Impact From AB5 Decision Already Being Felt in California

It has been nearly 3 weeks since the Supreme Court refused to review an appellate court decision and, in the process, allowed AB5 to become the law of the land in California. 

Owner-operator truck drivers, who make up 90% of the Bay Area port's operation, are protesting Assembly Bill 5, known as AB5, which is expected to virtually eliminate the use of owner-operators in trucking in the state. The protests follow actions last week at the ports of Los Angeles and Long Beach.

Things escalated this week when on Tuesday, dockworkers represented by the International Longshore and Warehouse Union (ILWU) refused to cross picket lines at the Oakland International Container Terminal (OICT) in solidarity with the truckers. 

Trucker protests at the Port of Oakland went into a fourth day Thursday, with some saying they wouldn’t stop until the state government does something about AB5, a new law that severely restricts the use of independent contractors.

Three marine terminals at the port were operating only partially Thursday, and the largest terminal was closed, according to published reports.

The shutdown will further exacerbate the congestion of containers dwelling at the Oakland Seaport, said port officials in a statement issued July 20.

“We understand the frustration expressed by the protestors at California ports,” Danny Wan, executive director of the Port of Oakland, said in a statement Thursday. “But prolonged stoppage of port operations in California for any reason will damage all the businesses operating at the ports and cause California ports to further suffer market share losses to competing ports.” 

“Truckers are vital to keeping goods moving,” said Wan, “We trust that implementation of AB5 can be accomplished in a way that accommodates the needs of this vital part of the supply chain.” Truckers initially planned a three-day protest in Oakland, but extended it to a week or longer.

Ironically, in protesting AB5, the truckers are seeking to avoid becoming employees and, as such, eligible for union membership. 

A similar worker classification dispute that drove FedEx to create an agency system for non-company drivers provides a window into how the trucking industry could respond to a US Supreme Court decision that will force California drayage operators and drivers to adapt new business models. 

After paying $228 million to settle a driver misclassification case in 2011, FedEx shifted to an agency system in which they contract with a third party that then employs the driver on its behalf. In doing so, FedEx has insulated itself from accusations of exerting too much control over independent contractor drivers. 

The equivalent approach for drayage operators would be to set up a brokerage division, which would still be able to use independent owner-operators, provided those drivers incorporate themselves as small businesses. 

Some California trucking companies have already taken the brokerage plunge, enabling them to contract with independent truckers who have set themselves up as single-truck carriers. That would presumably allow the parties to avoid AB5’s key prohibition on companies hiring independent contractors to do work that would be considered core to the company’s main business. 

But Schrap said going down the brokerage route still involves risks for trucking companies, noting it’s “very unclear how the law is going to be applied” as it relates to brokerages, creating “a massive amount of uncertainty.” 

Even if drayage trucking companies create their own brokerage units, some believe many will retain the use of company drivers for at least a portion of their business, with the idea of serving their largest customers with company drivers versus providing capacity arranged via brokerage. 

Still, although enforcement of AB5 in the trucking industry could result in an increase in employee drivers eligible to be organized by the Teamsters — given the 100,000 or more trucking companies operating in California — few expect the industry to ever have enough employee drivers to enable mass disruption of the ports during contract negotiations, as can occur during longshore labor talks. 

The NorthAmerican Transportation Association can assist in several solutions, one of which is our AB5 Compliance package. Please email [email protected] for more information.