Last year, the California Supreme Court announced a demanding three-part test hiring entities must meet to classify workers as independent contractors instead of employees. Gov. Gavin Newsom just signed legislation, Assembly Bill 5, which, effective Jan. 1, broadens that test beyond violations of the state’s wage orders, narrows the types of work to which that test applies, and authorizes the city attorneys of big California cities, including San Diego, to sue hiring entities to enforce the new law.
The Legislature expects the measure ultimately to cause “potentially several million” California workers to be reclassified as employees and to bring revenue to government coffers in the form of previously avoided payment of payroll taxes and premiums for workers compensation premiums, Social Security, unemployment and disability insurance. https://www.sandiegouniontribune.com/business/story/2019-09-25/abcs-of-ab5-independent-contractor-law
California-based owner-operators say a new state law, AB5, that seeks to limit the use of independent contractors targets them unfairly.
Some owner-operators who live in California said they are being told to move out of the state, get their own authority, which can be costly, or transition to company drivers, in some cases.
Landstar System of Jacksonville, Florida, is one of the large carriers that recently sent out a letter or contacted its business capacity owners (BCOs) or leased owner-operators based in California, outlining their options regarding AB5.
According to the Landstar letter sent out Nov. 4, its leased owner-operators can move out of state and provide the company with proof of a new driver’s license, get their own authority, or deliver a load into California, but they can’t pick up a load in the state.
“Due to the uncertain legal environment created by the new law, Landstar will be reaching out to each BCO and operator who has a California-based address on file with Landstar to discuss some options relating to the potential impact of the new law,” the letter read. “It will be up to each interested California-based BCO or operator to make its own informed business decisions with respect to how it wishes to react to AB5.”
Ivan Mikhov of Sacramento, California, said he loves his job as a leased owner-operator to Landstar. He has worked for the company for nine years and said he will leave the state he has lived in for more than 17 years in order to continue working for Landstar.
“I guess we will relocate because I don’t see a way out of this,” Mikhov told FreightWaves. “I love working for Landstar because the agents call me directly when they have a load. They know me.”
Mikhov, his three kids, dad, brothers and sisters all live in Sacramento. His family moved from Ukraine 17 years ago. However, he said he will sacrifice his close family bond to continue working for Landstar.
“My brother had his own authority for a while, but he came back to Landstar about nine months ago because it’s really hard to be on your own right now,” he said.
He recently paid off the newer Volvo truck he was forced to buy to comply with emissions regulations implemented by the California Air Resource Board (CARB).
“I really don’t see myself doing anything else,” Mikhov said.
Starting Jan. 1, 2020, the Employee and Independent Contractors law, AB5, goes into effect.
AB5 is a state law determining whether a worker is an employee or contractor. It stems from the California Supreme Court’s decision against Dynamex Operations West Inc., a package and document delivery company. The court found that Dynamex misclassified its delivery drivers as independent contractors rather than employees and that all California-based companies that use independent contractors must use the “ABC test,” a three-pronged test to determine whether a worker is an employee.
Trucking companies must prove a worker is free from the control and direction of the hirer in connection with the performance of the work; the worker performs work that is outside the usual course of the hiring entity’s business; and the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.
AB5 is affecting carriers of all sizes, including Landstar, said Joe Rajkovacz, head of government affairs for the Western States Trucking Association (WSTA).
“This is indicative of Landstar arriving at the same conclusion that many other motor carriers not based in California have arrived at recently,” Rajkovacz told FreightWaves.
Rajkovacz said out-of-state carriers who lease with California-based owner-operators can’t pass the B prong, which is why some mega-carriers are cutting them loose.
“The state of California is trying to superimpose its will on the federal government, but I believe the federal courts may fight this, but it’s going to take a few years,” Rajkovacz said.
Michael Lotito, co-chair of think tank Littler Workplace Policy Institute, said the disruptions to the California economy “are likely to be massive as a result of AB5.”
“AB5 is the most radical reformation of the employer/employee relationship in history,” Lotito told FreightWaves.
One Schneider National driver, headquartered in Green Bay, Wisconsin, told FreightWaves Schneider’s California-based owner-operators are being called and have been given the options to get their own authority, move out of state or become a company driver.
Another owner-operator living in San Bernardino County, California, said she has received no word from her carrier, Roadrunner Transportation Systems, about the impact AB5 may have on her business, but she fears the worst.
“My husband and I are team drivers, and we make good money leased to Roadrunner,” Valerie Lopez told FreightWaves. “We recently bought a house here in California and don’t want to move, but there is no way we can make the same money if we have to transfer to a company driver or leave the company.”
Read more stories by FreightWaves’ Clarissa Hawes, https://www.freightwaves.com/news/california-owner-operators-weigh-options-as-ab5-deadline-looms?p=235801&fbclid=IwAR3WJl8AECdbJZTLeYJLfhWzYnrROr2CLspvxMp96sQZMPn_Ip7kUzrrSuw