primarily small, locally owned business with small fleets and independent drivers, according to CTA.

What will owner-operators and motor carriers do?

Meanwhile, motor carriers and owner-operators are left trying to figure out a strategy for what to do next.

“AB 5 will have implications that will go beyond employment classification,” said Yadon in the release. “Like the rest of the nation, California is experiencing a shortage of truck drivers, this measure will aggravate the problem by removing thousands of drivers from rosters as many have indicated they will move to other states or seek a different line of work all together.”

In fact, Rajkovacz told HDT, he heard from owner-operators earlier this year that Swift Transportation was already terminating owner-operator leases in the state.

Bill Aboudi, owner of AB Trucking, a small drayage company based in Oakland, California, and a member of the HDT Editorial Advisory Board, told HDT via email that his company owns its trucks and uses employee drivers, but it uses owner-operators for peak volume or bidding on accounts that its trucks can’t handle.

“It will have an impact on us accepting more work,” he said. But the majority of drayage companies in the state use the independent contractor model, he said. “Most of the companies are pure owner-operator companies [that] will be destroyed, and the owner-operators will have no place to go – a complete disaster.”

So far, he said, most of the owner-operators at the Oakland port (some 90% of the 9,000 trucks operating out of the port) are not aware of the bill and what it means, “or don’t think it applies to them, because the media is leading with headlines like ‘gig economy’ or Uber/Lyft.”

What’s next?

“It’s not over,” Rajkovacz told HDT. There are still efforts to fight this, including via litigation, legislation, and a push to put it on the ballot for a public vote.

Litigation: WSTA and CTA had both filed lawsuits challenging the state Supreme Court’s Dynamex Decision. Last week, WSTA announced it was dropping its challenge, believing that the CTA suit and others would have a better chance. The CTA suit in fact had been put on hold by a judge while the WSTA suit was moving forward. Yadon confirmed that CTA’s suit was expected to move forward in the near future.

Legislation: Rajkovacz said there is discussion of some sort of amending bill in the works, but that is about newspaper delivery people. “Certainly some people hope it’s trucking’s last attempt to get some sort of carve-out,” he told HDT, but he felt those chances were slim.

The legislation’s sponsor, Assemblymember Gonzalez, has suggested she remains open to business-favorable changes or clarifications in next year’s legislative session.

Ballot issue: According to USA Today, “even before the measure passed, Uber, Lyft, and food delivery company DoorDash invested a collective $90 million to bring the issue to voters as a proposition on the next ballot. Their plan preserves independent contractor status of their workers while offering basic protections and benefits, including a minimum earnings floor, access to health care plans not tied to their employment, and representation in the companies to better address issues.”

“Labor has a lot of money, but they don’t have the money Silicon Valley has," Rajkovacz told HDT. “If they run a ballot measure just to protect their industries, I think they’d lose. But if it’s a broad-based appeal to essentially overturn AB5, this could get real interesting.”

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What a joke. Leave it to California to snuff out blue collar business owners. I absolutely hate that state, a bunch of ding bats who are out of touch with reality trying to rule the entire country. Maybe once they figure out they are not the center of the universe and most of this crap they outlaw makes serving them nearly impossible they will wake up but I doubt it. I know I’m ranting, some days it’s hard not to hearing the stupidity that comes from that state. 

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Gee works out fine! What with the Cali bill that just passed requiring all Uber and Lyft and other contract workers, even churches and synagogues included in the ABC bill.

New York Times 9/11/2019

Confusion and Defiance Follow California’s New Contractor Law

mageA protester at Uber’s office in San Francisco in May. The company said it would not treat drivers as employees, defying an effort in California to extend protections to independent contractors.
A protester at Uber’s office in San Francisco in May. The company said it would not treat drivers as employees, defying an effort in California to extend protections to independent contractors.CreditCreditJustin Sullivan/Getty Images
  • Sept. 11, 2019

SAN FRANCISCO — After months of bickering over who would be covered by a landmark bill meant to protect workers, California legislators passed legislation on Wednesday that could help hundreds of thousands of independent contractors become employees and earn a minimum wage, overtime pay and other benefits.

But even before California’s governor, Gavin Newsom, had signed it into law, the battle over who would be covered flared up again. Uber, one of the main targets of the legislation, declared that the law’s key provisions would not apply to its drivers, setting off a debate that could have wide economic ramifications for businesses and workers alike in California, and potentially well beyond as lawmakers in other states seek to make similar changes.

“California sets off a chain reaction,” said Dan Ives, a managing director of equity research at Wedbush who tracks the ride-hailing industry. “The worry is that the wildfire spreads.”

In California, religious groups said they feared that small churches and synagogues would not be able to afford making pastors and rabbis employees. Winemakers and franchise owners said they were worried they could be ensnared by the law, too. Even some of the contractors for the app-based businesses that have been at the center of this debate said the change could hurt them if companies like Uber, Lyft and DoorDash decided to restrict how often they could work or cut them off entirely.

Under the bill, workers are likely to be employees if the company directs their tasks and the work is part of the company’s main business.
 

California has at least one million workers who work as contractors and are likely to be affected by the measure, including nail salon workers, janitors and construction workers. Unlike contractors, employees are covered by minimum-wage and overtime laws. Businesses must also contribute to unemployment insurance and workers’ compensation funds on their employees’ behalf.

 
For months, lawmakers have jockeyed to exempt a variety of job categories, including doctors, insurance agents and real estate agents and decided to include all categories.

Carrying out the mandate will most likely be anything but orderly. Companies in dozens of industries must decide whether or not to comply pre-emptively or risk being sued by workers and state officials. Some workers may find that their schedules and job descriptions change, while others may be out of a job altogether if their employers cut back hiring amid rising costs.

Mr. Newsom has said he intends to sign the bill but has indicated that he would be open to negotiating changes or exemptions with businesses like Uber and Lyft if they were willing to make other concessions. That has added to the air of uncertainty about the law.

Uber said Wednesday that it was confident that its drivers will retain their independent status when the measure goes into effect on Jan. 1. “Several previous rulings have found that drivers’ work is outside the usual course of Uber’s business, which is serving as a technology platform for several different types of digital marketplaces,” said Tony West, Uber’s chief legal officer. He added that the company was “no stranger to legal battles.”

In order to classify drivers as contractors, legal experts said, Uber would also have to prove that it didn’t direct and control them, and that they typically operated an independent driving business outside their work for Uber.

Historically, if workers thought they had been misclassified as a contractor, it was up to them to fight the classification in court. But the bill allows cities to sue companies that don’t comply.

San Francisco’s city attorney, Dennis Herrera, has indicated that he may take action. “Ensuring workers are treated fairly is one of the trademarks of this office,” he said in a statement.

And California may be only the beginning, as lawmakers elsewhere, including New York, move to embrace such policies. Legislators in Oregon and Washington State said they believed that California’s approval gave new momentum to similar bills that they had drafted.

“It makes everyone take notice,” said State Senator Karen Keiser of Washington, whose Legislature could take up the measure next year. “It’s not just a bright idea from left field. It gives it a seriousness and weight that is always helpful when you’re trying to pass a new law.”

While much of the debate about the California legislation has been about the impact on fast-growing businesses like Uber, Lyft and DoorDash, it could apply to many kinds of employers, including those that long predated the so-called gig economy.

Religious groups said some congregations would struggle to pay for full employment benefits for their leaders if they were converted from independent contractors to employees.

“For smaller ones that operate on very small budgets, it could force them to lay off their rabbi or maybe only hire them part time,” said Nathan Diament, the public policy director for the Orthodox Union Advocacy Center.

Even drivers for Uber and Lyft have been split on the bill. Some of them visited lawmakers’ offices in Sacramento to plead their case for employment status. Others objected to the bill, worrying that it would take away their ability to switch their work on and off just by opening an app.

“I’m torn. Drivers are so split on the issue,” said Harry Campbell, a driver and the founder of the publication The Rideshare Guy.

Uber and Lyft have long maintained that converting drivers to employees would most likely require the companies to schedule drivers in shifts rather than allowing them to decide when, where and how long to work. While nothing in the bill requires employees to work scheduled shifts, in practice the companies may want to restrict drivers from working when there are few customers and the revenue that drivers bring in would not offset the hourly costs of employing them.

After New York City enacted a minimum wage for drivers this year, Lyft put such restrictions in place because having too many drivers on the road without passengers could significantly raise the minimum wage the company had to pay under the city’s wage formula.

“Drivers will have some restrictions,” Mr. Campbell said. “The question for me is whether it will be worth it for all the drivers to have protections.”

The costs for app-based businesses, many of which are not profitable, could be significant. Uber held a troubled initial public offering in May and has reported large losses and slowing revenue growth. Dara Khosrowshahi, Uber’s chief executive, has laid off hundreds of employees in recent months, including Tuesday, to cut costs.

But some traditional businesses have argued that the mandate merely levels the playing field. Construction companies have long complained that they face unfair competition from rivals that classify workers as contractors so they can avoid paying payroll taxes and lowball bids on projects.

App-based companies are “starting to send carpenters, electricians, plumbers off their platform — independent contractors who make very low wages,” said Robbie Hunter, the head of the state building trades council that represents construction worker unions in California. “They’re undercutting brick-and-mortar businesses doing the right thing — paying for workers’ compensation, being very efficient, working hard to make a profit.”

In other cases, the new law has created anxiety and confusion.

Small vineyard owners are concerned that they could be forced to directly employ the independent truckers they use to haul their harvests and become responsible for providing insurance and workers’ compensation. Currently, truckers operate as contractors, with their own rigs and insurance, and serve several vineyards, said Michael Miiller, director of government relations at the California Association of Winegrape Growers.

“Our members are growers, not trucking companies,” Mr. Miiller said. “The target of legislators is Uber and Lyft, but the unintended victims are small, independent vineyards on the coast of California.”

Saunda Kitchen owns a Mr. Rooter plumbing business in Sonoma County that has 30 employees, for whom she pays payroll taxes and provides the various mandated benefits. But Ms. Kitchen said she believed that she herself would have to become an employee of Mr. Rooter under the new law, which could cause the parent company to pull out of the state.

“I wouldn’t have access to new technology, training, help with marketing,” said Ms. Kitchen, who planned to talk with Mr. Rooter officials on Thursday about how to proceed.

But Steve Smith, a spokesman for the state labor federation, which advised lawmakers on the bill, said he did not believe the vineyards, churches or Ms. Kitchen would be hurt by the law.

 

 

 

Edited by 41chevy

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