Wednesday, December 7th, 2022

AB 5 and What It Means for Motor Carriers and Their Impartial Contractors

This submit is a part of a collection sponsored by IAT Insurance coverage Group.

For the final two-and-a-half years your entire nation has been monitoring California Meeting Invoice 5 (AB 5), which modified the definition of who is taken into account an unbiased contractor (IC) throughout many industries.

Just lately the injunction to maintain AB 5 out of the trucking sector was lifted. This choice is impacting the roughly 70,000 ICs in California already confronted with a myriad of challenges, together with elevated regulation, rising gas prices and different provide chain calls for.[1]

Up till the 2019 California court docket choice that modified the definition of who’s an IC throughout industries, the Borello take a look at was used to find out the frequent legislation relationship between a enterprise proprietor and an IC. With the brand new choice, staff at the moment are presumed workers until the business-to-business exemption is met, or the trucking firm can show all three “prongs” of the ABC take a look at are happy:

  1. The employee is free from the employer’s management or course when performing work.
  2. The work takes place exterior the same old course of the enterprise.
  3. The employee is engaged in an unbiased commerce, occupation, career or enterprise.[2]

The ABC take a look at is positioned to offer a extra predictable and easier method to find out IC standing,[3] but the problematic piece for the trucking business is B. IC drivers carry out work inside the traditional course of enterprise for the motor service.

Why AB 5 hit a nerve within the trucking business

Initially, AB 5 had far-reaching impacts on ICs from all industries. Freelance writers, newspaper supply individuals, enterprise consultants, actual property and insurance coverage brokers and Uber drivers, for instance, have been affected. Nevertheless, for the reason that authentic ruling, a whole lot of these industries acquired exemptions, together with trucking.

The trucking injunction was lifted on August 29, and AB 5 because it stands is the legislation of the land in California. As soon as the Supreme Court docket refused to listen to the case, a number of ICs at California ports went on strike placing a pressure on the coastal provide chain as many drivers ceased to perform.[4]

Who does AB 5 have an effect on?

Motor carriers domiciled in California are impacted by AB 5. Drivers dwelling out of state can keep an IC standing as of proper now nevertheless it’s clever to hunt skilled authorized counsel to find out whether or not you might be topic to AB 5 when hauling to and from California.

Some firms are encouraging drivers to maneuver out of state, however not everybody can take such aggressive motion. In an business that’s brief 80,000 drivers[5], the mixture of AB 5 and the approaching California emissions deadline is quickly chipping away at hauling capability.

As of now, motor carriers have two choices:

  1. Stick with the IC mannequin. In the event you choose to proceed hiring ICs, get hold of authorized recommendation on easy methods to construction your enterprise mannequin to satisfy the compliance standards.
  2. Make all ICs workers. At the moment the most secure possibility, bringing all ICs into the fold as workers can eradicate confusion. However bringing on workers is a big enterprise. From buying or leasing autos to including wages and advantages, having workers is a complete new enterprise mannequin for a lot of motor carriers. Sadly, many small firms don’t have the upfront sources they should convert ICs to workers.

Discovering workarounds

Whereas impending appeals are anticipated for the reason that injunction was lifted[6], a potential workaround at the moment exists; a provision in AB 5 permits for a business-to-business exemption. ICs would wish to ascertain a enterprise entity and contract with a third-party logistics firm.

This exemption could be very slender for these within the trucking business, and B2B approval means assembly a number of exemption provisions, starting from standards surrounding enterprise location and clientele restrictions to supplying providers on to contracting companies, somewhat than supporting clients of the contracting enterprise.

Whereas the dialog surrounding AB 5 is much from over, your insurance coverage dealer may help you discover the options crucial to alter current enterprise fashions akin to acquiring bigger Employees Compensation insurance policies, restructuring your enterprise and placing you in touch with the right authorized illustration to restructure as a B2B IC group.

Contact IAT Insurance coverage to be taught extra about how AB 5 can influence industrial transportation protection.

By Scott Miller

[1] Freight Waves “California Trucking Prepares for Shake-up Throughout Impartial Contractor Regulation AB 5,” July 2022.

[2] Justia “Dynamex Operations West, Inc. v. Superior Court docket of Los Angeles County,” 2018.

[3] State of California Division of Industrial Relations “Impartial contractor versus worker,” January 2022.

[4] Wall Road Journal “Protesting Truckers Pledge Prolong Blockade of Port of Oakland,” July 2022.

[5] American Trucking Associations “ATA Chief Economist Pegs Driver Scarcity at Historic Excessive,”August 2022.

[6] Trucking Data “AB% Injunction Lifted however CTA Plans to Renew Problem,” August 2022.


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