Whether you are running a trucking company ifn 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.
What is the AB5 Bill?
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.
When Did AB5 Go Into Effect?
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.
Does AB5 Affect Truck Drivers and Trucking Companies?
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.
AB5 ABC Test
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:
- Workers are free from the control and direction of the hiring entity when performing their work
- Workers perform their work outside the usual course of the hiring entity’s business
- Workers are customarily engaged in an independently established trade, occupation, or business.
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?
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 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.
How to Get Around AB5?
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.
Wind Up Trucking Business in California
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.
Treat Owner-Operators as Employees
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.
Create Two Separate Businesses
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.
Pursue the B2B Exemption
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.
What Are the Options for the Truck Drivers?
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:
Relocation
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.
Obtain an Authority and Change their Status
Drivers can obtain their own operating authority and drive for a brokerage company instead of working as a leased owner-operator in California.
Don’t Pick Up Outbound Loads
Drivers need to avoid picking up outbound loads as they could be ousted from California after running freight into the state.
Legal Battle to Block AB 5 Resurfaces for California Trucking Group
‘Does AB5 affect truck drivers or owner-operators?’ is a question that has been looming over the minds of the Californian trucking community for a long time now. It was evident the matter did not sit well with the owner-operators, which is why they decided to rekindle the legal battle to block AB5 law.
The California Trucking Association (CTA) has requested a federal judge to issue a new court order to block the enforcement of California’s AB 5 law, which they argue would require owner-operators to be considered motor carriers employees.
On January 11, 2023, CTA asked the federal district judge Roger Benitez to temporarily halt the enforcement of the law that it argues would eliminate the role of owner-operators in the trucking industry in California, stating that it has new legal arguments to support its claim.
This request came after a previous attempt to block the law was denied by a federal appellate court and the U.S. Supreme Court refused to hear the case. The law has been met with opposition from both motor carriers and independent contractors.
In 2020, Judge Roger Benitez of the Southern District Court of California granted a preliminary injunction, stating that the state of California has overstepped its bounds by taking away motor carriers’ choice to use independent contractor drivers, which is significant to the trucking industry.
CTA in its request has cited declarations, recent protests, and surveys to support its argument that owner-operators want to have the freedom to operate their own businesses.
CTA argued in their legal brief that the state defendants have not provided a clear explanation of how motor carriers can comply with AB 5 and its “Prong B” test and that they are still determined to enforce the law against motor carriers.
Further to that, CTA has claimed that this is causing irreparable harm to the plaintiffs and owner-operators who have built their businesses based on federal laws.
Conclusion
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. Hence, the question ‘does AB5 affect truck drivers’ should not concern the Californian trucking community anymore.
Fortunately, we can ensure AB5 compliance, grow capacity, and at the same time, keep owner-operators onboard.