Driver leasing companies in California and other states are seeing a surge of Californian business due to the impending implementation of AB 5.
AB 5 and Loopholes
AB 5, which was written by Assemblywoman and former San Diego AFL-CIO CEO Lorena Gonzalez (D-San Diego), was signed into law earlier this year by Governor Gavin Newsom. The soon-to-be law limits independent contractors, confirms union representation rights, and ensures employee rights to full-time employees. While the bills’ aim was to get companies to have contractors eligible for full-time benefits, companies have been responding in numerous ways.
Uber, Lyft, and Doordash are currently working together to reverse the law next year. Other companies are cutting back hours, hiring even more contractors, reducing the number of employees to only hire a few full-time, and in some extreme cases, preparing to leave California entirely.
But there are also some who are finding loopholes. The trucking industry, one of many being negatively affected by AB 5, has had many similar reactions to other industries, with some employees being forced to sell their own trucks and become a full-time employee of a company, rather than own their own, and contract out. But California companies that need trucker contractors found one of those loopholes: get a lease on the drivers.
“AB 5 was a shock,” said Ted Kowalski, owner of small boat shipping companies in California, Ohio, Florida, and Arizona. “California is big business for any company that involves trucking. We knew it might be coming, but no matter how prepared you are, just hearing it can cut you down a few notches.”
“What we decided to do was lease drivers,” Kowalski said. “This way we steer clear of the new contractor law and we don’t have to hire several drivers outright. We can’t lease the drivers themselves, but we can lease the company with the drivers. I mean, the people who wrote this law don’t know a thing about the margins a lot of us have. We hire 6 drivers we used to contract and suddenly we might be in the red, or we need to cut back to stay afloat. That means not upgrading, not being able to afford all payments. It can spiral down quickly.”
“But when we lease drivers, which we have plans for in California starting in January, we just pay a company and the same job gets done. It is more expensive, but not too much. Plus we save on time and money going over new contractor drivers to hire. We know all drivers are certified and reliable off the bat. It’s just doing what we were doing, but with the extra step of a third party.”
“The only downside is that it’s a lease, so if a client cancels I can’t exactly say to the driver they won’t be paid. It’s like renting an apartment but you aren’t there for a month and refuse to pay that month – it’s still under your name, so it’s charged.”
Leasing drivers will hurt California
Most places leasing drivers can still hurt California.
“A lot of driver leasing companies are outside of California,” explained Kowalski. “For California I’m using an Arizona company. Most of the boats I haul go through there anyway, so it makes sense.”
Kowalski isn’t the only person doing this either. Driver leasing companies have been getting a lot of business from California. Arizona companies have seen a big jump in leases, and one company in Nevada the Globe called for comment even said that they couldn’t take anymore clients located in California.
For companies switching to leasing it can also prove beneficial long-term.
“We may see one of these guys,” explained Kowalski. “We may see him do a good job, and we may ask him to come on board or come back as a contractor if AB 5 is listed. For a lot of companies in California they may be using this as an audition to see who is the best driver or drivers for them.”
With the trucking industry, as well as others, finding ways around the new law, AB 5 has already lost some of its power. And with a fight over the new law being expected this coming session in Sacramento, it may not even be here for long.
“It’s a big ‘if’,” said Kowalski. “But they have to see that a lot of people are not complying with it already. They have to know we plan way ahead in these decisions. And they have to know this is actually going to hurt unions. A lot.”