AB5 and Container Shipping
The port drayage industry depends heavily on owner-operators driving as independent contractors to licensed motor carriers (LMCs). There are many employee-driven fleets and LMCs with both, but owner-operators make up the bulk of US drayage drivers.
California State Assembly Bill 5 (AB5), passed in September 2019 and due to be enforced in 2020, drastically tightens the definition of an independent contractor. To be considered an independent contractor, a California driver must satisfy the “ABC” test:
A. The person is free from the control and direction of the hiring entity, both in contract and in fact.
B. The person performs work that is outside the usual course of the hiring entity’s business.
C. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
If enforced, A. and B. would eliminate California owner-operators driving as sub-contractors. The ABC test is already used in some States and industries. Application of AB5 to drivers from out of California is still unclear.
At best, the “gig economy” allows both workers and employers to be flexible in volatile industries, encourages productivity, and taps otherwise underused resources. The need for flexibility is clear - in October 2019 the combined Los Angeles and Long Beach TEU total was 44% higher than the March low point. Many owner-operators would prefer to remain independent. Some have other businesses, some also drive in agriculture or construction, and some have thrived and now have others working for them.
Achieving the best of the gig economy requires diligence from all concerned, and both owner-operators and the LMCs have carefully walked the line to keep the relationship legitimate. The industry does not need companies who cheat their contractors, or drivers who try to game the system. But the cheating and gaming happen and bring down blanket measures such as AB5.
The California Trucking Association obtained a preliminary injunction in January blocking application of AB5 to motor carriers. If AB5 is eventually applied to trucking, the port drayage industry will have to develop mechanisms for the needed flexibility, such as seasonal or part-time employment instead of sub-contracting and recruit new drivers to replace those lost. Costs will rise. Although both contract and employee drivers are typically paid by the trip leg, companies will have to cover sick leave, benefits, and the 7.65% FICA contribution for employees. Many other trucking sectors also rely heavily on owner-operators, and the impact will spread well beyond port drayage.