What does implementation of California’s AB5 mean for the trucking industry?
I am wrong about a lot of things. By “a lot,” I mean an obnoxiously large number of things. So, I guess I should not have been surprised when the Supreme Court of the United States (SCOTUS) denied cert on the California Trucking Association case challenging AB5.
I know I shouldn’t have been, but damn, was I surprised.
I know I am supposed to be neutral in these things, but I truly thought the court would grant cert on this case. There was, in my opinion, sufficient confusion among the courts, and SCOTUS now leans toward the conservative side (by a count of 6-3).
Honestly, I would have bet you $1,000 that SCOTUS would hear the case. And I would have been wrong.
Now, as background — and in case you have forgotten — California adopted AB5 to deal with wrongly classified employees. The bill was originally directed toward the “gig” economy (think Uber and Lyft) but found a home in the trucking industry. In essence, when the bill was signed into law it basically made the independent contractor business model for trucking companies extinct in California.
How can that be, you ask? Simple. In passing the bill, the legislature adopted the test handed down by the California Supreme court in the Dynamex case. As a result, companies will now be required to use the ABC test set forth in Dynamex to determine independent contractor status.
According to the ABC test, 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 engaged 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. Any independent contractor hauling freight for a carrier will now be classified as an employee.
So … where does this leave us? Well, it means AB5 is the law of California and is retroactive to Jan. 1, 2020. It also means that the independent contractor business model is basically dead in California. While the adoption of AB5 will definitely put some money into the state’s coffers, I think it is bad law, as it hurts small business in California.
The last data I saw showed there are about 136,950 small businesses with small fleets in California. Many of these use the independent contractor business model. Sure, there are some small businesses that take unfair advantage of the independent contractor business model, but I believe there are more that don’t.
I also believe there are a lot of independent contractors who do not want to give up the freedom to control the “who, what, when and where” of how they work, not just in the trucking industry but throughout all businesses in California. This law impacts freelance writers, photographers, medical professionals, accountants, etc. The impact, I believe will be far-reaching.
To my point, I know of several carriers that stopped hiring independent contractors domiciled in California when AB5 was first passed. In addition, I know that some independent contractors who wish to maintain that status have moved their “residence” across state lines to avoid the issue.
I also know that other states have been watching the outcome of this case and have either proposed legislation ready or are planning to push for a similar law in their state. To be honest, I think you can look to “blue” states where the Democrats control all branches of the state government. I believe this presently includes states such as Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Nevada, New Mexico, Oregon and Virginia.
So, what can trucking companies do to address AB5 in California?
They can simply agree to treat the contractors as employees. However, this may not be the best solution, as many of the drivers have their own trucks and WANT to be independent contractors.
In theory, a carrier could also change its structure to be a logistics company, using independent carriers to deliver goods. This would arguably get past the part B of the ABC test: The independent contractors would no longer be working for a trucking company, so the job they perform would be outside the course of the hiring entity’s business. The only way to know for sure whether this would work would be for the courts to hear the matter. And there is no guarantee that the courts would agree.
At the end of the day, I think AB5 will have a huge impact on business in California — an impact that I don’t think was anticipated.
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