The next steps in turning the heart of last year’s Dynamex court decision on independent contractors into the law of the land in California takes place this week in the state’s Senate.
And Joe Rajkovacz, the director of government affairs at the Western States Trucking Association (WSTA), is expressing confidence that changes in the proposed law will allow trucking companies to sidestep some of the bill’s provisions that the association sees as possibly doing serious damage to the owner-operator model in the Golden State.
“We are actively involved in what is going on behind the scenes,” Rajkovacz said in an interview with FreightWaves. “From a trucking industry standpoint, what we would like to see is where it is acknowledged that if you’re an independent contractor with your own authority, you are truly an independent contractor.”
The legislation that would turn the intent of the Dynamex decision on the classification of employees vs. contractors recently passed the California Assembly by an overwhelming margin. The first hearings in the Senate on the bill, known as AB5, take place Wednesday, July 10.
In its statements and a letter to Assemblywoman Lorena Gonzalez, the sponsor of the bill, WSTA is requesting that truckers be given the same consideration in the legislation as other occupations that are populated primarily by independent contractors. AB5 specifically makes exceptions for jobs as diverse as hairdressers, surgeons and securities brokers.
AB5 spells out that those sorts of jobs will continue to fall under the provisions of what is known as the Borello standard for independent contractors – also coming from a court precedent – which would allow them to continue to be viewed as independent. Borello was the existing standard that Dynamex modified.
That’s what the WSTA wants. In a letter sent to Gonzalez in late June, the WSTA asked that she “include a similar, reasonable pathway for legitimate owner-operator truck drivers to maintain their independence.” The WSTA letter also notes that it originally supported AB5 but would not continue to do so unless the changes were made. “WSTA must oppose your bill until a trucking fix is added,” the letter said.
Rajkovacz said Gonzalez has made clear that for amendments to be made affecting trucking, buy-in by the state’s Teamsters needs to be part of the process. Rajkovacz said WSTA has been in discussions with the Teamsters, “and they are still ongoing.” He added that WSTA and the California Trucking Association (CTA) are not working together on amendments to AB5 but share the same goals.
The CTA, in a short website item on the passage of the bill in the Assembly, suggested that trucking’s role in the final law is not settled. “Asm. Gonzalez said that trucking is one of the most complex and difficult industries to address, yet she is fully committed to continue discussions with the trucking industry and come to a resolution,” according to the report.
WSTA generally represents smaller carriers, with one truck being the average size of the fleet of its members. The CTA is seen as representing larger companies.
At the core of the Dynamex Supreme Court decision was the ABC test, a three-pronged set of guidelines that would determine whether an independent contractor was actually an employee. AB5 recasts the ABC test as a 1-2-3 test, similar in wording to the ABC findings.
The contractor is independent if it meets the following criteria, according to the legislation:
- ”The person 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.”
- ”The person performs work that is outside the usual course of the hiring entity’s business.”
- ”The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
Where the WSTA says it has a particular issue is the second provision of the legislation.
“Even if an owner-operator is able to demonstrate their true independence and satisfy the A and C prongs, as most owner-operators contract their work with other trucking companies (be it through a truck broker or another motor carrier), it is virtually impossible to pass the B prong as both are in the business of trucking,” the WSTA wrote in its letter. In other words, because an independent owner-operator is involved in trucking, they could not be considered truly independent if they’re working for a company whose primary business is trucking.
Failing one “prong” of the ABC test in the court case, or the parallel 1-2-3 test in the legislation, means that the independent contractor flunks the entire test and “would thus be classified as an employee of the hiring entity,” the WSTA said in the letter.
The WSTA letter is apocalyptic about the impact on independent owner-operators if changes aren’t made to AB5. It said the fact that the bill is near to becoming a law, and the liabilities that will hit employers as a result of a reclassification, means that “some entities are flatly refusing to work with owner-operators. Annihilation of the owner-operator business model is likely inevitable if further modifications are not made to the ABC test,” the letter said.
Those views were echoed by Brian Mills, an attorney with the Southern California firm of Snell & Wilmer. If the Dynamex decision is codified, he said, “you would probably end up with the potential for the end of the owner-operator model.”
He also seconded Rajkovacz in saying that there is an ongoing attempt to persuade California legislators to exempt trucking from the rules of AB5. “They are trying to explain to the legislators that there are owner-operators who want to continue the freedom to run their own business,” Mills said. “They have a significant investment and that is why they became independent.”
Rajkovacz said that regardless of what happens with AB5, he already has seen a shift where some trucking companies will not do business with drivers on a lease because of the concern over whether the driver is an employee. What they want instead is a driver with his or her own authority. “The federal leasing model is going away in the state,” Rajkovacz said.
Under the federal leasing model, the driver generally owns the equipment outright and is in a contractual arrangement with a carrier, as opposed to a lease-purchase model where the driver is making payments to the trucking company toward eventually owning the truck.
Knight Swift (NYSE: KNX) earlier this year lost a civil case earlier this regarding the classification of drivers as employees rather than independent contractors.
General media coverage of the legislation has been mostly focused on Uber, Lyft and similar “gig economy” companies rather than trucking. The type of sentiment that WSTA is citing could be found in the comment section of the LegiScan website where a woman wrote: “I drive for Uber, Lyft, Amazon, Postmates and DoorDash. Let me be very clear… I DO NOT WANT TO BE AN EMPLOYEE. The whole reason driving for these companies works for me is that it is on my schedule when I have time available. I NEED that flexibility to make it work for me to be able to support my family and pay bills.”