California legislation “AB5,” which will shake-up the state’s employment landscape by turning many independent contractors into employees, is scheduled to take effect in January 2020.
“I think it’s the most significant labor employment law development in the country today,” said Michael Lotito, an attorney with Littler Mendelson P.C. in San Francisco. Lotito said he expects New York, Washington and Oregon to follow suit with similar legislation in the coming year.
The fallout from the bill’s passage, however, is ongoing. Large gig companies such as Uber, Lyft and DoorDash have already launched a $90 million counterattack against the law. And, now the California Trucking Association (CTA) is the latest to file suit to prevent AB5 from being implemented, asserting that it would seriously restrict the activities of independent owner-operators.
The association said the gig economy law would deprive more than 70,000 independent truckers of their ability to work. Many would have to abandon $150,000 investments in clean trucks and the right to set their own schedules in order for companies to comply with a law it says illegally infringes on interstate commerce.
“Independent truckers are typically experienced drivers who have previously worked as employees and have, by choice, struck out on their own. We should not deprive them of that choice,” Shawn Yadon, CTA’s CEO, said in a statement.
An owner-operator is someone who essentially runs a trucking business. They provide and maintain their own trucks, pay for their own fuel and often have their own drivers. Those features allow them to take home a larger chunk of pay, by percentage of the haul. They often also make their own schedules, enjoying more freedom and flexibility.
According to job search website Indeed, the average annual salary for an owner-operator driver is $222,608. The median salary for a truck driver is $43,680 per year, according to the Bureau of Labor Statistics. Additionally, many companies rely on both owner-operators and employee drivers, in an environment where experts continually say it is difficult to find good drivers.
In reacting to the bill’s passage in September, Lotito said California’s various employment laws create further complications with this legislation, including its meal and rest breaks law. The law states that employers must provide a paid rest break for every four hours of work and an unpaid meal break for every five hours. Each rest break must be at least 10 minutes and each meal break must be at least 30 minutes.
This all factors into the flexibility aspect of independent contractors that employers will need to consider in the future if they are required to be employees under the new law.
“California labor code requires that all of this stuff be tracked and documented, so it’s disingenuous for people to say that you could have the same flexibility,” Lotito said. “And you can assume all of this increasing obligation and liability. These are the practical problems that companies in California have compliance with the law under the best of circumstances — these are the worst of circumstances. So, what we do know for sure, is the law of unintended consequences is going to run amok.”
Some companies are already taking preemptive measures to fend off fallout from the law. Landstar — the largest lease-contracting entity of owner-operators in the U.S. — recently issued a note to its hundreds of California operators cautioning them that they would need to make their own “informed business decision with respect to” how they want to react to the law.
They are essentially left with three options, according to Brian Fielkow, president of a trucking and logistics company Jetco Delivery. Fielkow told Fox Business that owner-operators can either leave California to drive elsewhere, become employee drivers or abandon the industry altogether.
About the Author
Brett Christie is a staff writer at WorldatWork.