How does California's AB5 law affect truckers? What will happen to the trucking industry in California? How will independent contracting trucks deal with California's new AB5 law? What is California's AB5 Law? Is there a way for me to be exempt from AB5 law?
California is home to 450,000 independent contract workers. Around 70,000 of them are independent big-rig owner-operators who transport everything, everywhere. California's new AB5 law, which is aimed toward protecting independent contractors, was challenged by the trucking industry and declared that California's "gig-work" law does not apply to independent truck drivers to reduce labor abuse.
Among other industries that have filed for exemptions, with companies like Uber, Lyft, and DoorDash, the trucking industry is one to be granted an exemption. AB5 "prohibits motor carriers from using independent contractors to provide transportation services" and therefore is preempted by the Federal Aviation and Administration Authorization Act of 1994.
What is Assembly Bill 5 (AB5/)?
As of January 1, 2020, gig-workers changed when California passed the Assembly Bill 5 (AB5/) state statute to protect those who work gigs for larger organizations. Before January 1, 2020, the millions of workers classified as independent contractors did not qualify for protection under the Fair Labor Standards Act, Americans with Disabilities Act, or the Civil Rights Act. Independent contracts were also not guaranteed the right to minimum wage, overtime page, or unemployment insurance.
California's 2019 Assembly Bill 5 "Gig Work Protection Law" (AB5/) entitles workers classified as employees to greater labor protections, such as minimum wage laws, unemployment, workers compensation, and sick leave. This state statute was codified by the Supreme Court of California, but is still creating a rift in California's labor force and was passed based on concerns over employee misclassification within the gig economy.
Misclassification is determined by a three-phased, "ABC" assessment:
A. The individual is free from direction and control under their contract for the performance of service
B. The service is performed outside the usual course of business of the employer
C. The individual is customarily engaged in an independently established profession, business, or trade of the same nature
If an independent contractor qualifies as an employee, they will need to complete all necessary W 4 forms and the employer will withhold taxes and contribute payroll taxes to the proper state and federal authorities. Employees are then able to claim worker's compensation and unemployment benefits. Additionally, employees must be paid at least minimum wage and fall under California's requirement for overtime pay.
This "gig-work" law allows California businesses to apply for an exemption. Typically, exemptions apply to doctors, dentists, psychologists, stockbrokers, lawyers, insurance agents, engineers, accountants, and real estate agents. These businesses are seen as typically offering direct-to-consumer work at a fixed price.
If you are applying for exemption, you must be able to prove the following:
- Whether or not your independent contracts have the wherewithal to set and/or negotiate their prices.
- Whether the independent contractor has direct communication and contact with consumers.
- Whether the independent contractor earns at least twice the minimum wage.
Remember, the IRS and California assume that a worker is an employee unless proven otherwise.
AB5's Effect on the Trucking Industry
The trucking industry was pulled into AB5 two years ago when Los Angeles City Attorney M. Feuer filed lawsuits against three port trucking companies owned by NFI Industries. Feuer alleged that NFI Industries exploited their drivers by misclassifying them as independent contractors. Allegedly, this misclassification resulted in the contractor absorbing thousands of dollars in expenses that should be covered by NPI Industries. The court decided to not classify the trucking industry as an AB5 entity, so companies do not need to pay toward an independent contractor's benefits.
This was considered a huge win for the trucking industry and independent truckers across the country because it eliminates a business model where truck drivers must be employees. However, for truckers who do not agree with the decision, it should be mentioned that AB5 will most likely spread to other states, such as New York, New Jersey, Illinois, and Washington.
Currently, there are five trends for trucker's breaking up with California's trucking industry,
- Get the owner operating authority and drive for the trucking company's brokerage division. This will significantly increase costs, administrative responsibilities, and compliance responsibilities.
- Move residence out of California.
- Become an employee.
- Deadhead out of California, aka deliver loads into California without the ability to pick up loads in California.
- End relationship with the carrier.
No matter what decision is made, it's what is best for each trucker. The opinion of the "gig-work" law is extremely split. With the split consensus, the only thing we can do is sit back and track what happens as a result of the state statute.
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