The recent debate over who is an independent contractor versus a direct employee has been fueled by major players in the gig economy like Uber and Lyft. But it’s promising to have a big impact on commercial truckers as well.
Legislation, regulations and ballot initiatives have been cropping up at the state and federal levels to grapple with what constitutes an actual employee — in other words, a worker with access to the full range of benefits and rights that the term implies. But the correct definition depends on which party is doing the defining. Employers looking to hold down labor costs want the freedom to deal with independent contractors while keeping them at a legal arm’s reach. Unions, meanwhile, want to limit the use of non-union freelance labor so as to bolster their ranks and assert greater bargaining leverage over employers. And gig workers who value their independence want regular jobs while dancing away from the clutches of a Form W-2-bound existence.
The issue has been especially hot in California, where a 2020 ballot initiative allowing Uber and Lyft to classify their app-based drivers as independent contractors was subsequently ruled unconstitutional by a state judge.
Currently California and a number of other states distinguish between employees and contractors through application of the ABC test, which deems a worker to be an employee unless the employer meets three conditions:
In April of this year, the Ninth Circuit Court of Appeals ruled that the three-pronged ABC test should apply to California’s trucking industry. Meanwhile, proponents of the test are seeking to make it a federal law with enactment of the Protecting the Right to Organize (PRO) Act of 2021, which was passed by the U.S. House of Representatives earlier this year.
The battle also continues in California, where Assembly Bill 5, the basis for applying the ABC test in that state, is being challenged in the U.S. Supreme Court by the California Trucking Association. CTA argues that AB5 will cause “irreparable damage” to the state’s 70,000 owner-operators if it’s extended to commercial truckers.
Passage of the PRO Act will make it “pretty hard for most companies, especially in the transportation industry, to pass the “B” prong of the ABC test,” says Wendy Greenland, chief executive officer of Openforce, a provider of technology for managing independent contractors. Could a contracting motor carrier ever really prove that the work it seeks to outsource is “outside the course” of its regular business?
In California, an injunction against AB5 remains in place for the moment, “but if the PRO Act passes, none of that matters,” says Greenland. “It will federalize the ABC test.”
If that happens, Greenland claims, transportation companies will be forced to adopt a W-2 hiring model, in the process raising their operating costs by as much as 35%, and causing many to go out of business.
“For those trying to continue with a [Form] 1099 [self-employment] model,” she adds, “they’re going to have a target on their back.”
A handful of other states are proving equally aggressive in attempting to tighten the definition of employment. New Jersey, for one, “seems like it’s moving toward guilty until proven innocent with regard to the 1099 contractor model,” says Greenland. “We’re very concerned about what’s going on there.”
Greenland has “high hopes” that the Supreme Court will rule in employers’ favor. “We have reason to be positive about where this could go,” she says, even though the Court declined in October to consider a petition by Cal Cartage Transportation Express LLC, arguing that federal labor law pre-empts California from imposing AB5 criteria on truckers.
As the law stands today, Greenland cautions, the line between employee and independent contractor can be exceedingly thin. It’s vital that the hiring entity keep some distance between itself and outside drivers, she says, preferably through use of a third party that manages all of the latter’s affairs.
“If a driver gets invited to the company party or participates in the employee raffle — if you get them involved to make them feel a part of the company — you start to muddy the waters between W-2 and 1099,” Greenland says. Even an employer telling an independent driver “I hired you” can get into trouble in a court of law.
All of this is taking place at a time when the trucking industry is grappling with severe congestion at ports and inland terminals, and qualified drivers are becoming increasingly difficult to find. Greenland believes the current shortage will favor contract workers because they provide an extra measure of flexibility to an industry with limited options.
“There’s a lot riding on the Supreme Court decision,” she says. “If they say AB5 isn’t constitutional, that will resonate throughout the country.”
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