Could California labor law derail the supply chain?

California’s long-simmering war over a controversial state labor law is threatening to boil over at the ports of Los Angeles, Long Beach and Oakland — sparking fears of disastrous ripple effects across a global supply chain already at its breaking point amid pandemic backlogs, ongoing labor disputes and inflation at a 40-year high.

The escalating dispute is increasing pressure on Gov. Gavin Newsom to outline a game plan for implementing AB 5, a law he signed in 2019 requiring companies to reclassify many of their independent contractors as employees and grant them the requisite benefits.

On Monday, truckers are expected to protest AB 5 at the Port of Oakland — as they did Wednesday at the ports of Los Angeles and Long Beach. The law was originally set to go into effect in 2020, but tangled legal battles temporarily blocked it. However, the U.S. Supreme Court on June 30 cleared the way for the law to proceed when it declined to consider a challenge brought by the trucking industry, though legal fights are still playing out in lower courts.

The move threw into legal jeopardy the status of California’s approximately 70,000 independent truck owner-operators, who, in order to comply with new regulations, may have to obtain licenses and insurance that trucking officials say could increase their annual operating costs by $20,000 — forcing some out of the industry, straining an already overstretched workforce and raising consumer prices. But some truckers support the law, saying it will protect them from wage theft and other abuses.

How Newsom handles the situation could have implications for how he’s perceived on the national stage, especially as he returns to California today from a high-profile trip to Washington, D.C.

A White House official told Bloomberg that the Biden administration is looking forward to California’s action plan for handling AB 5, and groups ranging from Republican state lawmakers to the trucking industry have sent Newsom letters asking him to take executive action to delay implementation of the law.

• Retired U.S. Army General Stephen Lyons, the recently appointed White House supply chain envoy, said at a Wednesday meeting at the Port of Los Angeles: “The truckers are so critical to this supply chain and we’ve got to make sure there are conditions that will take care of them. We’ll continue to watch and assess these impacts.”

Meanwhile, it remains unclear when and how the state will start enforcing AB 5. On Monday, the Newsom administration said that “the state has been busy developing guidance and creating tax breaks, financial assistance programs and pathways that can help businesses conform to the law.” “Now that the federal courts have rejected the trucking industry’s appeals, it’s time to move forward, comply with the law and work together to create a fairer and more sustainable industry for all,” Dee Dee Myers, director of the governor’s Office of Business and Economic Development, said in a statement.

• Norita Taylor, director of public relations at the Owner-Operator Independent Drivers Association: “We have never gotten any good answers from anyone official in California on how this is supposed to be enforced or how our members can comply.”
• Lorena Gonzalez, leader of the California Labor Federation who authored AB 5 as an assemblymember: “They’ve known for the last two and a half years that it was equally possible that this injunction (blocking AB 5 from going into effect) would not hold. This is not a shock.”

But that isn’t the only labor dispute putting stress on the supply chain: About 20,000 pieces of cargo have been piled at the Port of Los Angeles for more than nine days awaiting rail transport, up from a typical wait of about two days, Gene Seroka, the port’s executive director, said Wednesday. Part of the reason: A railroad labor standoff that could lead to tens of thousands of workers across the country walking off the job on Monday if the Biden administration doesn’t intervene before then.

Separately, West Coast dockworkers and shipping companies are engaged in high-stakes negotiations over a contract that expired July 1, though both sides have committed to continue working until a deal is reached.

The coronavirus bottom line: As of Monday, California had 9,619,398 confirmed cases (+0.8% from previous day) and 92,055 deaths (+0.1% from previous day), according to state data now updated just twice a week on Tuesdays and Fridays. CalMatters is also tracking coronavirus hospitalizations by county.

California has administered 77,851,959 vaccine doses, and 71.4% of eligible Californians are fully vaccinated.

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1 Newsom wraps up trip to nation’s capitol

Capping off his four-day trip to Washington, D.C., Gov. Gavin Newsom is set to have lunch today with Vice President Kamala Harris before returning to California. The luncheon follows Newsom’s meetings with other high-profile members of President Joe Biden’s administration, including White House Chief of Staff Ron Klain to discuss homelessness and mental health and Marcia Fudge, secretary of the Department of Housing and Urban Development, to request additional federal resources and share California’s plans to clean up homeless encampments and help residents find housing. Newsom also discussed reproductive rights with Democratic Sens. Elizabeth Warren of Massachusetts and Amy Klobuchar of Minnesota and gun control with Democratic Sen. Chris Murphy of Connecticut, one of the authors of the bipartisan gun control legislation Biden signed into law last month.

Newsom told Fox 11 reporter Elex Michaelson that he talked with Murphy about his plans next week to sign a bill modeled on Texas’ abortion ban that would allow private Californians to sue anyone who manufactures, distributes or sells certain illegal firearms.

• Newsom: “It’s gonna go right to the heart of private right of action, to where the Supreme Court is on abortion. The question is whether they are complete and abject hypocrites and frauds if they reject our bill that’s modeled after that abortion bill … to go after assault weapons in California. I just wanted to touch base with (Murphy) and let him know that … California’s taking a big and bold step next week to aid in this gun safety effort.”

Newsom and California’s two Democratic U.S. senators, Dianne Feinstein and Alex Padilla, also met with Deputy Secretary of Defense Kathleen Hicks to discuss how the state and federal governments can better coordinate their response to wildfires, according to Padilla’s office.

2 CA seeks to build statewide crisis systems

How do you go about building comprehensive systems to address some of California’s most deeply rooted and intractable problems — such as mental illness and homelessness — that can effectively serve 40 million people across 58 counties? That’s the dilemma facing state leaders at the helm of two work-in-progress programs, including:

• A national mental health crisis hotline, 988, that is debuting Saturday in California and across the country. The new federal number is billed as an alternative to 911 for people experiencing mental health emergencies. Advocates say it will help Californians in crisis tap into the state’s network of 13 National Suicide Prevention Lifeline call centers, CalMatters’ Jocelyn Wiener reports. But, although mental health leaders say the state is prepared to handle an influx of calls, questions remain about the response outside of that. What if someone calls in distress and needs an immediate in-person response — but lives far away from the nearest mobile crisis response team? “It costs a lot of money and takes a lot of bodies” to build a comprehensive 24/7 statewide crisis response system, said Phebe Bell, Nevada County’s behavioral health director. Without that investment, “let’s be clear it’s not going to be the same everywhere.”
• Newsom’s ambitious and controversial plan to compel people with serious mental health issues into treatment and housing. The framework, known as CARE Court, is expected to receive final legislative approval next month — but California’s 58 counties continue to ring alarm bells about their ability to implement the program, CalMatters’ Jocelyn Wiener and Manuela Tobias report. Chief among their concerns: a lack of funding, a lack of housing and a lack of mental health workers. “There’s a new door being built onto a small house,” Farah McDaid Ting, public affairs director at the California State Association of Counties, said of CARE Court. “There’s no square footage, there’s no nothing, just a new door. That’s what’s kind of frustrating about the premise.”

3 New agency aims to limit health care costs

Speaking of ambitious and incredibly complex plans: In an attempt to bring down skyrocketing health care costs, California is launching a new state agency to set and enforce limits on cost growth for the industry, including hospitals, health insurers and physician groups, CalMatters’ Kristen Hwang and Ana Ibarra report. But Californians should temper their expectations about the new Office of Health Care Affordability, warned director Elizabeth Landsberg: The office isn’t necessarily aiming to reduce costs, but rather to slow the rate of growth of those costs. 

Some consumer advocates and health care economists also say that pieces of the office’s authority were whittled away during years-long negotiations: Although initial versions of the idea mandated financial penalties for noncompliant health care groups, the version that passed says violations “may” result in penalties, Kristen and Ana write. And pharmaceutical companies will not be subject to the office’s cost targets.

Still, health care power brokers involved in the negotiations — some of whom have opposed attempts to create a state-funded single-payer health care system — say the office could be transformative.

• Paul Markovich, president and CEO of Blue Shield: “If in fact this commission can get the private system to perform in a way that is consumer-friendly and provides access, over the long run it may very well obviate the need for single payer.”

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