Vice President, Labor Policy, U.S. Chamber of Commerce
August 01, 2022
As the nation endures an ongoing supply chain crisis, the situation has become much direr thanks to AB 5, a disastrous California law that upends the “owner-operator” model that is responsible for a significant portion of the state’s trucking.
As the Chamber has said on numerous occasions, since the state legislature passed AB 5 in 2019, this law will turn the state’s business community on its head and wreak havoc by reclassifying millions of independent contractors as employees. The ill-conceived legislation followed the state supreme court’s 2018 decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles, which redefined the standard for determining whether an individual may be classified as an independent contractor. AB 5 codified that standard in state law.
In short, the new standard makes it much harder for businesses to classify an individual as an independent contractor, leaving businesses either to assume all the liability associated with an employer-employee relationship or to stop using the services of independent contractors who do not meet AB 5’s test.
The impact on the trucking industry is especially profound, putting many truck drivers into disarray and potentially removing thousands of these drivers from the road. The result has been widespread turmoil and legal challenges to the new law.
One challenge came from the California Trucking Association (CTA), which sued in federal district court on behalf of truck owner-operators who contract with national motor carrier companies to perform work in California and elsewhere. In January 2020, that court granted a preliminary injunction enjoining the state from applying AB 5 to any motor carrier operating in California, pending the entry of a final judgment.
However, on appeal, the Ninth Circuit reversed the district court’s decision to issue the injunction. The CTA sought an en banc hearing, which the court denied. In August 2021, the CTA then filed a cert petition with the U.S. Supreme Court, asking it to review the ruling, and the Chamber filed an amicus brief in support of the petition, requesting the Court to grant review. On June 30, the Court denied the petition, clearing the way for the state to enforce AB 5 against businesses in the trucking industry and others that hire truckers.
That decision will reportedly affect approximately 70,000 owner-operators and their relationships with carriers, brokers, and shippers. Facing this kind of compliance nightmare, truckers at the ports of Los Angeles, Long Beach, and Oakland – which collectively process around half of the container cargo volume in the country – called for a work stoppage to protest the implementation of AB 5 until Governor Gavin Newsom agrees to discuss the issue, which he seems unwilling to do.
In the meantime, truckers are protesting implementation of AB 5 at ports throughout the state, in turn slowing the movement of containers, causing shipping terminals to halt operations, and pouring gasoline on the proverbial fire. As a result, businesses throughout the nation are facing new challenges and delays in getting goods to market.
The entire situation is yet another example of bad public policy emanating from a legislature that continually fails to appreciate the real-world effects of its poor judgment. AB 5 was a disaster from the start, and even though policymakers had significant opportunities to understand the ramifications of this law since its passage in 2019, they foolishly chose to plow forward despite the significant negative consequences.
As the truckers impacted by AB 5 are demonstrating, such disruptions can have much broader implications for the economy overall, and California must recognize that before it crashes.