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What is the AB5 law? Influential facts that show how it impacts owner-operators.
Will the passing of California’s Assembly Bill 5 law (AB 5) devastate the United States’ fragile supply chain? Over 70% of truckers serving some of the nation’s largest ports are owner-operators. There are 70,000 owner-operators in California. How will they keep working?
These are questions that you may have concerning this new law. In this article, I will break down AB 5 as simply as possible. Then, I will explain how it will affect small trucking companies and owner-operators. Read on. Is this legislation a sign of things to come on a national level?
What is the AB5 law?
Based on April 30, 2018, the California Supreme Court ruling on the Dynamex case, AB 5, took effect on January 1, 2020. This employment legislation changed the rules employers must use to classify workers as either employees or independent contractors. The classification is important because employees have benefits and protections like:
Trucking companies are affected by AB5. California crafted the law to protect workers from exploitation by company management. However, it remains uncertain if it achieves that objective.
The “ABC” Test
The law assumes that all workers are employees. The burden of proof is on the employer to show that a worker is an independent contractor. Under the ABC test, a worker is an employee unless:
Carriers, brokers, and shippers must satisfy all three parts of the ABC test.
What is the control and direction of the hiring entity?
To pass this part of the test, the employer has to satisfy the right to control test. An employer/employee relationship is likely to exist if:
Work outside the usual course of business
For example, a hairdresser hires a carpenter to work on a leaky roof. It would be easy for the carpenter to be classified as an independent contractor under AB 5. He is working outside of the usual course of business of the hairdresser, i.e., hairdressing; therefore, he is an independent contractor.
If a trucking company hires an owner-operator to haul freight, the company cannot prove that the driver is an independent contractor under AB 5. Instead, the owner-operator works within the usual business course for the trucking company.
Engagement in an independent trade
To satisfy part C of the law, a worker’s business activities must exist independently of the hiring firm. The business should be able to survive if the business relationship with the employer ends. Factors that are considered include whether the worker:
Drivers who will not be affected
The law affects the whole industry. A subset of drivers will not have problems complying with AB 5. These are:
Who will be affected in the trucking industry
Seventy thousand owner-operators in California may be affected by the passing of AB 5. Two types of owner-operators will be affected by the legislation:
What can carriers do to comply with AB 5?
Some carriers might have to downsize their owner-operator fleets. Others might end up hiring former independent contractors as employees. Here are some ways that carriers can comply with AB 5.
One of the requirements is whether the provider is doing the service for the business and not the company’s customers.
What can drivers do to comply with AB 5?
In closing
On June 30, 2022, the Supreme court upheld the Ninth Circuit Court of Appeals ruling. This ended the injunction holding AB5’s application to the California trucking industry. Owner-operators in the state will have to make immediate changes. I hope the information above guides you to the best decision for you and your business.
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