Coronavirus weaponizes debate over California’s AB5

A new front has opened up in the battle over AB5, a California law limiting the use of independent contractors, as opponents and supporters use the coronavirus pandemic and the economic devastation it has unleashed to bolster their positions on how the controversial labor law applies to the transportation and logistics industry.

“Each side is going to have their point of view on what the crisis means to classification,” said Gary Feary, president of the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.

That many companies are offering employee-type benefits to contractors during the outbreak — from sick leave to paid time off — further complicates the classification issue. 

“If an employer gives you sick leave, it’s much more difficult to claim you’re a contractor,” Bonnie Glatzer, a San Francisco employment attorney, told FreightWaves. “It’s a strong piece of evidence.”

Assembly Bill 5, passed this January, expands a 2018 state Supreme Court ruling, making it harder for companies to classify employees as independent contractors. The law targeted gig economy companies like Uber (UBER)and Lyft (LYFT), as well as food delivery apps such as GrubHub and Postmates, all of which rely on contract drivers, not employees.

Trucking companies that depend on contractors, known in the industry as owner-operators, were also swept into the AB5 net, although soon after the legislation passed a federal judge issued a decision granting a preliminary injunction preventing enforcement of AB5 in the freight industry. In the meantime, other states have initiated similar legislation.

Fanning the flames

Adding a new wrinkle, the coronavirus is reshaping the freight and delivery labor market, as a virtual halt on shipping anything but food and medical supplies overwhelms some transportation and logistics companies and drivers while leaving thousands without any work at all.

Above all, the pandemic has highlighted the critical role of truck drivers and delivery workers in keeping the country healthy and well fed during the outbreak, intensifying debates about pay and benefits owed to drivers on the front lines.

For many in the logistics business, the pandemic only reinforces the need to retain the independent contractor business model.

“As truckers step up to restock grocery shelves, transport medical equipment and other essential goods it is becoming clear how important independent owner-operators are to fulfill the needs of Californians in a time of crisis,” Shawn Yadon, chief executive officer for the California Trucking Association, said in an emailed statement to FreightWaves.

“Truckers ensure that critical and essential goods arrive when and where they are needed. Now more than ever we can see how important the state’s 70,000+ independent owner-operators are to the supply chain.”

The International Brotherhood of Teamsters begs to differ. “The current crisis we are all facing demonstrates exactly why AB5 is good for California,” said Julie Gutman-Dickinson, an attorney with the law firm Bush-Gottlieb and the Teamsters’ outside counsel. “AB5 clarifies who is protected by our most basic safety nets like unemployment and disability insurance.”

The Teamsters have been at the forefront of the battle to reclassify California port truck drivers as employees, helping hundreds of drayage drivers file wage theft and worker misclassification claims.

The union absorbed a legal hit Monday, when the U.S. 9th Circuit Court of Appeals denied a stay of the preliminary injunction the Teamsters had sought in January. The union had charged that drivers would suffer irreparable damage if the law was not enforced, but the latest decision effectively rejects the union’s request.

Monday’s ruling allows trucking companies to continue hiring owner-operators instead of reclassifying all drivers as employees — at least until this summer, when the 9th Circuit is expected to hear oral arguments about the key federal preemption issue underpinning the court battle over implementation of AB5.

Benefits for employees, and independent contractors

Even as lawyers for both sides debate the legal status of drivers, the pandemic is arguably fueling changes in the traditional relationship between transportation companies and the people who work for them, with many companies offering pay increases and sick leave benefits to mitigate the financial impact of COVID-19 on their workforce.

J.B. Hunt (JBHT), for example, announced in late March that it would pay a one-time $500 bonus to drivers and operations support personnel. Also in March, Landstar System Inc. said it would pay its business capacity owners (owner-operators) $1,000 per week for up to two weeks if they were diagnosed with the virus or required to quarantine. 

Another benefit under consideration by large trucking companies, according to Feary, is called “availability pay.” The idea is for carriers who do not haul high-demand products — e.g., grocery items — to pay their now-languishing owner-operators a form of retainer, preventing them from signing on with other carriers so that when the COVID-19 recession is over the carrier can get back to business as usual.

Under this framework, Feary explained, the trucking company says, “I’m willing to pay you to stay available for me, to keep my capacity in place, because when I rebound I won’t be able to pivot quickly if I can’t get my contractors back, if they have moved on.”

A political football

Echoing Glatzer, Feary said that in “normal times,” plaintiffs in a misclassification suit could claim that benefits that transportation companies are now extending to contractors reinforces arguments that they are employees and not independent workers.

The flip side is that employers could argue they were experiencing “business interruption,” he said, and that the benefits were consistent with a crisis situation and not business as usual.

At the legislative level, California Assemblywoman Lorena Gonzalez, D-San Diego, one of the law’s original sponsors, is actively using the coronavirus as a platform for AB5 and is advising independent contractors in sectors that are bound by the law to apply for unemployment benefits during the crisis.

Unemployment benefits are normally funded by employers paying into a state program through the payroll taxes that employers withhold from their employees’ paychecks.

Other California lawmakers are advocating for AB5 to be repealed amid the coronavirus crisis, saying the law is detrimental to independent contractors seeking employment at a time when jobs are scarce.

“There is a political war underway, similar to the war [originally] waged on this issue,” said Feary, whose firm has represented the California Trucking Association in its battle to overturn the labor law.

Food delivery under scrutiny

Unlike the trucking sector, delivery app companies operating in California are still bound by AB5, although little or no enforcement is taking place, according to Glatzer.

Along with Instacart and other grocery delivery services, these companies are hiring thousands of new drivers to handle the surge in online shopping tied to the coronavirus. Uber Eats and Postmates among others are also providing paid sick time to drivers who have been diagnosed with COVID-19, or ordered to quarantine or self-isolate.

That benefit is consistent with a ballot measure the delivery app giants are  championing that would exempt them from AB5 in favor of a new classification model that would raise pay and give workers some benefits — but deny access to unemployment insurance. 

These short- and long-term measures do not sit well with Christopher Chandler, a driver-organizer with the San Diego chapter of Rideshare Drivers United, a group that is pushing the state to enforce AB5.

Under AB5, Chandler said, employees misclassified as independent contractors would receive a minimum of three days of sick pay with the ability to earn more hours of sick pay over time, “whether they are diagnosed with COVID-19 or not.”

The COVID-19 pandemic, he said, “highlights the reasons why we shouldn’t allow companies to get away with not recognizing drivers as employees.”

Uber, Postmates and GrubHub did not respond to FreightWaves’ request for comment.

Government should pay

Not all drivers are so enthusiastic about AB5. The trucking industry in particular is divided on the subject. The Teamsters, who support the law, largely advocate for drivers at the nation’s ports, where there is a history of exploiting workers. The Owner-Operator Independent Drivers Association (OOIDA), a professional truckers group, however, opposes the labor legislation.

The pandemic hasn’t necessarily changed hearts and minds. Despite the industry’s typically conservative beliefs favoring limited government, many truck drivers, employees as well as owner-operators, believe the public sector, not the private, should foot the bill for COVID-19 health and unemployment benefits.

“Owner-operators must receive the same sick and unemployment benefits as company drivers but not at the carrier’s expense,” Rachelle Tuttle, a company driver whose husband was an owner-operator for nearly 25 years, told FreightWaves.

Tuttle, who has started a petition asking for trucker protections in the next COVID-19 legislation, said requiring a carrier to foot the bill for truck driver benefits, “is entirely unacceptable. If they’re laying people off, they don’t have freight. If no freight, no incoming money.”

Small trucking companies and other businesses in danger of permanently closing their doors as a result of COVID-19 can apply for immediate relief under the $2 trillion stimulus package passed last week.

An uncertain future

Whether the pandemic and the federal stimulus package(s) will have a long-term impact on driver classification issues depends on unknowns, such as long the pandemic endures and the strength of the economic rebound.

OOIDA only recently started discussing the impact of the virus on driver classification issues and AB5, according to spokesperson Norita Taylor.

For now, the politicization continues. Referring to sick pay benefits offered by rideshare and food delivery companies, Glatzer said, “I think the strategy is to look like they’re treating workers better so the state is less likely to enforce AB5.”