Fleets brace for AB 5 enforcement as legal battles continue

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LONG BEACH, Calif. — California Assembly Bill 5, which affects driver classification, has been in effect for 2.5 months and fleets are subject to enforcement.

“Any day you’re not in some form of compliance is another day of exposure,” said Marc Blubaugh, partner at transportation and logistics group Benesch, Friedlander, Coplan & Aronoff.

Blubaugh led a panel discussion on AB 5 at the Intermodal Association of North America’s Intermodal Expo 2022.

Panelists said independent hauliers are a crucial link in the supply chain, especially in the intermodal sector, but the model is under attack.

“California has now escalated the battle with the enactment of AB 5,” Blubaugh said.

Chris Shimoda, senior vice president of government affairs for the California Trucking Association, said the state has treated Aug. 29 as the date when enforcement can begin on 5 AB.

“Hopefully there will be de facto soft enforcement for a while, but it happens,” Blubaugh said. “You don’t want to find yourself in the crosshairs when that happens.”

Enforcement actions could come from the government or from the lawyers taking on the case.

Matt Schrap, CEO of the Harbor Trucking Association, a coalition of intermodal carriers serving West Coast ports, said he expects to see claims against motor carriers.

“I guarantee you there’s a list somewhere distributed by the Teamsters or the [Division of Labor Standards Enforcement],” he said.

When the governor signed into law AB 5 three years ago, TGS Transportation, a Fresno-based international and domestic intermodal drayage provider, complied. Company president Peter Schneider said it wasn’t easy. “I had to take my 38-year-old company and split it up.”

TGS Transportation has established a brokerage firm, used by independent contractors, and employs company drivers under the trucking company umbrella.

Entrance to IANA Intermodal Expo 2022 in Long Beach, CA (IANA via Twitter)

“Your owner-operators need to have their own authority,” he said, adding that they need to manage their own tires and maintenance. “We got rid of our fuel card program just to be even more careful.”

Schneider also recommends owner-operators remove the company tag from their truck and create separate breakdowns for independent contractors and company drivers.

Blubaugh said no single solution works for all companies other than becoming an employee-only model.

“Because there are no court decisions, there are no heavy handed guidelines. You have to use judgment and say why your model is AB 5 compliant,” he said. “The model that seems to be the most successful is the broker-carrier.”

Schrap said many drivers have made it clear they don’t want to be employees.

“If they want to be employed, there are thousands of jobs they could take advantage of,” he said. “We have owner-operators making $5,000 a week or more. Giving that up to make $30 an hour is a tough pill to swallow.

CTA’s message to the state is that clear guidelines are needed for drivers who want to be owner-operators, Shimoda said.

Schrap told attendees that shippers have been proactive in trying to engage and understand how AB 5 will impact capacity.

“When we talk and try to explain the overall impacts on AB5, it’s difficult,” he said. “The solicitor general said we don’t know what the effect will be because it hasn’t been applied yet.”

Tim Denoyer, ACT Vice President of Research

Denoyer

Speaking at the opening session, ACT Research Vice President Tim Denoyer said DAT information already shows that fewer shipments are going to California since the law went into effect. AB 5.

“It looks like the freight is being arranged out of California,” he said.

Panelists said the regulations will have significant implications for the industry and could increase costs, disrupt operations and reduce capacity as drivers leave California or trucking.

“There is an influx of drivers leaving. Absolutely,” Schneider said.

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This could get worse as emissions restrictions in California tighten.

“They go through AB 5, then CARB laws start January 1,” Schneider said. “Some of these gentlemen are 65 and trying to buy a new truck. When a 2-3 year old truck is more expensive than a new truck that you can’t get, it’s hard to stay in the market.

Shimoda said the push toward zero-emission vehicles in 2024 will create even more challenges for owner-operators.

“If you were to draw a map of how to completely wipe out California’s supply chain, it would probably look like what they’re doing right now,” he said. “We need to push back with as many people who will listen.”

The legal battles surrounding AB 5 are ongoing, and while there are arguments that can be made, nothing is immediately happening, Blubaugh said.

Despite previous court battles, even reaching the U.S. Supreme Court, the case was never heard at the district court level on its merits, and Shimoda said the CTA was back in the District Court of San Diego. CTA also intends to file another injunction request by early October.

“There will be a response brief due, and our rebuttal to that response will be in December,” he said, adding that he expects action either later this year or early in next year.

Additionally, Shimoda said the Owner-Operator Independent Drivers Association had made clear earlier in the process that it intended to intervene in the case on CTA’s behalf.

“The choice right now is to keep the boxes and the cargo moving and take a lot of risk or put our risk to zero and let things fall apart,” he said.

Schrap reminded attendees that California’s actions could spread to the rest of the country.

“Be mindful and stay engaged,” he urged.