AB5 And The Independent Contractor
Ok folks…..here is the deal. The independent contractor business model is basically extinct in the state of California as of January 1, 2020.
On Wednesday September the 18th the Governor of California signed Assembly Bill 5 (“AB5”) into law. For those of you who do not read random state legislation to address your insomnia, AB5 was promoted as dealing with misclassification of employees in the
“gig” economy. Think drivers employed by the likes of Uber and Lyft.
According to Governor Newsom, the new law “will help reduce worker misclassification – workers being wrongly classified as “independent contractors” rather than employees, which erodes basic worker protections like the minimum wage, paid sick days and health insurance benefits.”
We all know that the road to hell is paved with good intentions and while the bill may have been aimed helping folks in the gig economy it has a much broader impact. In fact, this bill will basically kill the independent contractor business model in the State of California.
How can that be you ask? Simple. In passing the bill the legislature adopted the test handed down by the California Supreme court last year in the Dynamex case. As a result, when the bill goes in effect on Jan. 1, 2020 companies will now be required to use the ABC test set forth in Dynamex to determine independent contractor status.
For those of you keeping score at home, for a person to be classified as an independent contractor the ABC test requires:
A. That the worker is free from the control and direction of the hiring entity in connection with the performance of the work and in fact;
B. That the workers perform work that is outside the usual course of the hiring entity’s business; and
C. That the worker is customarily engage in an independently established trade occupation, or business of the same nature as the work performed.
Now you don’t have to be a genius to understand that part “B” of the ABC test is basically an impossible standard for a carrier to meet. Carriers who use independent contractors to help haul freight are now going to be classified as employers. While this is bad news for carriers, it is music to the ears of unions.
It is no secret that for years, labor union have wanted to be able to organize drivers at the various state ports. However, federal law prohibits independent contractors from joining unions. When the new law goes into effect all those drivers will now be classified as employees – who are free to join a union. I wonder if anybody noticed.
Don’t get me wrong, I am an advocate for drivers and think they should be compensated fairly and treated well. I also understand that there are carriers out there who take advantage of the independent contractor model. However, it appears to me that by signing AB5 into law the folks in California are punishing all carriers for the deeds of a few. Throwing the baby out with the bath water if you will.
In addition, I think this bill will hurt small carriers based in California. In California there are about 136,950 small business with small fleets. Many of which use the independent contractor model. On Jan. 1, 2020 these companies will no longer have this option. As a result, I think many will close their doors. Surely, this could not have been the intent of the legislature.
Perhaps I am wrong and my concerns are misplaced. Perhaps the independent contractors out there want to give up control of how and when they work. Perhaps the small carriers will flourish. Perhaps business won’t leave California. I really don’t know. In fact, the only thing I do know for sure is that we are about to find out.
Brad Klepper, Esq. is President of Interstate Trucker Ltd., a law firm entirely dedicated to legal defense of the nation's commercial drivers. Interstate Trucker represents truck drivers throughout the forty-eight (48) states on both moving and non-moving violations. Brad is also Executive Vice President & General Counsel of Drivers Legal Plan, which allows member drivers access to his firm’s services at greatly discounted rates. Brad spent almost a decade with the largest law firm in Oklahoma where his practice included extensive experience in transactional law, business defense litigation, and intellectual property. In addition, Brad is a licensed architect and serves as General Counsel to the Oklahoma Board of Architects, Landscape Architects and Interior Designers. Brad has dedicated much of his time to DataQs challenges, which are challenges posed to the FMCSA for CSA incidents, to examine data and reports filed by law enforcement.
800-333-DRIVE (3748) or www.interstatetrucker.com