California Law could End Owner-Operators in the State, after New Jersey Uses California's Tough ABC Test

There have been regulatory moves, primarily in California, against independent owner-operators for several years now, as ports and lawmakers off and on have sought to have contract truckers classified as full-time employees of the carriers hiring them.

If that occurred, it would likely in the end result in many more drivers becoming union members, a goal sought by many Democratic politicians and regulators.

Supply Chain Digest Says... The multi-billion question for shippers is whether this movement will move out of California and New Jersey to other states. What do you say? Click here to send us your comments Click here to see reader feedback

But in recent weeks, the move against contract drivers has moved to a new level.

First, consider new action not in California but in New Jersey. In August, a New Jersey task force appointed by Democratic Gov. Phil Murphy found over 12,000 workers in the state were "misclassified" as independent contractors in 2018.

A sizable chunk of those workers will turn out to be independent owner-operators in the trucking industry. And perhaps surprisingly, the New Jersey Department of Labor and US Department of Labor signed a joint agreement to step up efforts to address the controversial issue.

The agreement and other efforts by New Jersey labor department officials have turned the Garden State into a "misclassification battlefront," according to attorney Greg Feary. "It's political and union-inspired," Feary told the ATA's Transport Topics magazine. "The misclassification issue tends to be a blue state-red state issue."

Additionally, "New Jersey has definitely been actively hostile to the independent contractor model in trucking," said Richard Pianka, American Trucking Associations' deputy general counsel, adding that "No question about that. New Jersey is becoming a very difficult environment."

Of great concern to the trucking industry is that New Jersey now uses the so-called ABC test developed by the California Supreme Court to determine if an independent contractor should be classified as an employee – a tough standard currently only used in California and still subject to lawsuits there.

Then last week, the California legislature passed legislation intended to force companies to reclassify certain contract workers as employees, and governor Gavin Newsom has sign the bill into law.

The measure codifies the state court ruling, which involved a case focused on package-delivery workers. While the bill was aimed at big ride share companies like Uber and Lyft, experts say it will go beyond those businesses to affect trucking.

Estimates are that there are some 70,000 owner-operators in the Golden state.

The independent owner-operator model is especially prevalent in California port trucking operations, where some say drivers have the ability to make more money than they might as employees.

The California measure "effectively prohibits an owner-operator from working directly for a motor carrier," said Joe Rajkovacz, director of governmental affairs and communications for the Western States Trucking Association.

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This is all almost certain to raise costs for shippers in California.

As part of the legislative process, numerous independent truckers told law makers about how they were building their own successful businesses and didn't want to become employees.

However, the Owner-Operator Independent Drivers Association has taken a more wait-and-see attitude regarding how the new law will affect trucking.

OOIDA told its California members that "We see it as self-inflicted by motor carriers after decades of treating drivers like indentured servants, perpetuating an environment with awful working conditions, and a failure to pay drivers anything close to a living wage. We know there is a concern that it might be difficult for many owner-operators and motor carriers to comply with the part 'B' requirement. At this time, we think that's a premature assumption."

The B component of the ABC test states that to be a contractor, the worker must perform "work that is outside the usual course of the hiring entity's business" a tough hurdle it would seem for truckers and Uber drivers to overcome.

The multi-billion question for shippers is whether this movement will move out of California and New Jersey to other states – and if that is the case, if the owner-operator model can stay viable.

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