The Bayard Brief: Labor Market Insights — November 2022

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The Impact of Assembly Bill 5 on Trucking and What You Can Do About It.

  • 10.07.2022

Truckers are already reacting to new legislation passed in California earlier this year that is imposing sweeping changes to how truckers do business. Trucker protests at the Port of Oakland shut down trade for two days, causing stoppages and delays in delivery — an impact of the bill already being felt by consumers.

On June 30, 2022, legislation went into effect in California that has the potential to seriously disrupt the trucking industry — from recruitment to tax issues and even the nationwide supply chain.

It’s known as the AB-5 Bill, short for Assembly Bill 5. In this post, we’ll go over the bill’s details, its impact on trucking in California, and how it will and has been affecting recruitment for trucking companies.

AB-5 Explained

AB-5 reclassifies a large number of workers in California as employees rather than independent contractors. Labor unions champion it as a way to expand benefits to gig workers.

AB-5 replaces the Golden State’s old standard for classifying workers with a new three-point ABC test. This new system automatically assumes workers are employees unless they meet the following criteria:

(a) the worker is free from control and direction in the performance of services; and

(b) the worker is performing work outside the usual course of the business of the hiring company; and

(c) the worker is customarily engaged in an independently established trade, occupation, or business.

Item 2 is particularly concerning for California truckers. In fact, The Western States Trucking Association told its members that part 2, “sets an impossible standard for most of its members to meet.”

Independent contractor status is commonly denied to workers who perform their work regularly in the same place in other states that follow this type of three-point test. California law, however, requires workers to be classified as independent contractors if they perform work in the “usual course of the hiring entity’s business,” meaning employers must follow a much higher standard when determining whether employees are independent contractors.

How Is AB-5 Impacting the Trucking Industry?

AB-5 has the potential to monumentally reshape the way truckers do business in the Golden State as it now requires trucking companies to reclassify thousands of their drivers as employees who were previously functioning as independent contractors.

When all of these formerly independent contractors become full-time employees, trucking companies have the burden of providing benefits and paying payroll taxes, meaning the costs to operate trucking companies will rise monumentally.

AB-5 has the potential to destabilize the trucking labor market in California, creating challenges for any companies that need to move freight in the state — and adding fuel to the fire of an industry already experiencing labor and supply shortages in the aftermath of the Covid-19 pandemic.

Here are all of the subsets of truckers in California AB-5 will impact:

Employee drivers: The trucks and other equipment are owned by the trucking company, not by the drivers themselves. These drivers are required to take all loads their employer assigns them in exchange for a salary and benefits.

For-hire owner-operators: These owner-operators won’t have their own equipment and carry their own motor carrier authority. And instead,  get help finding their loads from brokers and load boards. For-hire owner-operators are their own bosses and keep 100% of revenue generated from each load.

Leased owner-operators (exclusive): Some of these drivers own their own equipment, while others may not. Regardless of their equipment owning status, none of these drivers hold their own motor carrier operating authority. Instead, they enter into exclusive lease agreements with trucking companies to have the company’s authority conferred on them. Although these drivers operate as independent contractors and can choose their own schedules and loads, the lease agreement does not allow them to use their equipment on the open market.

Non-exclusive leased owner-operators: These owner-operators own both their own equipment and carry their own operating authority while primarily working as independent contractors. However, some may have lease agreements with carriers and operate independently.

Due to AB-5, leased owner-operators who work as independent contractors will be the most impacted since drivers cannot lease motor carriers’ equipment or services, which effectively renders these types of drivers illegal. Considering there are about 350,000 owner-operator truck drivers in the United States, these changes will have massive impacts on delivery times and the supply chain as a whole as trucking companies scramble to fall in line with the new regulations without losing their trusted drivers.

Potential Impacts of AB-5

Truckers play a vital role in California’s economy; 80% of communities in the Golden State rely on trucks to deliver goods. Most of those truckers are owner-operator truck drivers who are hired as independent contractors. But, under AB-5, these drivers may no longer be classified as independent contractors, creating a slew of issues for both drivers and companies.

These changes will have serious impacts on trucking recruiters attempting to identify new candidates who successfully meet the criteria and who are open to working under this new status. These impacts will be passed directly down to the consumer via the supply chain and cause manufacturing delays and retail shortages when companies are unable to find enough drivers to work as efficiently as they could before AB-5 went into effect.

The good news is that professional recruiters are well versed in navigating the ever-changing labor landscape and can help trucking companies handle the transition from working with independent contractors to needing to hire full-time employees without busting the budget. If you’re a truck driver who now needs full-time employment to stay in compliance with the law change, a recruiter can help you find suitable roles with competitive pay and benefits.

Final Thoughts

In closing, truckers play a vital role in California’s economy; 80% of communities in the Golden State depend on truck drivers to supply the goods and materials that are manufactured or consumed each day. Many of those truckers are owner-operators; contracted to deliver these essentials.. nder AB-5, many of these drivers may find their status as independent contractors unsustainable, creating a slew of issues for them and many trucking companies. Ultimately outlawing  an entire business structure that has been a way of life for generations, and been the starting point for many of the mega trucking fleets we have today.

We Can Help

Is this law affecting your company? Are you struggling to meet hiring and recruitment demands? Bayard has the tools to help any company get through its most challenging hiring concerns. Our team is highly experienced in the transportation industry and is here to help. We help with every step of the recruitment process, from hiring and onboarding to retaining talent so you can meet your organizational goals. As a full-service partner, we are experts in the entirety of the hiring funnel. This means we work side-by-side with our clients to evaluate every point of their hiring process based on our years of experience and aggregation of industry best practices.

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