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In June, the U.S. Supreme Court declined to hear the California Trucking Association’s case against Assembly Bill 5, which affects driver classification. Absent Supreme Court consideration of the case, the state of California may proceed with implementing AB 5, which reclassifies independent drivers as motor carrier employees. This classification law, which was upheld by an earlier ruling from the U.S. Court of Appeals for the Ninth Circuit, impacts brokers as well as motor carriers, and the potential impacts throughout the supply chain could be devastating.
The Transportation Intermediaries Association was extremely disappointed that the Supreme Court elected not to hear the CTA challenge to the Ninth Circuit ruling. In fact, TIA filed an amicus brief with the Supreme Court on behalf of CTA’s case.
Upon learning that AB 5 was cleared for implementation, TIA and its members activated volunteer leaders to form a working group, tasked with developing the next strategic action to be taken by the association. Three subcommittees were formed to focus on the three main concerns our members see with the law.
The first concern is the relationship between brokers and owner-operators. While AB 5 does contain a business-to-business exemption, there is a 10-prong “test” that businesses must utilize for the exemption. This exemption allows business service providers who are established as a sole proprietorship, partnership, limited liability company, limited liability partnership or corporation to enter a contractual arrangement with a business, and maintain the current employment status. This exemption is viewed by our members as extremely narrow. The groups aim to determine how this will impact our members in California that utilize owner-operators. For example, are brokers going to be levied wage-and-hour violations and fines for utilizing owner-operators?
The second concern is how freight agents — independent contractors — will be impacted by AB 5. Many brokers use outside sales agents, and those agents operate under the broker’s authority. These sales agents, like freelance writers, want flexibility in their work life — it’s often why they choose this employment path in the first place. They have complete control over their day, and their business activities. In terms of AB 5, California will be utilizing what’s known as an ABC test, a three-factor test for determining worker classification that is different from the 10-pronged B2B exemption test. The second requirement of the ABC test, which requires that the worker “performs work that is outside the usual course of hiring entity’s business,” could affect the broker-agent relationship. While the B2B exception should apply, the intent is not clear. The ramifications could completely overhaul the way our agent-based members do business.
The last concern is the potential impact to overall motor carrier capacity in California. There are thousands of small trucking companies now faced with uncertainty over whether they can keep operating in the state. Limited capacity in the supply chain obviously hurts all transportation stakeholders, and in the current environment — where major supply chain disruptions are still plaguing our nation — saddling motor carriers with harmful regulation will exacerbate these disruptions. Let us not forget that during the height of COVID, it was these same truck drivers that continued to deliver freight, making sure that folks had their essential goods. These drivers were heroes, and for that arduous work California is telling them to become company employees against their will or leave the state.
The goal for the TIA working group and subcommittees is to provide resources for members to navigate AB 5, promote coalition-building with other industry stakeholders, and look at strategically what action TIA could take at the state level to advocate for our members and prevent this from spreading throughout the country. TIA is genuinely concerned that this anti-business and anti-independent contractor law will be replicated elsewhere. There are several states, including New Jersey, that have already drafted language pending the resolution of AB 5. And congressional efforts to push for passage of the PRO (Protecting the Right to Organize) Act would implement the ABC test of AB 5 at the federal level.
Our association will continue to advocate for its members on this issue, and all attempts to limit the flexibility of American workers who choose to be independent contractors and live their version of the “American dream.” That is the beauty of this great nation; America affords individuals the right to shape their livelihood however they see fit: AB 5 deprives them of making that choice.
Chris Burroughs is vice president of government affairs for the Transportation Intermediaries Association.
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