Whether you are running a trucking company in California, US, or not, it is likely that you have heard about a recent update in the employment legislation that is anticipated to change the entire transportation landscape in the US.
Over the years, we have witnessed how government regulations often significantly impact the supply chain industry. Besides the common challenges faced by the trucking industry, a change in law has added to stress. However, it is quite a rarity that an employment law in an individual state could become such a major game-changer.
AB5—a recent government regulation related to employment is now in effect as of 30th June, 2022. AB5 law has been a hot topic of debate for several months now. In this blog post, we have dug deeper into AB5—finding out what it is all about and does AB5 affect truck drivers in California.
Passed by the California State Legislature and signed into law by Governor Gavin Newsom in September 2019, the Assembly Bill 5—commonly known as AB5 effectively reclassifies a large number of workers in the state as employees instead of independent contractors.
AB5 requires several companies to reclassify their independent contractors as employees. This law was introduced particularly for the ‘gig workers’. One of the bill’s purposes is to protect gig workers from being misclassified and provide them with the same benefits and rights as enjoyed by the regular employees.
Ironically, AB5 was initially supported by labor unions all across California as a way to bring employee benefits to the gig economy. However, it replaced an existing standard for classifying workers.
At the end of 2020, it seemed evident that the courts, the legislature, and even voters in California wanted to get rid of the independent contractor test codified in AB5. However, in 2021, the ball was in AB5’s court.
In 2019, the legislature passed AB5 to add Sector 2750.3 to the Labor Code, adopting and expanding the common law “AB5 Test” to define “employee” for the purposes of the Wage Orders, Labor Code, and the Unemployment Insurance Code.
To answer your question–when did AB5 go into effect–As of June 30, 2022, AB5 is in effect.
AB5 law was originally implemented to make ride hailing and delivery companies such as Uber, Lyft, DoorDash, etc. classify their drivers as employees, thus enabling them to provide work benefits and rights enjoyed by the regular employees.
However, the implementation of the AB5 law largely affects the trucking companies as it changes the classification of workers in the majority of trucking and logistics companies operating in California.
Under the AB5 law, most California workers are considered employees unless they belong to a profession which is a part of the AB5 exemptions or the employer can meet the standards established by the law’s ABC test.
AB5 has introduced an ABC test comprising 3 points. A worker can only be classified as an independent contractor if the company can prove that the worker meets all three of the prongs mentioned below:
Prong B is going to be the biggest challenge for hiring companies in the trucking business based in California. For instance, if the hiring company’s business is transportation, logistics, or trucking, then it will be quite difficult for the company to show the truck drivers they form a contract with are performing work outside of the usual course of the company’s business.
The Western States Trucking Association has told its members that the new ABC test, especially Prong B, is going to set an impossible standard for the majority of its members to meet.
Even then, the drivers would still have to be free from the control of the hiring company (Prong A) and have an independently established business or provide trucking services to other companies (Prong C).
What does AB5 mean for owner operators? Did California ban owner operator trucks? No. AB5 law does not ban owner-operators in California. However, it does make it quite hard for trucking companies to use them. Under the AB5 law and the ABC test, a motor carrier must prove that their workers are independent contractors and not employees.
As it is evident that most owner-operators in California are contracting directly with trucking, transportation, and logistics companies, the second prong of the ABC test would be highly unlikely to prove.
What does AB5 mean for truck drivers? What can trucking companies do as now the AB5 is in effect? Does AB5 affect truck drivers in California? These are a few burning questions for most truckers. Since the AB5 law is in effect for truckers, trucking, transportation, and logistics companies that used to contract owner-operators in California would now have to treat them as employees.
Let’s understand how AB5 affects truck drivers and what does AB5 means for truck drivers. By employing owner-operators as employees, trucking companies would have to provide the same benefits, rights, and protections as any other employee is getting in California.
Trucking companies would have to provide their employees minimum wage payment, workers’ compensation, unemployment insurance, and paid sick days. They would also have to provide expense reimbursement for things such as fuel and maintenance.
Every trucking company would want to know how to get around AB5 law. Below, we have discussed a few options that trucking companies operating in California can consider in the aftermath of implementation of the AB5 law. These options can help them know how to get around AB5 law.
This option may sound like the most difficult one for a trucking company. While it is not a desirable solution for both trucking companies and drivers, it can serve to be the most certain way to avoid the AB5 law.
The main agenda of the AB5 law is to create a labor environment where all full-time drivers in California are treated as employees and become eligible to obtain full benefits, rights, and workers’ compensation as other employees.
To overcome the challenges created by AB5, one can also consider creating two separate businesses: one which employs drivers directly and the other which serves as a brokerage company for independent contractors, having the authority to set their own desirable rates and accept work wherever they like.
For owner-operators to work as independent contractors in California, here is some good news. They can pursue the B2B exemption as it lets them work independently especially if they provide services directly to a contracting business instead of the customers of that business.
To obtain this exemption, a company and contractor must fulfill all of the 11 detailed requirements, and this can be quite a challenging task to satisfy.
On the other hand, drivers based and working in California, especially leased owner-operators also have a few options post implementation of AB5 law. The options are as follows:
Drivers can move out of California and relocate somewhere else. That way they can run more than 50 percent of their miles outside of the state.
Drivers can obtain their own operating authority and drive for a brokerage company instead of working as a leased owner-operator in California.
Drivers need to avoid picking up outbound loads as they could be ousted from California after running freight into the state.
So, does AB5 affect truck drivers? Certainly, it does, especially if they are based in California. The good news is that we have a solution for them to overcome the challenge caused by the AB5 law. Find out more about how you can adapt to the California AB5 trucking law.
Some enterprise TMS systems, including LoadStop are offering new solutions that allow you to make a smooth transition into California’s new normal with greater efficiency and transparency.
Fortunately, we can ensure AB5 compliance, grow capacity, and at the same time, keep owner-operators onboard.
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