On June 30, the Supreme Court declined to hear the challenge to California’s AB-5 law concerning the classification of “gig-workers” and independent contractors with regard to truck drivers and their status as either employees or contractors. The three-prong test for classifying workers appears in Sec. 5 and reads as follows:
SEC. 5. Section 621 of the Unemployment Insurance Code is amended to read:
621. “Employee” means all of the following:
- (a) Any officer of a corporation.
- (b) Any individual providing labor or services for remuneration has the status of an employee rather than an independent contractor unless the hiring entity demonstrates all of the following conditions:
- (1) 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.
- (2) The individual performs work that is outside the usual course of the hiring entity’s business.
- (3) The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The key provision of (2) is where most of the concern lies. The wording intentionally differentiates between the usual course of business that the company does compared to the independent contractor’s job. Everee.com offers a brilliant example of the difference:
“For example, if a company provides pool cleaning to the market, they cannot hire a worker to perform pool cleaning and classify them as an independent contractor. However, a hotel or hospitality company may hire a pool cleaner as an independent contractor to service pools on property it owns and provides to its customers.”
This relates to truckers as follows; a trucking company hiring an independent contractor as a driver would be a misclassification, but a freight company hiring a truck brokerage would be covered as a business to business (B2B) exemption. There are 10 points that further clarify the differences. From Stoke Talent, a platform to help companies manage independent contractors, the points are:
- The provider is, in fact, independent and not under the control and direction of the partnering business or subject to performance requirements.
- The provider is doing the service for the business and not the customers of the business.
- A contract has been made in writing.
- The business services provider is properly licensed according to the requirements of their local laws.
- Providers maintain a separate physical location from the contracting business.
- The provider is customarily engaged in an independently established business of the same nature as the work being performed. They also maintain the capacity to contract with other businesses and provide the same or similar services (so they are free to take on other clients).
- The provider publicly markets themselves as being available to provide services to other businesses for related services.
- The provider furnishes and utilizes their own tools, vehicles, or equipment.
- The provider has the leverage to negotiate rates, set their own hours, and determine their own work location.
- The work being performed is not subject to Contractors State License Board requirements (under Chapter 9).
The good thing about the California AB-5 news regarding independent contractors is that there’s a new, misunderstood, catch-all boogeyman for bearish market analysts who are convinced that the regulation will mean California’s trucking economy will collapse and burn into a trash fire of epic proportions. Matt Schrap of the Harbor Trucking Association made the following claim to Freightwaves, “This ruling will have far-reaching impacts that will upend the industry as we know it. Tens of thousands of truck drivers will be driven out of established business relationships within a week. No doubt this will further stress the supply chain.”
On the other side, bullish, pro-union organizations see an opportunity to offer drivers the protections of minimum wage, employment insurance, unemployment protections and other protections required for California employees. Doug Bloch the political director for the Teamsters Union Joint Council 7, explains in Freightwaves, “Our goal is for the shipping industry to take responsibility for these drivers. If the workers are converted to employees, it will be easier for them to be paid an amount that reflects at least the minimum wage, and it would push the responsibility for buying new zero-emission vehicles onto the port companies rather than onto the drivers.”
While those statements appear on the surface to be equally focused on different parts of the supply chain, there is a marked difference in the evidence and specifics used to make their claims. While the Teamsters have fought to equalize the power between employees and management, often management is reluctant to see workers with broad, collective power. The key to low labor costs is to convince individuals that they are better off on their own, that their individual success is more likely to occur if they aren’t bogged down with union representation, which fights for the whole group. That and the stigmatized “dues” collection remain the only negatives that have any sort of quantifiable economic impact.
On the other hand, collective bargaining offers a rising tide to lift all boats, or in this case, trucks. General President Sean M. O’Brian explains his simple strategy and outlook for drivers in a rather business-focused report on the Teamsters in DC Velocity. “Finally, port truck drivers and so many others across California will have the opportunity to join together and earn a fair wage that allows them to support their families. These companies can no longer take advantage of workers and fill their executive pockets with unfairly earned profits.”
Despite constant threats of the supply chain being upended by regulations, the question remains, how would we know? We’ve been living in massive disruption and delays for over a year, mostly due to poor forecasting, bad outlooks, and carrier mistakes that drove prices through the roof and ground the shipments to a halt during the pandemic. With drivers being one of the rarest commodities in logistics, perhaps taking better care of them and allowing them the protections of workers’ compensation, unemployment, healthcare, and retirement will stimulate the industry and postpone the inevitable march to automation?
That’s not to say there will be no disruption. Management will use this, typically, as a reason to rake consumers over the coals and force prices higher while cutting back on services, a pandemic specialty, but building up a strong middle class and supporting drivers who need a service model protection can’t be all bad. If you’re concerned about your trucking cargo, Coppersmith is on hand to help guide you. Contact our office today to get ahead of the disruption with our experts in your corner.
