Union Sponsored AB 5 Hits Independent Truckers

For four days last month, independent truckers blockaded the Port of Oakland, preventing goods from entering or leaving. Threats of arrest, along with the possibility of personal liability stemming from a lawsuit filed against the protesters by the Port of Oakland were sufficient to bring the blockade to an end. But the reasons for the protest have not gone away.

California’s trucking industry already faced difficult challenges complying with the state’s strict environmental laws. A recent ruling by the California Air Resources Board requires semi-trucks and other diesel commercial vehicles to have engines built in 2010 or newer by 2023. Under this new regulation, an estimated 40,000 trucks in California will have to be retrofit by next year. For independent truckers who own their vehicles and survive on thin margins, this is going to put them out of business. Thanks to the shortage of semi-conductors, there is a shortage of new engines and compliant trucks, making a costly investment even more expensive. The rising cost of diesel fuel has also put a financial strain on truckers.

And now on top of that, California’s 70,000 independent truckers are being hit with enforcement of AB 5, which has redefined “independent contractor.” Under the new criteria, most independent truckers will not be able to qualify. They will be forced to sell their trucks and either retire from the business, or drive as an employee of a shipping company.

For a while, AB 5, passed in the fall of 2019, didn’t affect truckers. It affected plenty of other people in plenty of other lines of work, prompting belated carve outs by the legislature to expand the list of exempted professions. Passage of AB 5 even provoked the ride share industry, led by Uber and Lyft, to raise over $200 million to qualify and run an initiative campaign, Proposition 22, to repeal the portions of AB 5 that affected their businesses. After Prop. 22 was approved by voters in November, four “gig drivers,” backed up by the SEIU, successfully challenged Prop. 22 in court. That ruling is now being appealed by Uber before the 9th Circuit Court of Appeals.

The reason AB 5 is only hitting independent truckers today, and not back in January 2020, is because immediately after it was signed by Governor Newsom, the The California Trucking Association challenged AB-5 in court, claiming it is preempted by the Federal Aviation Administration Authorization Act of 1994, which bans states from enacting laws that affect a motor carriers prices, routes and services. Ruling in favor of the truckers, the district court issued a preliminary injunction preventing enforcement of AB-5 against motor carriers. Unfortunately, the 9th Circuit Court disagreed, overturning the district court decision. With the U.S. Supreme Court refusing to hear the case, the 9th Circuit ruling stands, and the injunction preventing AB 5 from affecting independent truckers has been lifted.

There are still a few avenues left for independent truckers that want to retain their independence. The case goes back to the 9th circuit where there is a chance the truckers will successfully offer new arguments that convince the court to reverse its decision. Or the shipping companies may redefine themselves as “freight forwarders” in an attempt to nullify the most problematic of AB 5’s criteria to qualify as an independent contractor, that the truckers “perform work that is outside the usual course of the hiring entity’s business.” Then again, how shippers refer to their business, absent a fundamental change in how they do business, may be easily challenged in court as a ruse.

Finally, truckers may qualify for AB 5’s “business to business” exemption, in which case they would have to pass the so-called Borello test. AB 5 put in place the “ABC” test, whereby to qualify as an independent contractor one must prove that (a) they are free from the control and direction of the hiring entity, both in contract and in fact, (b) they perform work that is outside the usual course of the hiring entity’s business, and (c) they are customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The ABC test requires all three of its criteria to be met, whereas the Borello test has 13 separate criteria and does not require all of them to be fulfilled in order to qualify as an independent contractor. Nonetheless, it’s a stretch.

In the Port of Oakland, 90 percent of the 9,000 trucks serving the port are operated by independent contractors. Shippers with employee drivers rely on these independent contractors to handle overflow business. If they are required to hire them instead as permanent employees, it will increase their permanent overhead, even though their business is intermittent. This will drive the small shippers out of business and increase the prices the big shippers have to charge. From an economic standpoint, independent truckers fulfill a necessary role, as they have the freedom to go where they’re needed at the same time as shippers retain the ability to adapt their capacity to the changes in demand.

What happens in California does not stay in California. AB 5 has caused more problems than it has solved. What is playing out in the ports of California, thanks to AB 5, is an attack by big business and big labor on small businesses and independent contractors. In a great irony that ought to be clear by now to everyone, big labor, along with extreme environmentalist lobbyists and litigators, more often than not have now become allies of multinational corporations. What furthers the ambitions of all three of these special interests is an economy characterized by big union contracts for big companies. This is a war on personal independence and the freedom to innovate and compete. It is a war on every small business that lacks the economies of scale to withstand the costs of union labor, union work rules, and excessive regulations. It will end poorly.

AB 5 was authored by Lorena Gonzalez, who served in the California State Assembly from 2013 through 2021. Gonzalez has championed a union agenda throughout her political career and now serves as the head of the California Labor Federation. A sampling of her tweets on August 8, 2022 include this “Happy Monday! Good morning to everyone who wants a union in their workplace! Not sure where to start? Try here: https://unionizecalifornia.org,” and this “I try to make it a habit to ask every vendor, contractor or service company I have a relationship with the same question: are your workers employees? A simple way we can all combat wage theft & misclassification.”

But what about those of us who don’t want to “unionize California?” What about those of us who just want to be our own bosses? What if we realize, unlike these supposed collectivists, that competition, economic freedom, and deregulation will lower the cost-of-living for the benefit of many, and that is preferable to raising wages for the benefit of a few? What if, unlike Ms. Gonzalez, we see the downside of driving every independent contractor and every small business out of the state? AB 5’s impact on the shipping industry is a textbook example of what’s going to happen:

Once it takes effect for truckers, half of California’s 70,000 independent truckers are going to quit or leave the state, creating a shortage of drivers in a market where there already aren’t enough drivers. This will mean that the cost of shipping will go up more than it has already thanks to new engine requirements and costly fuel. California’s ports will lose business, and all products delivered in California will cost more. The winners? Big labor and big business. The losers? Anyone trying to live and work in this costly, hyperregulated state, where oligarchs, statists, “greens,” and union bosses coexist in a synergistic détente.