California labor bill ruffles industry’s feathers

californiaAs if freight surcharges and a labor shortage weren’t enough, flooring distributors who rely on goods coming from California now face a double whammy—AB5, a new law that essentially labels all truckers as employees, and a measure by the California Air Resources Board (CARB) requiring semi-trucks and other diesel commercial vehicles to meet new emissions standards by 2023. Collectively, these potential business roadblocks could impact the way the trucking industry in California operates; in turn, flooring interests across the country who rely on commerce from the West Coast could see prices rise again.

Not surprisingly, flooring professionals in the Golden State are frustrated. “California is a horrible place to do business,” said Dave White, vice president of sales and marketing for Tri-West Ltd., a top 5 wholesaler based in Santa Fe Springs, Calif. “We scratch our heads all the time [about some of these laws].”

California Assembly Bill 5, or AB5—signed into law in 2019—was designed to determine a worker’s status as an independent contractor or an employee. A lawsuit had prevented it from affecting the trucking industry. However, that all changed on June 30, 2022, when the US Supreme Court declined to hear an appeal of the law aimed at reclassifying owner-operators.

AB5 is particularly troublesome for the trucking sector as it uses the so-called “ABC” test, which places the burden on the hiring entity to establish that the worker is an independent contractor. According to Bloomberg Law, it’s estimated that about 64% of independent contractors in California would be reclassified as employees under AB5. By some estimates, 20%-25% of drivers have left the industry since AB5 was enacted.

For distributors, transporting inland freight from ports to warehouses across California and beyond has worsened since AB5. “We have lost a number of drivers as a result,” Tri-West’s White said. “The delay from getting goods—and what they are charging now for the goods—affects anybody pulling from California. Just getting it from the port to where it is going is a challenge.”

Steve Kleinhans, president of Phoenix-based Big D Supply, a top 20 distributor with operations in California, panned AB5 as having “major repercussions on inflation in California. And it will have a negative effect on flooring sold by retailers, too, as all prices will have to substantially increase to pay for the additional costs of employee benefits.”

CARB emissions standards

A decade ago, CARB identified emissions from diesel-powered engines as a toxic air contaminant and a precursor to ozone formation. To lower these emissions, CARB adopted regulations to control diesel exhaust and gave owner-operators 10 years to comply.

By January 2023, nearly all trucks and buses operating in California will be required to have 2010 or newer model year engines to reduce particulate matter (PM) and oxides of nitrogen (NOx) emissions.

The issue is two-fold: many trucking companies did not upgrade their fleets, and finding 2010 or newer models today has become difficult. According to the Western States Trucking Association, a nonprofit group that advocates for small trucking companies, around 40,000 vehicles in the state are older than 2010 models. If those don’t get upgraded, they won’t be allowed on the road.

Tri-West’s White agreed that many freight companies failed to make the switch i time and are futilely trying to buy the new diesel engines at this late stage of the game. “They are finding that [these engines] are back ordered, which has affected many shipping companies.”

For larger distributors, the challenges are mitigated somewhat because they can afford to purchase their own trucks and hire drivers as employees, albeit at a much higher rate than in the past.

Still, virtually all members of the flooring ecosystem—from manufacturers to consumers—will feel the pinch to varying degrees, executives agree.

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