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September 30 2019

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28 The Journal of Commerce | September 30 2019 www.joc.com Government LAWMAKERS IN CALIFORNIA have passed a law that will fundamentally alter the relationship between trucking companies and draymen. Beneficial cargo owners (BCOs) have a stake in the legislation because they are already financially liable if they use a port trucking company on the California Division of Labor Standards Enforce- ment's list of unsatisfied court judg- ments for employee misclassification. Trucking lobbyists hoped the California Senate wouldn't pass Assem- bly Bill 5 without an exemption for trucking, but Gov. Gavin Newsome on Sept 18 signed the legislation into law. AB5 would formally adopt the "ABC test" to determine whether a worker is an independent contractor or employee. To prove a worker is an independent contractor, the worker must "[be] free from the control and direction of the hiring entity," "per- form work that is outside the usual course of the hiring entity's business," and "engage in an independently established trade, occupation, or busi- ness of the same nature as the work performed." Motor carriers often fail the second provision, known as prong "B," because drivers perform work within the hiring entity's business. Trucking industry lawyers want a federal court to rule the Federal Aviation Administration Authoriza - tion Act (F4A) preempts California law. F4A gives the federal government — not individual states — power to set rules for interstate trucking. Federal court intervention, how- ever, is unlikely to happen before Jan- uary's enforcement date, according to Feary. T rucking companies have three options: do nothing for now and wait for a federal court ruling, move to a broker-carrier model, or treat drivers as employees. Doing nothing Greg Stefflre, CEO of Rail Delivery Services, believes most of his drayage peers will stick with the existing model until the federal courts make a ruling. "The significant players will stick with the model they have used for years. And if, ultimately, we don't win with F4A preemption before the US Supreme Court of prong 'B,' most companies, I believe, will turn to the employee model," Stefflre said. To make any changes before the federal courts rule would be premature, he said, especially because the current National Labor Relations Board is viewed as pro-business. Stefflre also pointed out that showing up on the Division of Labor Standards Enforcement blacklist is not an overnight occurrence, because it requires litigation, an adverse court ruling, and a decision not to pay out any damages — a lengthy sequence of events. Broker-carrier model Port truck drivers usually work under the operating authority of a trucking company. To comply with the ABC test, drivers would have to obtain their own operating authority, the same as over-the-road (OTR) drivers. In truckload and less-than-truck- load (LTL) hauling, many indepen- dent contract drivers obtain their operating authority and sign up as approved small carriers with freight brokers. These intermediaries call carriers on their list to secure capacity for a haul. Carrier/drivers have com- plete autonomy to refuse, accept, or negotiate price and terms on any load. This would clear up any confusion on the A test: "free from the control and direction of the hiring entity." It might also satisfy the B test, because the hiring entity would be a property broker, similar to an insurance broker or real estate broker. "Trucking companies are either going to convert some or all drivers to employees with a company fleet, or drivers will have to get their own permits, own operating authority, own trucks, and [will] have no fleet affilia - tion," said Weston LaBar, CEO of the Harbor Trucking Association (HTA). "I see a scenario in which most compa- nies will have a skeleton crew of their own trucks and employee drivers, and then they will use for-hire owner operators as capacity boosters." Employee drivers How many carriers would choose to make drivers full-fledged employees over a brokerage model is unclear. So is how BCOs would view each option. In the highly competitive field of drayage, does a provider with company drivers have an advantage over a pro- vider using the brokerage model? Will BCOs prefer asset-owning trucking companies with company drivers when choosing a custom- er-nominated trucker? Will service be better with company drivers? Or is the decision all about price? Fleets may also decide on a mix- ture of options 2 and 3, as LaBar not- ed, using company drivers for some customers and brokerage for others. Premium customers might be treated differently than smaller ones. Whatever the case, BCOs should prepare for their relationships with trucking companies doing business in California to change in 2020. JOC email: ari.ashe@ihsmarkit.com twitter: @arijashe International | Washington | Customs | Security | Regulation Seismic shi California bill set to reshape drayage landscape By Ari Ashe To comply with the ABC test, drivers would have to obtain their own operating authority. Sheila Fitzgerald / Shutterstock.com

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