Litigation Likely Over Gig Economy Bill, Says Trucking Industry Official

September 19, 2019

Sacramento Business Journal

In this recent article from the Sacramento Business Journal, Downey Brand partner and employment law attorney Elizabeth Stallard relays her views on the potential litigation fallout from California Assembly Bill 5 (AB 5).  AB 5  was recently signed by Governor Newsom and codifies the California Supreme Court’s Dynamex decision, which ruled that many workers in California were being incorrectly classified as independent contractors.

See full article below or view it online at Sacramento Business Journal.

By Mark Anderson for Sacramento Business Journal

California Assembly Bill 5 is signed, but the battle about who is classified as an employee or independent contractor in California may be far from over.

On Wednesday, Gov. Gavin Newsom signed the bill that dramatically limits which workers are eligible for independent contractor status in California. The new law will take effect Jan. 1.

“There will be litigation,” said Joe Rajkovacz, director of government affairs with the Western States Trucking Association, the Upland-based trade group that represents independent truckers who own their rigs.

The legislation codifies the California Supreme Court’s Dynamex decision, which ruled that last-mile delivery drivers were incorrectly being classified as contractors rather than employees. The tenets of that case, however, have now been applied to industries as varied as ride-hailing drivers in the gig economy and publicists.

There are exemptions in AB 5 for some job classifications, including construction trucking, but that is a carve-out for Teamsters, Rajkovacz said.
Many of California’s independent owner-operators will face loss of work from the law change, he said.

Or they will just ignore it.

“There are a lot of people who will choose to do nothing,” he said. “The assumption is that there will be ongoing litigation.”

Rajkovacz said that some federal case law is on the side of independent operators under the Interstate Commerce Act.

He said some owners may chose to leave the state, or that California companies could hire out-of-state contractors.

“This is a great experiment, and we are the lab rats,” Rajkovacz said.

It’s possible that other industries will turn to the courts for relief from AB 5.

“The reality of it is that every possible niche of every possible kind of work that is covered by this law will have to comply,” and many of those industries don’t even realize it yet, said Elizabeth Stallard, a partner at Sacramento law firm Downey Brand LLP. “There will be a lot of fallout.”

It’s difficult to say how it will play out, whether an industry that believes the law is overly broad sues the state or whether the state punishes an industry for violations which then countersues, she said.

The labor-supported bill was meant to focus on gig-economy businesses like ride-hailing companies Lyft Inc. (Nasdaq: LYFT) and Uber Technologies Inc. (NYSE: UBER), which have grown through the use of independent contractors. Those companies and DoorDash have each said they will put up $30 million to support a ballot measure to overturn the law.

The law broadly covers many industries in an effort to give more workers access to vacation time, sick leave and minimum wage protections. But Rajkovacz, who was a trucker for 30 years, said many owner-operator truckers make a lot of money and they value their independence. They can choose a job or decline it. An employee can’t turn down a dispatch.

“Some groups were not looking for help. A lot of other industries are going to get caught up in the wave,” Stallard said. “This law picks the medicine for everyone in the room without knowing what they have.”

There have been abuses by California employers of the independent contractor status, but the wide-ranging application of a single rule will have unintended consequences, said Rajkovacz. “The sins of the few are causing the punishment of the many.”

Supply chains act rationally, he said. “Water finds its own level, and that’s what will happen here,” whether through further negotiations over the law, lawsuits or the exodus of people and industry out of the state.

“The reality is that people have been professing the death of the independent owner-operator for years,” Rajkovacz said, adding that like Mark Twain said, reports of its death are exaggerated.