Everything You Need to Know About AB5 & It’s Potentially Destructive Impact On The Trucking Industry

California’s radical AB5 bill has created massive turmoil in the trucking industry. But due to the fact that it hasn’t yet sunk its ugly teeth into the industry with a death dealing bite there is a lot of confusion as to what is actually going on. Some believe it’s already in effect and isn’t really changing things. Some believe they need to change the way their business operates now because the evil is coming soon.

I decided to write this to hopefully help provide some clarity and bring us all up to speed. There is a lot to chew on here and it’s important to understand where we’re at with the potential disaster ahead. We’re going to look at the past, the present and the future surrounding AB5.

To get started let’s back up and take a look at the roots of AB5.

WHERE DID IT ALL BEGIN?

There are a lot of variables that could be considered the seeds of this nasty plant. But, believe it or not, one of the key components didn’t come from anyone with any experience or understanding of the trucking industry at all. In fact, it could be argued this madness all began with the pen of a U.C. Berkley Graduate who wrote a piece for USA Today that essentially attacked the trucking industry as a whole by focusing on a few bad actors.

As can be expected in this day and time, a journalist who has never driven a truck or run a trucking business is potentially going to bring an entire industry to its knees. And in doing so deal a crippling blow to the US economy.

Indeed, it began with an article written by Brett Murphy titled “Forced into debt.Worked past exhaustion.Left with nothing.”

Samuel Talavera Jr. did everything his bosses asked.

Most days, the trucker would drive more than 16 hours straight hauling LG dishwashers and Kumho tires to warehouses around Los Angeles, on their way to retail stores nationwide.

He rarely went home to his family. At night, he crawled into the back of his cab and slept in the company parking lot.

For all of that, he took home as little as 67 cents a week.

Then, in October 2013, the truck he leased from his employer, QTS, broke down.

When Talavera could not afford repairs, the company fired him and seized the truck — along with $78,000 he had paid towards owning it.

It’s a story we’re all familiar with. I won’t argue this kind of sick treatment by various motor carriers isn’t real. It is. It happens. And it’s horrible. I don’t take issue with pointing out the bad apples in the industry so long as it’s honest and objective. But a few paragraphs down we see where Murphy blatantly ignores one of the founding principles of a free market.

A yearlong investigation by the USA TODAY Network found that port trucking companies in southern California have spent the past decade forcing drivers to finance their own trucks by taking on debt they could not afford. Companies then used that debt as leverage to extract forced labor and trap drivers in jobs that left them destitute.

I wasn’t aware that any of us are forced to do anything. In fact, the very existence of the problem outlined above is a result of a choice. The mere existence of free will shouldn’t excuse the way this company acted or treated its contracted drivers, but no where in the offending article does Murphy admit or even entertain the idea that every driver makes a decision to enter into an agreement long before any potential mistreatment can occur. And a decision then has to be made to remain in that position once mistreatment occurs.

Yes, it could mean a loss of investment should one decide to change their situation and leave, but that’s the real world. Risks are everywhere and you cannot rid the world of them. No matter how hard you try. Nor should you want to. Risks can come at a great costs, but they can also come with great reward.

In any event, Murphy received countless journalism rewards from his corporate media peers for his one-sided report and the stage was set. That was 2017. In 2018 Murphy’s work began to take form in the courts.

Enter the Dynamex case that went to the California Supreme Court.

On Monday, April 30, 2018, the California Supreme Court issued a landmark decision in the matter of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. In a voluminous, 82-page decision, the California Supreme Court reinterpreted and ultimately rejected the Borello test for determining whether workers should be classified as either employees or independent contractors for the purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”) in favor of a worker-friendly standard that may upend the existing independent contractor labor market.

In particular, the Court embraced a standard presuming that all workers are employees instead of contractors, and placed the burden on any entity classifying an individual as an independent contractor of establishing that such classification is proper under the newly adopted “ABC test” which will be discussed in further detail below.

California’s anti-business climate was the perfect incubator for what is now a nation-wide battle for the freedom of choice for drivers seeking to run their own business as independent contractors. The California legislature wasted no time and immediately went to work to codify the state’s Supreme Court ruling in the Dynamex case.

In 2019 California Assembly Bill 5 (AB5) was signed into law by Governor Newsom. And that’s how this war was born. A solution on par with trying to kill a fly with a bazooka.

WHERE ARE WE NOW?

There is no shortage of controversy surrounding AB5. While it obviously creates massive problems for the trucking industry, it also creates a lot of problems for legal interpretation. And it couldn’t possibly be more obvious the law was designed with the full intent of specifically targeting the trucking industry as its primary victim.

How is it obvious? Exemptions. But we’ll get to that shortly. First, let’s explore why and how the law is currently halted from ripping apart the trucking industry in California.

The California Trucking Association was able to rightfully argue their case in U.S. District Court. U.S. District Judge Roger T. Benitez fully agreed with the argument and issued a temporary restraining order halting AB5 from damaging the trucking industry.

“Plaintiffs have established that imminent, irreparable harm is likely because without significantly transforming their operations to treat independent contracting drivers as employees for all specified purposes under California laws and regulations, they face the risk of governmental enforcement actions, as well as criminal and civil penalties,” Benitez wrote in his opinion.

California being California did not take the Benitez decision lightly. The restraining order was challenged in the highly partisan activist 9th Circuit Court and the 9th struck it down arguing the restraining order wasn’t valid because the law (AB5) was not written specifically to target a single industry. In this case the trucking industry.

Now let’s get back to the talk of exemptions. Many in the legal community believe this is where California created a loophole in the legislation that would empower them to cripple the trucking industry using the argument the 9th Circuit used as justification. And they’re right.

Technically and legally speaking, the law is a broad and wide ranging law that hits all independent contractors, not just drivers. That in and of itself is as far as the 9th Circuit is willing to look. But here’s the kicker… once the law was passed California moved to exempt nearly every industry outside of trucking.

I kid you not. If you’re a doctor, lawyer, architect, engineer, landscaper, accountant, broker, sales rep, marketing agent, travel agent, graphic designer, writer, artist, home inspector, hair stylist or any of the hundreds of exempted contractors you’re good to go. California made sure of that. But if you’re a driver you’re screwed.

See how that works? Legally California can say the law was a blanket law covering every independent contractor. They then exempted everyone but drivers after the law was passed. But the 9th Circuit didn’t take that into consideration and halted the restraining order based on the original stated intent of the law.

The California Trucking Association has now raised and spent nearly $2,000,000 to get a petition filed with the Supreme Court arguing the case should be heard. Due to this move there is now a new halt (injunction) on AB5 that will remain place until the SCOTUS decides to take up or deny the petition.

And this is why it’s all currently quiet. AB5 is not currently actively impacting independent contractors in California and will not be able to until the SCOTUS decides what to do with the petition.

WHAT HAPPENS NEXT?

I wouldn’t be honest if I didn’t say the petition to the SCOTUS faces an extraordinary uphill battle. Of the 2,000 petitions filed with the SCOTUS each session, somewhere between 90-100 are allowed to be argued before the court. That said, one would think the AB5 case has serious and legitimate claim to be heard in the highest court of the land. This because various circuit courts cannot agree on where the law stands on AB5. And without agreement between circuit courts the constitution provides that the SCOTUS is in place to make the final determination. Most petitions do not have this scenario behind them when petitioning the SCOTUS.

This process should take 4-6 months. If the petition is accepted the case will roll around in the SCOTUS for another year or so, meaning everything will remain relatively quiet and unchanged for another year and a half. That’s IF SCOTUS takes the case. If the petition is denied the injunction ends and AB5 will destroy trucking in California.

WHAT ARE POTENTIAL IMPLICATIONS?

Worse, flood gates will be opened up that will begin to dismantle trucking nationwide. Many other states are expected to follow California’s move on AB5 the second it becomes clear such legislation will be allowed to stand. These include states like Washington, Illinois, New Jersey, Colorado and many more.

And if you think you can just move your trucking business to a trucking friendly state to avoid all of this you might want to think again. Those in favor of removing choice from the equation are already preparing to prohibit independent contractors from driving to, from or through states that have AB5 style laws in place. Meaning that even if you’re able to legally operate as an independent contractor in Missouri, for example, your freedom would not apply in Illinois while you’re driving to, from or through that state.

Motor carriers with diversified business models would be extremely hard hit. If a company has W2 company drivers AND lease or owner-operators operating as independent contractors it will be forced to implode its business model and create a new one. Or multiple business models in place of it. Conversely, a lot of owner-operators might be forced to become motor carriers. While motor carriers have to figure out how to become brokers.

Some motor carriers might opt to do away with the company driver model all together and become brokerage firms. Or split the company and operate as multiple companies, each performing different services.

For drivers who wish to remain independent contractors, navigating the flood gates of different states forcing different laws will be nothing short of a nightmare. Many OTR trucks will be forced to become regional trucks to avoid destructive legislative land mines. Yes, some models will in the short term be safe from the implications here, but let’s not kid ourselves… those who do not want the independent contractor model to exist will eventually come after everyone should SCOTUS allow it to happen.

In fact, lawmakers at the federal level are already moving to enact federal legislation modeled after AB5. This type of federal faces a lot of hurdles, but don’t think it’s impossible. And one can safely assume that federal laws would be even more deadly as federal pre-emption would no longer be a relevant argument.

FINAL THOUGHTS

Independent contractors make between 10% and 15% more than company drivers nationwide (average). The vast majority of independent contractors have previously been employed as W2 employees in various other industries and lines of work before becoming drivers. We’re well aware of the difference and we choose to be independent contractors because that’s the way we prefer it.

The idea this choice should be stripped from us goes against the ideas and principles that make America a place where we can dream and build in a free market. This kind of legislation is blatantly anti-American at its core and should not be allowed to stand.

Right now, unfortunately, we just have to wait and see what the SCOTUS does.

And that, folks, is where we’re at today. As of August 18th, 2021 anyway.

-Eric Odom, fleet owner and team truck driver proudly independently contracted to pull freight for Prime Inc.

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