Commentary: AB-5 does more harm than good

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It was recently decided in California that the new gig-economy law will not apply to truck drivers. But is the issue settled or is the fight just beginning?

For context, the conflict began with the 2018 ruling in the case of Dynamex Operations West, Inc. v. Superior Court of Los Angeles. The outcome of that case was the application of a presumption that workers are employees and not independent contractors as they had always been classified.

Domingo Avalos is one of hundreds of port truckers in Southern California who have won wage claims connected to driver misclassification. (Photo credit: Justice for Port Truck Drivers)

Dynamex is a same-day courier service that switched to an all-independent contracting model for its drivers in 2004 in order to cut labor costs. In 2015, an independent contractor who had worked with Dynamex, Charles Lee, filed a class-action lawsuit against the courier service claiming the company misclassified their drivers as independent contractors. This classification, claimed Lee, allowed the company to violate the transportation-specific IWC State Wage Order 9.

In response to perceived abuse of gig workers, California legislators drafted AB-5, a bill that pushes companies to classify their workers as employees instead of independent contractors. Companies like Uber and Lyft built their companies by having few employees and many contractors, which saves them as much as 30% in labor costs. But while the bill was touted by lawmakers as a way to protect middle class workers, truckers responded with protests.

The trial meandered through a number of legal case precedents, some of them going back to the child labor laws instituted at the turn of the 20th century. Ultimately, it was decided that an ABC Test would be used to prove that a worker is an independent contractor and against the existing assumption that they are an employee.

(Photo credit: Shutterstock)

The criteria of the ABC Test are: (a) the worker is not controlled or directed by the hiring entity in terms of the work; (b) the work done by the contractor is outside the hiring entity’s scope of business; and (c) the worker is regularly and independently engaged in the type of work he or she is performing.

A contributing ambiguity which continues to fuel the battle is “part b” of the ABC Test. Since independently contracted truckers are doing the same type of work as the hiring company, they can’t quite count as independent contractors. This is an anathema to motor carriers that have long relied on such a model to cut costs, even if they no longer have to pay for rest breaks.

The California Trucking Association, the Western States Trucking Association, and a few motor carriers took their case to the California Supreme Court in an attempt to show that federal motor carrier laws make the Dynamex ruling totally inapplicable to the trucking industry. Among them is a 1994 federal law that prevents any state from creating laws that restrict a motor carrier’s prices, services and routes.

(Photo credit: Shutterstock)

But proponents of AB-5, like its author Assemblywoman Lorena Gonzalez, accuse the trucking industry of a longstanding practice of misclassifying workers to the disadvantage of truckers. Her suggestion is to funnel truckers into two different status options – employees or small business owners.

AB-5 did carve out exceptions to the rule and groups such as the Chamber of Commerce wanted to broaden those exceptions to include trucker drivers. Supporters of these exceptions say that the ABC test will remove a sizable majority of independent contractors in California, and hinder the Golden State’s leadership in the national innovation economy.

The CEO of the California Trucking Association has predicted that removing the flexibility to be independent contractors could create disruptions in the trucking industry and adversely affect the price of goods. And truckers themselves do not seem in favor of the bill, gathering in Sacramento during the summer to ride around the capital and sound their horns in disapproval.

Other states are in the process of emulating California. To put this in perspective, there are 500,000 truck drivers in the United States that are independent contractors.

(Photo credit: Jim Allen/: FreightWaves)