Driven by unions’ quest for more workers under their wing and a political impetus to disrupt the gig economy of companies like Uber, Lyft and DoorDash, a new bill is set to shake up many businesses in the transportation industry. Gov. Gavin Newsom signed California Assembly Bill 5 (AB5) into law on September 18, 2019. Trucking companies were initially exempted from the law by federal court injunction but the injunction was lifted on June 30, 2022.
AB5 restricts the ability of independent contractors to retain their independence and forces these drivers into employee status.
On one side of the ledger, this means that truckers who must shift gears will, as employees, receive salary, sick pay, overtime pay, vacation pay, unemployment benefits and workers’ compensation.
On the other side of the ledger, this drives labor costs through the roof for affected motor carrier companies. For affected truckers, it means a loss of flexibility and a loss of freedom to choose their own loads.
Fragmented workforce of for-hire drivers
Not all truckers are impacted by AB5. The driver population is segmented into different groups on a spectrum of independence levels from drivers on a payroll meeting employer demands in exchange for a compensation package to brokerage owner-operators who own their own equipment, have their own DOT-issued motor carrier authority and essentially run their own business.
AB5 impacts leased owner-operators who have either exclusive or non-exclusive lease agreements with motor carriers.
It’s these business models that have been upended by the new law. If the associated “ABC” test cannot be passed, the drivers are presumed to be employees and cannot retain their independent contractor status.
Is there a workaround?
To not be coerced into employee status, on the one hand, and not run afoul of the law on the other, truckers can:
- Leave California, that is, make their domicile in another state and do more than 50% of their mileage outside of California.
- Step up and get their own operating authority and become a brokerage owner-operator.
- Drive freight into California but take no loads going out.
These are big adjustments and there are plenty of legal wrinkles to iron out. Attorneys help clients understand how changes in the law may apply to their businesses.
