A decision by the United States Supreme Court that it decided not do something has had earth-shaking consequences for the supply chain.
At the same time the high court overturned Roe v. Wade and issued a decision limiting the authority of the Environmental Protection Agency and similar federal bodies, its refusal to hear an appeal challenging California’s highly restrictive independent contractor law shocked those who work as owner-operators. and who rely on their services.
Opponents had pinned their hopes on a California Trucking Association lawsuit challenging the law, which rewrote the state’s criteria for legally defining independent contractors. It also had a negative impact on other workers who considered themselves as part of that category for decades.
Owner-operator status, where a driver leased his or her services along with their vehicle to another trucking company, had been a long-honored practice dating back to the origins of the trucking industry early in the last century.
The change in California began with a state supreme court decision handed down in 2018 that rewrote the earlier three-part “ABC” test to determine who could be considered to be an independent contractor and who would be an employee, meaning they would come under wage and workers’ comp laws.
Those considered employees could be unionized because independent contractors are seen as individual businesses who would be violating antirust laws if they worked together to set wages and working conditions.
The state supreme court’s new ABC standard – later codified into law by the state legislature – holds that an individual cannot be an considered an independent contractor unless:
- The worker is free from the control and direction of the employer in connection with the performance of the work, under the terms of the contract for the performance of such work.
- The worker performs work that is outside the usual course of the hiring entity’s business.
- The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
The disruptive change came from the new “B” section, which impacted a wide range of professions. Independent workers throughout the state were outraged by the change, which was devasting for many free-lance workers in the entertainment, high tech and other industries. Additional legislation had to be passed to eliminate some of those professions, from the law including musicians, writers and lawyers.
Employers then sought to have the state legislature overturn the decision and codify the previous contractor definition. Instead, pro-union Democrat legislators seized the legislative initiative and passed the law – called AB 5 – that adopted the state supreme court’s definition.
Uber, Lyft and DoorDash put before the voters a referendum that would allow their drivers to continue their independence while adding benefits and protections. It passed after an expenditure of an estimated $250 million, but was then struck down by the same state Supreme Court.
The U.S. Supreme Court’s refusal to hear the case involving the CTA’s legal challenge of AB 5 resulted in more than a week’s disruption of California ports in late July by independent truckers who do not want to become employees.
A July 11 letter from 72 employee groups, including American Trucking Associations, asked Gov. Gavin Newsom (D) to delay implementation of the law, which had been stayed while the lawsuit proceeded through the courts. He refused, declaring that those who now affected already have had plenty of time to prepare for its implementation.
So how can independent drivers and those who rely on their services react? One alternative that already has been developed involves the employer helping a minimum of three owner-operators form their own small trucking company.
This idea arose several years ago and has been implemented quietly by some fleets without any publicity, which makes it impossible to know how widespread the practice may be.
Employers outside of California have their own reasons to be wary of this trend towards restricting independent contractor status. Several other states like Pennsylvania, Illinois and New York have developed their own versions of the AB 5 law, but they held off on proceeding with them while the California law made its way through the courts.
Independent contractor status also has come under attack by the strongly pro-union Biden administration. Most recently, the National Labor Relations Board agreed to hear a complaint regarding the union status of truck drivers in California ports. The board also inked an agreement with the Federal Trade Commission to share information about independent contractor issues.
