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July 12, 2022

Unpacking California’s AB5 and Its Impact on Trucking and Supply Chains

Matt Koivisto-headshot

Matthew Koivisto

NAM Director of Trucking Procurement

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Matt Koivisto-headshot

Matthew Koivisto

July 12, 2022

Updated - July 13

There are reports that many truck drivers are planning a work stoppage today at the ports of LA/LB and that they may also be blocking important routes to and from the terminals in protest of AB5. This could potentially have significant impact on drayage providers ability to service containers at the ports today, so we expect to see some pickup and empty return delays.

We do not believe that the terminals/ocean carriers will be making any exemptions on per diem due to these protests but will let you know if this changes. We are monitoring the situation closely and will let you know if there are any additional impacts that may come from these protests.

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This past week, on June 30, 2022—the last day of the October 2021 term—the U.S. Supreme Court declined to review whether or not California’s worker classification law (known as Assembly Bill 5, or AB5) ran counter to the Federal Aviation Administration Authorization Act of 1994 (FAAAA) as it applies to truck drivers. This means that AB5 will become enforceable on the more than 100,000 trucking companies in California and an estimated 70,000 independent owner/operators.

While the overall impact of this law on trucking in California won’t be known for some time yet, many California trucking companies have been preparing for this day since AB5 was signed into law in September of 2019, or since it went into effect on January 1, 2020. Commonly known as “the gig worker bill,” AB5 was designed to offer protections to so called gig workers, such as those who drive for Uber, Lyft, DoorDash, et al. and the status of independent owner/operators in the trucking industry was in question from the beginning.

AB5 requires companies who contract with gig workers to reclassify them as employees and extend the benefits required by California law, such as overtime pay, healthcare, and more. The impact on Flexport customers is expected to be minimal as our partner carriers in California employ company drivers or otherwise pass the ABC test. The ABC test is a key component of AB5 that lays out the three conditions under which a worker is considered an independent contractor. Per Cornell Law School’s Legal Information Institute, these conditions are:

  • The worker is free from the employer's control or direction in performing the work.
  • The work takes place outside the usual course of the business of the company and off the site of the business.
  • Customarily, the worker is engaged in an independent trade, occupation, profession, or business.

Trucking companies have been preparing for this ruling and are prepared to convert to one of these models to comply:

  • Convert owner ops to employees so they receive benefits from trucking companies - this is unlikely as drivers own the trucks and want flexibility to move around.
  • Become brokers or freight forwarders - that have broker <> carrier contracts with drivers - drivers stay independent but broker will still manage dispatch for a pool of single truck carriers. As long as dispatch is not forced, the rule may not apply.

AB5 along with CARB (emissions) regulations affecting the age of trucks that are able to operate in CA are going to have a big impact on the industry in CA - starting in 2023 many trucks are going to be forced off the road due to age to comply with CARB. There are also new emissions taxes being levied on warehouses in SoCal starting in 2023 based on the truck traffic (known as the Indirect Source Rule / Warehouse Rule 2305).

The impact of the Supreme Court’s action, or lack of action in this case, will likely take shape over the coming months. For more context on AB5 please see these industry takes from FreightWaves and the Journal Of Commerce.

About the Author

Matt Koivisto-headshot

Matthew Koivisto

NAM Director of Trucking Procurement

NAM Director of Trucking Procurement at Flexport, with +25 years logistics experience in operations and procurement.

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