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Tom’s Takes: U.S. Supreme Court’s AB5 Decision Could Further Disrupt the Supply Chain

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The U.S. Supreme Court recently declined to hear the petition lodged by the California Trucking Association’s (CTA) regarding the enforcement of California Assembly Bill 5 (AB5).

In 2019, the State of California passed AB5, known as the “Gig Worker Bill.” AB5 went into effect on January 1, 2020 with the intention of regulating rideshare companies to reclassify their independent drivers as full time employees, thus providing them with the benefits associated with full time employment status. However, the law didn’t apply to just California’s gig workers. It outlawed all independent contractors, with a few exceptions, as a result of AB5 and Assembly Bill 2257 and Proposition 22, which was enacted later in 2020 by the California State Legislature.

AB5 does allow for three criteria to be met in order to maintain independent contractor status. The criteria are:

  1. The worker is free to perform services without the control or direction of the company.
  2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

For the independent truckers, Part B of the three-part criteria has proven to be the clause that prevents the drivers from maintaining their independent status and prompted the lawsuit. The truckers filed suit against AB5 and won in California State Court in January 2021, with the state court cited that AB5 violated the 1994 Federal Aviation Administration Authorization Act (FAAAA).

That decision was then appealed to the Ninth U.S. Circuit Court of Appeals, which overturned the lower court’s ruling in April 2021. This prompted the reclassification of truckers from independent contractor status to full time employees. In August 2021, the CTA requested a hearing with the US Supreme Court, which decided not to hear the case at the end of June.

Tom’s Take: “In 2021, the American Trucking Association estimated a current U.S. driver shortage of up to 80,000; growing to 160,000 by 2030. With only seven days to cease independent trucking operations, up to 70,000 California-based truckers may be off the road by early July, further accelerating the driver shortage. Additionally, we anticipate a looming supply chain backlog in the key ports of Long Beach and Los Angeles, the entire West Coast and all of the U.S. This reduction in California-based driver head count will cause continued inflationary pressures within the U.S. economy due to shortage of goods available to consumers.”

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