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January 20 2020

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4 The Journal of Commerce | Januar y 20 2020 Mark Szakonyi REGARDLESS OF WHETHER worker classification legislation in California known as Assembly Bill 5 (AB5) takes effect after a temporary restraining order expires, the shipping industry should expect more states to join Cal- ifornia and New Jersey in weighing in on truck driver classification. Even if a permanent exemption is granted for the California trucking industry, trucking veterans say they expect more legislative attempts to define whether a driver is an employee or an independent contrac- tor in the Golden State. That's because the revenue-hungry California state legislature may still go after the freight brokerage model for taxes, even if independent owner- operators slip out of their grasp via an AB5 carve-out for the trucking industry. That's a possibility for indepen- dent operators and the companies that contract them after US District Court Judge Roger T. Benitez's tem- porary restraining order exempted trucks from AB5 on Dec. 3, following a lawsuit filed by the California Truck- ing Association (CTA). On Jan. 13, the court will hear CTA's argument that Congress has the sole power to legislate interstate commerce under the Federal Aviation Administration Authorization Act of 1994 (FAAAA). But whatever the court decides, legislative efforts aimed at the reclas- sification of independent contract workers as employees are already spreading. New Jersey legislators, for example, are considering legislation similar to AB5, and a comparable bill was introduced in September in New York but has since stalled. Growing public attention to the downsides of the so-called gig economy and economic inequality is focusing legislators' attention to how workers are classified, Michael Belzer, who teaches industrial organization and transportation economics at Wayne State University in Michigan, told The Journal of Commerce. Through trucking deregulation, the owner-operator model has been allowed to flourish, providing new opportunities for work, proponents argue. But Belzer says it also limits the bargaining power of contractors since they can't take advantage of benefits like workers' compensation, unemployment, and unionization. The likes of Uber and Lyft have been lawmakers' primary targets, but that hasn't prevented a variety of profes - sions from freelance journalists to truckers from getting swept up in the broader legislative zeitgeist. The states are moving in part because there's been little action on the federal level. The Trump admin- istration has shown no appetite for taking on classification, having scaled back Obama-era legislation expanding overtime pay and having signaled its view of workers as "inde- pendent contractors" rather than employees in a May opinion letter regarding an unidentified "smart- phone-based" company. Congress hasn't delved much into the issue either, with none of the four bills introduced by Sen. Mark Warner, D-Virginia, aimed at making the gig economy fairer making it out of the finance committee so far. "If nothing changes nationally, you are going to see more fractured efforts," Belzer said. He said states with Democrat-leaning state legis - latures that have common freight nodes — e.g. those with a major port or inland freight hubs — are poised to become the next battlegrounds for classification legislative efforts. However these fights take shape, the trucking industry will adapt. Cargo owners will eventually see their rates rise as a result of classifica- tion legislation, but trucking veterans and shippers say the impact will be manageable and not enough to spur routings through other ports to avoid higher drayage costs. New Jersey's classification bill won't push up drayage costs signifi- cantly if enacted, according to Tom Heimgartner, owner of Best Trans- portation in Newark, which has a driver workforce consisting entirely of employees. "I compete every day as an employee-based company with independent contractor-based companies," Heimgartner said at the JOC Port Performance North America (PPNA) conference in early December, noting that his employees get benefits such as a 401k matching contribution and paid holidays. "It's a little more expensive to do it our way. But I don't think it's going to be the end of the world." Robert Fredman, director of global logistics for Big Lots Stores, says he isn't hitting the panic button, either. "All the trucking companies that I have spoken to have plans [for what to do if AB5 is enacted]. And no one has said, 'This is it — as soon as this bill takes effect, I am closing up shop,'" he said at PPNA. In California, trucking companies are already channeling more freight through their brokerage divisions as a hedge against the possibility that AB5 will withstand legal challenges. Some owner-operator drivers are taking it a step further, establishing themselves as licensed motor carriers and receiving freight from those brokerage arms. The market will find a way, but Belzer laments that the simplest, most straightforward solu - tion — paying drivers more — is also the most unlikely. "The low road is not always the best road," he said. "If the industry accepted higher wages, it would stabilize the labor market, eliminate the 'driver shortage,' return better profits to com- panies, and improve service. It would allow the industry to escape this zero- sum game by reducing [driver] search costs and cut crash costs." JOC email: twitter: @MarkSzakonyi Classify this The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, January 20, 2020, Volume 21, Issue No. 2. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter from the Editor

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