California Assembly Bill 5, the legislation that is aimed at providing more benefits to those who work in the “gig economy,” is once again at the center of a controversy that will impact over 70,000 truck drivers in California. Since the introduction of AB5, other states have introduced similar measures. We are going to look at the direct impact of AB5 on the trucking industry.
AB5 and Owner-Operators
Owner-operators serve a very unique place in the trucking ecosystem. Owner-operators offer their services as independent contractors, getting higher pay than regular drivers. At the same time, carriers do not have to pay for benefits or tax liabilities for hiring independent drivers. The trucking industry relies heavily on owner-operators for a variety of reasons. Owner-operators supplement large trucking fleets when capacity is high and during seasonal rushes. Additionally, owner-operators can go where regular full-time drivers cannot, allowing carriers to take on special contracts. AB5 would force carriers to make owner-operators direct employees, which would remove the reasons to utilize them to begin with, while also diminishing opportunities for owner-operators to generate revenue for themselves.
Exemptions to AB5
When AB5 became a law in 2019, it was clear that the legislation was targeted at ride-share drivers, such as people working for Uber, Lyft, and other companies. Freelance workers, such as writers, entertainers, consultants, and other professionals immediately filed for exemption, because AB5 would severely limit their job opportunities and lower their income. Similarly, the trucking industry filed for an injunction against AB5, which was granted on a temporary basis. That temporary injunction ran out last month, so the trucking industry brought the issue before the Supreme Court. Despite the sweeping impact that AB5 has on commerce, the Supreme Court refused to consider the case, leaving the trucking industry to navigate a new upheaval.
Deregulation and Carve-Outs
The Owner-Operator Independent Drivers Association (OOIDA) is seeking alternative resolutions for the implementation of AB5. Part of the reason the legislation is still in effect for the trucking industry is to prevent misclassification that has gone on for a long time that led to the wage abuse of independent workers, including some truck drivers in California, as a result of deregulation. Trucking organizations are seeking a carve-out for owner-operators to prevent disruption in the freight sector and the economy at large, and even the White House is demanding a more detailed plan of action from California to ensure the trucking industry is not negatively impacted by AB5. Currently, there are projections of a major capacity loss in the trucking industry if independent drivers have to be taken on as full-time employees, because all parties lose – drivers, carriers, and consumers.
Viable Alternatives in the Face of AB5
Owner-operators are seeking viable solutions to avoid the negative impacts of AB5. One of the main strategies is for independent drivers to form their own trucking companies. This would still give drivers within those companies the freedom they are used to, and those companies can enter into contractual partnerships with larger carriers to perform the duties of owner-operators without needing to be onboarded as full-time employees under the larger fleet. Operating as a smaller trucking company, they can also build up their own workforce and take on more contracts.
How Owner-Operators Can Form Trucking Companies
Over the past few years, more owner-operators have been making the shift from being on the road constantly to running a business. While some owner-operators continue to haul shipments after their open their own trucking companies, they do it as employees of their own businesses. Opening a trucking business involves choosing a corporate structure and getting a tax identification number, like any other type of business. Where trucking businesses differ is in permits, DOT forms, licenses, types of insurance, and other procedures. Starting a trucking company can be complex, but the payoff is higher revenue potential, the ability to take on more clients at once, and the ability to work without needing to become a full-time employee of the other carriers and customers you work for.
Single Point Capital offers a startup program for owner-operators that want to launch their own trucking companies to increase their revenue instead of sitting on the sideline until there are further resolutions or complications with AB5. We even waive any administrative fees for owner-operators that use our freight factoring services. To learn more, reach out to the team at Single Point Capital today.