Blog

AB5: California’s Trucking Reality for Carriers & Brokers

On January 1st, 2020 Assembly Bill 5 (AB5) went into effect and will impact whether workers are classified as employees or as independent contractors under California law.  The law is being fiercely challenged by the major gig-economy companies such as Uber, Lyft and DoorDash, which have all joined a federal lawsuit that aims to challenge the constitutionality of AB5.  As we see the first challenges and injunctions in courts in this past week, we can all imagine it will take years until these challenges have run their course.  However, many forget that the classification question has been up for debate in trucking for nearly 20 years, and it is just now that the gig companies have brought this issue to the forefront. With the momentum behind this law, I believe the California trucking community will see major impact across brokers, shippers and carriers.

Before I share my insight as to how the new law will impact trucking in California, I want to share an excerpt from a recent joint letter sent collectively by the California State Offices overseeing the law; the California Department of Industrial Relations and the California Employee Development Department.  As part of AB5, the ABC test asks three questions to clarify the employee relationship.  The criteria are explained as, “Under the ABC test, a worker is considered an employee, and not an independent contractor, unless the hiring entity can demonstrate that it meets all three of the following requirements:”

A.     The individual is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

B.     The individual performs work that is outside the usual course of the hiring entity’s business.

C.     The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

As someone who has been in trucking and drayage nearly 30 years, here is how I see the reality of the impact of AB5 on the drayage trucking industry in California, and how it impacts carriers, shippers and brokers.  Let’s unpack each and ask some questions as it relates to the ABC test above:

A.     Does your company or drayage provider have employees or contractors?  Do you even know?  Is the trucker “free from the control and direction of the hiring entity”.  Reality is that very few Brokers even know details of their drayage providers.  With AB5, every broker needs to be aware of the characteristics of their Drayage providers and ask how the providers answer the “ABC test”.

B.     If you’re using a Drayage Trucking company in California that has contractors, you’re most likely in violation.  The “usual course” of the business is trucking and the work the contractor provides is not outside the normal course of business.

C.     Of the three tests, “C” is likely applicable for every drayage carrier.  This test looks at the historical nature of the industry or trade and the customary usage of contractors.  With trucking origins being the small trucking contractor in United States the contractor model has long been a common model.

Despite AB5, I do not think that the independent model of trucking is gone for California. I do believe it will revitalize the true independent model where small truckers in America, with their own operating authority and insurance, take back market volumes. The gig-economy is enabling and empowering the small trucker in America to once again have connections to freight and put their one or two truck fleet to work. With digital freight marketplaces, freight is available to motor carriers of all sizes, and enables them to secure freight at a volume that even 5 years ago was thought impossible.

While there is much yet to unfold in California, other states like New Jersey, New York, and Illinois are quickly following with similar bills that will threaten the traditional Drayage Trucking industry.  If I can give any advice, it is that Freight Brokers should not wait to understand their Carriers’ employee relationships per the ABC test.  Most will not pass the test, and those without a plan in California will be at great risk.  Brokers find partners that understand the law and leverage that technology and newly available creative solutions.

Mike Albert, CEO, DrayNow