As the potential repercussions of the California bill enshrining the ABC test to determine appropriate independent contractor classification begins to reverberate around the state, it makes sense to highlight a few potential ways small fleets who lease owner-operators in otherwise legit traditional models might be able to preserve their relationships with those haulers. Two of those have been covered here in Overdrive before, more than once, and could be viable depending on the situation. Both, however, might well prove bothersome given new liabilities, risk and basic costs.
- Encourage leased owner-ops to get motor carrier authority; feed freight to them as a broker. Filing for authority is simple enough, generally, but acquiring the necessary liability insurance that is part of the process could make it a daunting step to take for those owner-operators, considering the cost. Costs of bonding will come into play for the new brokerage, if that authority is not already in place with the fleet. Find more about this particular solution via this link to coverage early in the year.
- Convert leased owner-ops to employees. I’m not talking offering to buy their trucks and giving them company-driver jobs driving them. It’s at least possible to employ an owner-op as a driver, paying them for the work, while also striking a kind of rental/lease agreement that gives the business use of the owner-operator’s equipment for a separate fee. This kind of model, as I’ve written before, is not something that’s in wide use by any stretch of the imagination, though OOIDA claimed early this year to have seen it in action from time to time. Our polling on the subject is available here from coverage at that time.
That latter is not a model anyone who values independence in general is going to leap to enter into, I wouldn’t guess. As one reader had it in that earlier coverage, part of the broader California’s Independent Contractor Crisis series:
“If employee is anywhere in my job description, I better have medical, dental, vision, 401(k), paid vacation and all holidays paid, including time and a half after 40 hours! And when I park my truck, I turn in my pre-trip/post-trip to the shop, hang my key on the hook and get in my car and … see y’all in the morning!”
Angus Transportation small fleet owner Jimmy Nevarez, based in Southern California today with two independent contractor owner-operators leased on and two company trucks other than the one he drives (trailers, too), however, conjures the spirit of the many who put the state on their “do not haul” list as emissions regs eliminated most pre-2007-emissions-spec equipment from the roads there several years ago. His strategy may end up as one analogous to the sentiment that drove the creation of those clean-idle parody stickers we all recall.
“If this is going to be law on the first of the year,” Nevarez says, referring the January 2020 date when the law is current set to go into effect, “I’m going to be forced and squeezed out of the state. If that’s the case, then so be it.”
He won’t be the only one, he predicts. “I see a lot of other small carriers following suit in that regard.” Otherwise, “I’d have to fold my contractors, sell my assets that I do have and go back to being a one-truck owner-operator,” as he sees his only other option. He works with brokers, principally, for freight, so becoming a broker himself and getting into the co-brokering game — double brokering in Naverez’s mind, something he wants no part of — is a non-starter. His contractors, too, value their current IC status and the “contract deal I have.” Nevarez doesn’t see the two options spelled out up top as palatable in any way, shape or form.
“I’ve worked for five years” to get where he is today, at once, he says. Going backward seems like just such a waste of time and effort, for both him and those he contracts to and employs.
Regular readers will recall that Nevarez and company do at least complete a pretty significant number of L.A.-Vegas runs. “It’s possible to move the business outside of California. I could buy a yard and base my business in the Las Vegas area,” plate the trucks out of state.
Meantime, however, he’s going to seek legal advice on all the options, to see if perhaps he can make things work as effectively as they work today without making such a move. One thing’s certain from his discussion with his owner-op partners of late, his two contractors (including Darril Lightburn, profiled earlier this year in Overdrive) “will not go back to being a company driver,” he summarizes their thoughts.
For now, he’s in wait-and-see mode like so many small and large carriers, a few of which declined to comment on any of this at this point after I reached out this week. Nevarez has some time, in any case: “It would be about a 30-day process to move,” he says. “I could wait until near the end of the year — I have a feeling there might be an exodus of small trucking companies that are in the know in terms of regulation. Those that are oblivious might be on the hook later on.”
If you lease owner-ops with a small fleet in Cali, what are you thinking?