The Saga of California’s AB5 Independent Contractor Law For The Trucking Industry

BREAKING: A hearing on AB 5 is scheduled for 10:30 a.m. PST on May 1 at the U.S. District Court for the Southern District of California in San Diego.

On Sept. 18, 2019, California Governor Gavin Newsom signed bill AB5 into law that will make it more difficult for companies to classify people who work for them as independent contractors with the new ABC test.

Under the ABC Test, a worker is presumed to be an employee unless the employer can show that all three of the following “prongs” or conditions are satisfied:

1. the worker is free from the control and direction of the hiring entity in connection with the performance of the work,
2. the worker performs work that is outside the usual course of the hiring entity’s business, and
3. the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Hours before the law was to take effect Jan. 2020, a federal judge issued a temporary restraining order blocking the state from enforcing it upon truck drivers.

Days later, a hearing on the trucking group’s request for a preliminary injunction was set and the plaintiffs can argue that they have carried their burden for purposes of emergency relief to show:

• that they are likely to succeed on the merits,
• likely to suffer irreparable harm in the absence of relief,
• that the balance of equities tips in their favor, and
• that their requested relief is in the public interest.

Fast forward more than a year to May 2021 and a three-judge panel of the Ninth Circuit Court of Appeals has struck down a lower court’s injunction against the application of the California’s AB5 contractor law and its ABC test to trucking.

The California Trucking Association has 14 days to seek rehearing, which should be expected on or before May 12. If this request is denied, or if the rehearing fails to change the view of the court, it will be just seven days before the injunction lifts.  

The United States Supreme Court on November 15th invited the Solicitor General to file a brief expressing the federal government’s views on whether the Supreme Court should hear California Trucking Association’s suit claiming federal law preempts California’s AB 5 for the trucking industry.

The injunction should remain in place while SCOTUS awaits the Solicitor General’s brief.

More recently, the Supreme Court of the United States declined to hear the first AB5 case from carrier Cal Cartage on October 4, 2021, leaving in place a split in authority regarding whether states can change the rules regarding how truckers are treated.

The next step will be CTA’s case at the U.S. Supreme Court that relies on slightly different arguments and factual statements than Cal Cartage case.

 

How AB5 affects the trucking industry in California and nearby states

To describe the situation, let us look at port truckers in California. There are around 13,000 truckers regularly serving the ports of Los Angeles and Long Beach. However, only a few hundred are classified as employees.

The others are owner-operators who traditionally:

• lease their rigs from trucking companies,
• drive under those companies’ permits, and
• rely on them for work assignments.

These owner-operators are paid by the load and get a 1099 independent contractor tax form at the end of the year.

While this is a popular business model, there are some who abuse this relationship. For example, to meet the state’s strict clean-air regulations, trucking companies forced drivers to purchase new trucks beginning in 2008 rather than assume the expense. Many drivers, who also pay for diesel fuel, repairs, and insurance, fell into debt as they worked overtime to pay off huge loans for their trucks. If they missed payments, some companies reclaimed the trucks and fired the drivers, seizing their equity.

The new AB5 law would basically require carriers to hire the independent contractors and pay them health insurance and other employee benefits.

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It is not just California carriers that must deal with the law’s ABC test B prong, which requires carriers and contractors to be in essentially separate areas of business. Carriers across the state’s border that deliver inside California will be required to meet this B prong as well.

Today, the carriers that have been taking the “wait and see” approach on the law and the court’s process are now facing a near-term reality that the independent contractor system might not be possible and will have to face an increase in costs to hire the drivers.

Other carriers have been cutting ties with California as the cost of doing business in the state are greater than the reward and pull out of any California operations to shield themselves from the impact of the AB5 law.

 

CNS can help fleets with our new driver hire program

If AB5 does not include a trucking exemption, then there will be a flood of independent carriers going through a new hire process. There are a lot of rules around the hiring process, not limited to drug testing, CDL Clearinghouse queries, compliant DQ file process, and more.

To get these drivers on the road fast, Compliance Navigation Specialists has developed a new hire program that will streamline your hiring process.

Our New Hire service includes the following:

• Tailor Drive Qualification file (paper) or Online Tailored Driver Qualification File (Paperless)
• Initial Audit
• Previous employer inquires completed on your behalf
• Initial Motor Vehicle Report (MVR)
• Pre-Screening program report (PSP)
• Online Record Retention
• Pre-employment drug screening verification
• Doctor on medical card verification
• FMCSA clearinghouse full query
• Driver Qualification
• New Hire phone support
• and more

Accuracy, organization and diligence are crucial to keeping your files in order and ready for an audit at a moment’s notice. Our DQF Management System is completely customizable to your individual needs. The consultants at CNS stay in communication with you regarding document updating, as well as offering comprehensive reports upon request, and reports of routine audits by our own DQF Auditors.

Our driver management and new hire management services will exceed your expectations. You focus on trucking, and let us focus on your driver file management. If you have a fleet of drivers, we assure you that you can’t do this cheaper in-house.

Eliminate the administration cost and have Compliance Navigation Specialists manage your files.

We will ensure that your information is collected, current, and complete. In addition, we will continue to update your files as required, and let you know when an updated piece of information is needed.

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