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October 2019

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22 | Overdrive | October 2019 California last month finalized a sweeping legislative package that could leave leased owner-operators with tough decisions if they want to continue working in the state. Such truckers could be forced to switch carriers. Or they might choose to become an employee of a carrier or an independent owner-operator with authority, should they wish to continue working in California. On the flip side, some observers see a possibility of the courts or the Legislature tempering the law before or after it takes effect Jan. 1. As it stands now, "There will be a big decline in opportunities for owner-operators in California," said Joe Rajkovacz, head of govern- ment affairs for the Western States Trucking Association. "You're prob- ably going to see an exit from the marketplace of motor carriers leasing owner-operators." He noted Swift and Werner already have pulled the plug on contracting with owner-operators in California. Likewise, California Trucking Association's Chris Shimoda said California Assembly Bill 5 "could put legitimate owner-operators out of business." A.B. 5 codifies use of the ABC test for determining whether a worker is an employee or a contractor. The test was validated as appropri- ate in California last year by the state's Supreme Court in the case of Dynamex vs. Superior Court. Most difficult for trucking, the B-prong of the ABC test prevents employers from contracting with workers who perform the same work as the business itself. That effectively means carriers can no longer lease owner-operators and their equipment to haul freight under traditional inde- pendent contractor agreements. Beyond trucking, A.B. 5 could impact millions of workers in the state, including drivers for ride-shar- ers Uber and Lyft, as well as occupa- tions outside of transportation. Attorney Greg Feary, partner of the firm Scopelitis, Garvin, Light, Hanson and Feary, said owner- operators who work in California – especially those who live in the state – need to ask their carriers whether they will change their business model in light of the new law, and then make decisions accordingly. Carriers could choose to wait on decisions in pending court cases at the federal 9th Circuit Court of Appeals, which could rule that fed- eral law supersedes California's law. Such a ruling may offer relief from A.B. 5 and likely would mitigate its effects on owner-operator leasing. In addition to waiting on rulings from the 9th Circuit on the issue, carriers also are holding out for potential changes to the law during the next legislative session, said Jason Geller, managing partner at the San Francisco office of the Fisher Phillips law firm. Companies are "not mak- ing any rash decisions immediately to reclassify drivers," Geller said. However, carriers are often risk- averse, Rajkovacz said, and many could choose to cut ties with owner- operators to curb potential liability. Another approach carriers may take to navigate the law is to estab- lish brokerages separate from their trucking operations and funnel loads to owner-operators, said Feary. However, those truckers would need to be operating under their own authority, rather than leasing to a car- rier. That's a challenging proposition for a leased operator, he said, given the rising costs of liability insurance for new independents and other hur- dles when transitioning to operating with authority. For out-of-state carriers that have independent contractor agreements with owner-operators who live in California or operate frequently in the state, said Feary, "the likelihood is nearly certain" that those carri- ers will need to comply with A.B. 5. "For out-of-state motor carriers with out-of-state owner-operators who only infrequently deliver into the state or pick up loads from the state, I think it's much more of a question of whether A.B. 5 would even apply to them." CTA will be working with legisla- tors to try to find paths for legitimate owner-operators to continue to work in California, he said. Uber and Lyft, whose business models could be upended by the law, have signaled they do not intend to comply. Instead, they hope to push the law to a referendum in 2020. Courts might intervene and "inter- pret the law as it relates to interstate operations and affects its application to interstate trucking," Feary said. "It's so controversial and has so many opponents, this is one of those few laws that probably will be touched in some way, whether by the Legislature changing it next year, by a referen- dum in the 2020 election or by the courts — or maybe all of the above." B U S I N E S S BY JAMES JAILLET California's law creates tough choices The law, which affects independent contractor status, could be changed before or after it takes effect Jan. 1.

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