Sweeping changes could soon tighten the freight trucking market in California, driving higher costs and less capacity following the U.S. Supreme Court’s decision Thursday to let the state’s “AB 5” labor law take effect, forcing fleets to compensate drivers as full employees as opposed to independent contractors, industry sources say.
That high court decision is currently rippling through lower courts, but Assembly Bill No. 5 (AB 5) will likely become active within days, lifting a stay that has frozen its application since the state government passed it in 2019.
“The injunction that has been in place for roughly two years will be lifted quickly and complying with AB 5 will be a reality for trucking companies in California. Motor carriers should immediately evaluate their California operations to determine what steps, if any, should be taken to respond to the changed backdrop for trucking,” the transportation industry law firm Scopelitis, Garvin, Light, Hanson, and Feary, P.C. said in a release.
The impact of that change could be swift, Scopelitis President & Managing Partner Greg Feary said in an interview. “We will see a net reduction in the number of drivers in, to, and from California,” Feary said. “This will exacerbate the driver shortage and supply chain disruption in California, which is one of most active areas of supply chain and transportation activity. Meaningful numbers of drivers will leave the state, some motor carriers will no longer serve the state, and some small business contractors will decide it’s no longer in their interest to operate there.”
In Feary’s view, those changes will happen because the law’s supporters made a “profound misjudgement” that all truck drivers really want to be employees. Rather, many owner-operators prefer to be self-employed, in pursuit of goals like better pay, more flexible schedules, and building an ownership stake. Furthermore, as motor carriers add additional drivers to their employee rolls, they will pass on the cost of increased wages and benefits to shippers, who will cover that load by increasing the price of goods paid by consumers, he said.
Despite that grim prediction, labor groups think a different scenario will play out, saying that California truck drivers have long been “misclassified” as independent contractors and are overdue to earn expanded employment protections. In that assessment, AB 5’s supporters say that many companies deceptively misclassify their workers as independent contractors to deny workers fair wages and benefits, and to avoid paying employee-related expenses, like unemployment insurance, workers’ compensation and Social Security.
“Finally, port truck drivers and so many others across California will have the opportunity to join together and earn a fair wage that allows them to support their families,” Sean M. O’Brien, general president of the Teamsters union, said in a release. “These companies can no longer take advantage of workers and fill their own executive pockets with unfairly earned profits.”
The measurable impact of AB 5’s application on the trucking sector may not become clear for months, but any effect will probably be amplified by the economic stresses already weighing down the nation’s business climate, Feary warned. Fleet owners and labor groups alike are keeping a close eye on trends like container congestion at seaports, the labor contract now in negotiation between west coast port owners and dock workers, recession fears being stoked by rising inflation and interest rates, and a pending regulation by the California Air Resources Board (CARB) that would restrict the use of certain models of truck engines.