California Law May Cause ‘Devastating’ Supply Chain Consequences

A California law may backfire, having significant consequences on the supply chain, inflation and the state’s residents by forcing independent truckers out of the workforce.

Legislation
California Assembly Bill 5 (AB5), which was introduced by former state Assemblywoman Lorena Gonzalez (D), was signed into law in September of 2019 by California Gov. Gavin Newsom (D), but an injunction prevented it from affecting truck drivers — until now.

AB5 stated that “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is free from the control and direction of the hiring entity in connection with the performance of the work, the person performs work that is outside the usual course of the hiring entity’s business, and the person is customarily engaged in an independently established trade, occupation, or business.”

Certain professions are exempt from the legislation, including insurance agents, health care professionals, investment advisers, realtors, barbers and fishermen. Truck drivers are noticeably absent from that list of exemptions.

AB5 was initially targeted toward independent contractors such as app-based delivery and rideshare drivers. Ironically, major companies including Uber, Lyft, and Postmates were exempted from the legislation after Proposition 22 was passed in November 2020.

The trucking industry has been fighting against AB5 since it went into effect, and was even able to secure an injunction in January of 2020 preventing the law from including independent truckers.

In March of 2020, California Attorney General Xavier Becerra demanded that U.S. District Judge Roger T. Benitez reverse the injunction.

Unfortunately, as the case moved up in the court system, it eventually reached the Supreme Court, which declined to review the case on June 28, kicking it back to a lower court’s decision, which allowed it to go into effect.

“This ruling really took everybody off-guard, especially at the speed that they kicked this back and essentially made it law,” Paul Brashier, vice president of a commercial transport company, said in an interview with CBS News.

Effects & Response
With the law in effect, truck drivers are now required to be employees of trucking companies rather than independent contractors in order to work in California. This presents a variety of difficulties for the drivers themselves, as well as the companies.

Currently, one of the biggest hurdles is trying to determine how the law will be enforced and how truck drivers could possibly comply with such a law.

“We have never gotten any good answers from anyone official in California on how this is supposed to be enforced or how our members can comply,” said Norita Taylor, director of public relations for the Owner-Operator Independent Drivers Association, in a comment to Bloomberg.

If AB5 is enforced, California is facing a potential mass exodus of the estimated 70,000 independent truckers currently operating within the state.

The Port of Oakland is especially at risk if independent truckers are forced out of the workforce.

“There’s 9,000 trucks that serve the port on a daily basis, and 90% of them are independent contractors. So, this is a big, big impact,” says Bill Aboudi, owner of AB Trucking in Oakland.

According to Aboudi, his independent contractors own their own trucks.

“It just doesn’t work. You own your own truck, it’s your truck. I can’t take possession of it and start using it,” he explained. “In a case like my company, we just eliminate owner/operators and just reduce the workload.”

Kevin McMaster, vice president of carrier sales at Flock Freight, described the likely effects that AB5 will have on the trucking industry within California.

“This would cause a ripple effect in the industry, pushing many drivers who don’t want to apply for their own authority to lease out of state, likely in Arizona or Nevada, and even force some into retirement due to increased market pressures,” he said. “There will likely be pressure added on capacity in California that could exacerbate an already tough environment where drivers are at a premium.”

Brashier believes that many independent truckers will choose to leave California in favor of states where they are free to work as contractors. With the state already facing an exodus of residents for several other reasons, including high taxes and rising crime rates, the departure of the truck-owner operators would likely negatively impact California residents even further.

“It’s going to adversely affect everybody,” he said. “And at the end of the day, with where we are with inflation being as high as it is, this is going to put inflationary pressure on the consumer, right?”

The California Trucking Association also expressed concerns regarding the law, pointing out that it was horrible timing in regards to the effects it will have on the ongoing supply chain crisis and inflation.

“Gasoline has been poured on the fire that is our ongoing supply chain crisis,” they said. “In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation.”

Lorena Gonzalez — the author of AB5 who resigned from the state assembly in January — had no sympathy for the truckers whatsoever, instead celebrating the effects that the law will have on the trucking industry.

“They’ve known for the last two and a half years that it was equally possible that this injunction would not hold,” she said. “This is not a shock.”

“The fact that trucking companies will have to abide by basic labor laws in CA takes us one step closer to rebuilding the middle class that was almost deregulated out of existence,” Gonzalez, who now heads the California Labor Federation, tweeted.

On Wednesday, California Republican lawmakers urged Gov. Newsom to either delay the implementation of AB5 or add truckers to the list of professions exempt from the law.