Independent Contractor Law AB5 Set To Shake Up Trucking Industry in California
Its going to be a brave new world in California for trucking companies with the imposition of AB5, a new independent contractor law.
“Most immediately, motor carriers must evaluate and adopt alternative operating models to mitigate risk if they intend to continue to do business in California” said the Benesch law firm in the wake of the Supreme Court decision in the case of California Trucking Association vs. (state Attorney General) Bonta.
“Motor carriers should immediately evaluate their California operations to determine what steps, if any, should be taken to respond to the changed backdrop for trucking” was the call to action from the trucking-focused Scopelitis law firm.
The Great Divide
There was celebration to be had on the other side of the divide, which included a victory lap of Lorena Gonzalaz, the former and future labor leader who successfully pushed for AB5’s passage in the California legislature in 2019.
“The fact that trucking companies will have to abide by basic labor laws in CA takes us one step closer to rebuilding the middle class that was almost deregulated out of existence,” Gonzalez said in a tweet.
The Supreme Court returned the case to the 9th U.S. Circuit Court of Appeals when a review of the appellate court decision was denied. A 9th Circuit ruling in 2021 overturned a lower court injunction that had kept AB5 at bay from California’s trucking sector, even as the law that seeks to define independent contractors was implemented in other parts of the economy.
The appellate court had allowed the injunction against the law to remain in effect while the CTA pushed to have the Supreme Court hear its appeal. With that denied, the stay is expected to be lifted within days and AB5 will go into effect, retroactively, to Jan. 1, 2020. That opens up the door for litigation or state response for past actions.
Earlier Exemptions
Exemptions like AB 2257 sought to address the concerns of sectors that had been particularly hit hard by AB5. Doctors, dentists and hairstylists, translators, youth sports coaches and insurance inspectors were some of the other professions that would be exempt.
Those who are apposed to AB5 argue that the list of exemptions was evidence that AB5 was largely targeting trucking, gig drivers (Uber, Lyft, etc.) and with parcel services. So far, that latter group has not come under AB5 because of voter approval of Proposition 22 on Election Day 2020, though a court later ruled Prop 22 unconstitutional. That court decision is on appeal, and a stay has allowed gig drivers protected by Prop 22 to remain outside the control of AB5.
Defining What is Independent
AB5 is particularly problematic for the trucking sector. That’s because it is based on the ABC test to define independent contractors, the B prong of which is being interpreted as a possible death knell or at least a major hindrance to the independent owner-operator model in trucking.
The B test defines an independent contractor as a worker who is engaged in “work that is outside the usual course of the hiring entity’s business.” A trucking company hiring an independent owner-operator to move freight is seen as likely in violation of the B prong.
CTA Response
With little to no surprise, the California Trucking Association made a statement after the SCOTUS non-action held little back.
“Gasoline has been poured on the fire that is our ongoing supply chain crisis,” the organization said. “In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation.”
A Change to the Current Model
Marc Blubaugh of the Benesch law firm sent a note to clients, and discussed some alternatives to the traditional model:
- Employee driver model along the lines of what union officials would like to see
- Largely turning a carrier that now utilizes independent owner-operators into a brokerage house, and putting freight in the drivers’ hands in the same way that a traditional brokerage would do
AB5 also comes with a business-to-business (B2B) exception, a multipronged test that must be fully met to legally hire an independent contractor who might otherwise violate the ABC test. There is disagreement in the industry about whether the exception’s rigorous tests and need for 100% compliance make it largely unusable.
The brokerage option would involve drivers who are now independent but are leased to a company, and operating under their DOT authority, would obtain their own authority. The company they are leased to would then broker freight to that driver.
The state agencies most likely to bring legal action for what are seen as violations of AB5 would be the state Division of Labor Standards Enforcement or the state’s Employment Development Department.
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