I always hated it when one of my daughter’s elementary school teachers would keep the whole class in for recess because a few obnoxious kids were acting up. And that’s just what California has done — albeit with far more devastating consequences — with sweeping new legislation that passed shortly before this issue went to press.
Instead of focusing on companies that were abusing the independent contractor model to avoid paying employee benefits, the state decided to pretty much do away with the ability to use independent contractors as a regular part of your operations at all — unless you work in an industry that got a specific carve-out in the bill, such as freelance writers, travel agents, and hairstylists.
Assembly Bill 5, which has been signed by the governor, codifies into law — and expands — last year’s Dynamex California Supreme Court decision. It does away with most of the traditional methods of determining whether someone is truly an independent contractor or really an employee, such as the worker’s amount of risk and investment in his or her business, in favor of an ABC test.
The big problem with the ABC test is the “B” prong, which states that to be considered an independent contractor rather than an employee, the worker must perform “work that is outside the usual course of the hiring entity’s business.”
In other words, if you’re in the business of hauling freight, you could contract with someone to paint your building or do your taxes, but you can’t use an independent contractor to haul freight.
There is little doubt that there are some trucking companies that have abused the independent contractor model, as highlighted in what the industry criticized as a lopsided USA Today report in late 2017.
However, California legislators opted to take a broad-brush approach in banning the use of independent contractors rather than directly addressing the abuses.
“The sins of the few have been extrapolated to the many, and that’s unfair,” Joe Rajkovacz, director of governmental affairs for the Western States Trucking Association, told me.
The California Trucking Association tried to work with the legislature to amend the bill so it would address the worker misclassification issue but still allow legitimate trucking owner-operators, including requirements for operating authority, ownership of vehicles, exclusivity, and transparency about pay — to no avail.
CTA CEO Shawn Yadon told me the final bill does not distinguish between a driver who’s acting as an independent contractor under a truck lease-purchase program with a motor carrier (where many of these abuses have occurred), and one who owns his or her own truck outright. “It virtually destroys the independent contractor model for trucking,” he said.
If you think this doesn’t matter to you because you don’t operate in that crazy California, think again. Other states have made efforts to curb what is seen as employee misclassification. New Jersey already has adopted the ABC test, although so far not as broadly as California. New Jersey Motor Truck Association Executive Director Gail Toth told me that agencies such as the Department of Labor are already using the ABC test, and the state has “fast-tracked changing rules and legislation similar to California.”
And it could become an issue in Washington, D.C., as well. A number of Democratic presidential candidates, including Bernie Sanders, Kamala Harris, and Elizabeth Warren, supported AB5.
Many of our largest and most successful trucking companies wouldn’t be here today if they hadn’t started out as a one-truck owner-operator. It’s part of the American Dream. And while employee misclassification abuses have the potential to turn that dream into a nightmare, California legislators are the ones who need to wake up and do the hard work needed to address the bad dreams without taking away the good.