Trucking companies and truck owner-operators are scrambling to figure out how to operate under a new California law that toughens definitions of nonemployee drivers, upending decadeslong practices that have allowed truckers to work as independent contractors.
The law known as AB5 is expected to go into effect this year after the U.S. Supreme Court on June 30 declined to review a lawsuit brought by California’s trucking industry.
Truckers warn the law could push many independent owner-operator drivers out of the business, reducing trucking capacity and driving up shipping rates as many ports and inland terminals continue to struggle under heavy cargo volumes and freight backups triggered by the Covid-19 pandemic.
“I will have to take less work and charge more,” said Bill Aboudi, president of Oakland Port Services Corp., an Oakland, Calif.-based firm with about six full-time drivers and a fleet of about eight trucks.
The law, which was originally due to take effect in 2020 before the legal challenges, makes it harder for trucking companies to classify as independent contractors the drivers that work regularly for them, and it pushes the companies to treat drivers like employees with the benefits that come with full-time work.
It sweeps up thousands of truckers who own or lease their own vehicles and work as contractors while taking advantage of their employers’ permits and insurance discounts.
The Owner-Operator Independent Drivers Association, a Grain Valley, Mo., trade group representing small trucking companies and independent drivers, says California hasn’t indicated how drivers can comply with the law, creating confusion for truckers trying to figure out how they can keep working.
Many drivers like the independence of owning and operating their own trucks while gaining the certainty of having working arrangements with specific companies. They worry California’s new law will cost them more to continue as independent drivers because they will have to take on expenses such as buying their own insurance.
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Some drivers said they wouldn’t work on Wednesday at the ports of Los Angeles and Long Beach and next Monday at the Port of Oakland to protest the law.
The law, part of the broader regulatory battle across the U.S. over independent-contractor arrangements at transportation companies including Uber Technologies Inc. and Lyft Inc., targets murky employment practices in the highly fragmented trucking sector.
Many trucking companies employ their own drivers, but independent owner-operators account for a large share of U.S. trucking capacity, and there are some 70,000 independent drivers in California, according to industry trade groups, many of them hauling goods to and from the state’s big ports.
Matt Schrap, chief executive of the Harbor Trucking Association, a trade group for West Coast truckers, said the law will force many drivers to choose between becoming employees of trucking firms or registering as independent businesses and working with freight brokers to secure loads.
Mr. Schrap said independent truckers are facing additional costs of $20,000 or more, mostly in the form of increased insurance premiums.
The International Brotherhood of Teamsters, which aims to organize drivers in California, says trucking companies have misclassified drivers as independent contractors to deprive them of fair wages and benefits.
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Shane Gusman, director of the California Teamsters Public Affairs Council, said much of the confusion among drivers surrounding the law is being spread by trucking companies and organizations “putting out this information to these drivers and scaring the heck out of them.”
California has been a major pain point for supply-chain bottlenecks during the pandemic. About 40% of containerized imports to the U.S. enter through California’s ports and reducing freight capacity in the state can easily ripple across the country.
Gov. Gavin Newsom signed AB5 into law in 2019 to take effect in 2020. The California Trucking Association’s lawsuit against it, which argues federal laws governing trucking and interstate commerce exclude truck drivers from state regulation, continues in lower courts.
Eric Sauer, the association’s senior vice president of government affairs, said he expects an injunction that paused AB5 from going into effect will be lifted in the coming days. The association, along with other trucking and business groups, on Monday sent a letter to Mr. Newsom, a Democrat, asking for more time for owner-operators and freight firms to comply with the law.
Trucking associations say they are being peppered with questions, especially from smaller trucking firms, about compliance. Firms say they are meeting with lawyers to consider next steps.
Bianca Calanche, chief executive of Jaspem Truck Line Inc., in Compton, Calif., which uses roughly 15 owner-operators along with 15 employee drivers, would face sharply higher employment costs to bring independent drivers in-house and would need to buy more trucks for its fleet. Ms. Calanche said she is seeking legal advice “to see if there is any way we can keep operating, even if it means helping the owners get their own permits and own insurance.”
Ronald Leibman, a partner at law firm McCarter & English LLP who specializes in the freight industry, said it may be months before California begins enforcing the law. He noted AB5 is the latest in a line of regulatory and safety changes in recent decades to buffet the trucking industry, adding that “The industry has always been flexible enough to change.”
Some freight executives, especially at larger firms, say they already put in place business models, such as using intermediaries known as freight brokers, they believe comply with the law. But smaller firms and many owner-operators say they will struggle under the new rules.
Some truckers say AB5 is the latest in a stream of regulations in California, including new emissions restrictions due to take effect Jan. 1, 2023, complicating their work.
Ricardo Gil, an owner-operator in the Oakland area, said that after more than 25 years in the business he might look for other work, such as in construction. “Sometimes you’ve just got to think real hard, do I need this headache?” he said.
Write to Paul Berger at Paul.Berger@wsj.com
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