California Trucking Companies Subject to AB 5 Enforcement
The infamous Assembly Bill (AB) 5 is now enforceable against motor carriers operating in California. This means California trucking companies are subject to the rigorous “ABC Test” in determining whether their independent owner-operators must be classified as employees. The Ninth Circuit Court of Appeals’ ruling that AB 5 is enforceable against motor carriers (and not preempted by the Federal Aviation Administration Authorization Act “FAAAA”) is now binding authority, because the U.S. Supreme Court declined to hear the California Trucking Association’s case against AB 5, and the previous stay on enforcement of the law has been lifted.
AB 5 is very impactful for motor carriers operating in California who use independent contractors, as it will likely result in increased labor costs. If companies now have to classify these workers as employees, they will be entitled to employee benefits and subject to overtime and other wage and hour laws. Concerns about supply chain issues and increased consumer costs are likely to follow as motor carriers figure out immediate next steps and determine if they will continue operating in California.
A Refresher on AB 5
AB 5 presumes all workers are employees (rather than independent contractors) for purposes of the Labor Code, the Unemployment Insurance Code, and the Industrial Welfare Commission (IWC) wage orders.
Because California presumes that a worker is an employee, the hiring entity must demonstrate or prove that a worker satisfies all requirements of the ABC test in order to be an independent contractor. Often, the hardest requirement to satisfy is that the worker is performing work “outside of the usual course” of business for the company. For example, it’s easy to prove that an accountant doesn’t drive a truck and therefore could be classified as an independent contractor for the company. However, if a trucking company transports products to retail sellers, and they hire a driver to haul and deliver the products, that driver will almost certainly be operating within the course of the business and therefore must be considered an employee. There are many statutory exceptions to the ABC test, so motor carrier companies should consult legal counsel for potential options.
Properly classifying a worker as an employee or an independent contractor is an important task because the failure to do so properly can lead to liability for minimum wage, overtime and other claims and penalties in the future.