AB5 and California Truckers: Here’s What You Need to Know

Strong Tie Insurance December 27, 2020 Commercial Truck Insurance

California Assembly Bill 5 (AB5) went into effect on January 1, 2020. Since then, trucking companies and the California Trucking Association (CTA) have been embroiled in heated battles with immense legal ramifications. At stake is the classification of truck drivers as independent contractors or employees.

Ultimately, this will also affect who is responsible for carrying affordable commercial trucking insurance.

What is AB5?

Otherwise known as the gig worker bill, this regulation requires some companies to reclassify the independent contractors they hire as employees. Its original intent was to regulate companies that hire a large number of gig workers, such as DoorDash, Uber, and Lyft.

In essence, a gig worker is someone that works temporary jobs as an independent contractor or freelancer.

So, what does this have to do with the motor carrier and owner-operator? Everything.

How Does AB5 Affect California Truckers and the Trucking Industry?

In April 2018, the California Supreme Court ruled on a case known as Dynamex –  that workers are presumed to be employees unless the employer can prove otherwise.

Prior to this ruling, the basis of determining who could be classified as an independent contractor was based on the Borello test, an 11-prong test that most owner-operators were able to pass.

After this ruling, the determination changed to a three-prong ABC test with the following stipulations:

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

Why is it Concerning?

As you can see, the B Prong makes it difficult for owner-operators to pass this test.

While other states have adopted a three-part ABC test for determining independent contractors versus employees, the B Prong is very different. In these states, workers are excluded from independent contractor status if they work out of the same location, not just because they work in the same type of business.

Should bill 5 go into effect, motor carriers and owner-operators will have a few limited options.

  1. Move out of California.
  2. Employ owner-operators.
  3. Deadhead out of California, an option that requires bobtail trucking insurance.

Shawn Yadon, CEO of CTA, had this to say, “There is no reason why protecting workers does not include defending the rights of tens of thousands of drivers who have built their businesses around the independent owner-operator model, invested hundreds of thousands of dollars in their trucks and have operated their own businesses for decades.”

If the law goes into effect, Yadon believes these drivers will either move out of California or seek a different line of work, worsening an already extreme shortage of truck drivers. Therefore, cheap commercial insurance will be in high demand as the status changes.

What is the Legal Status of AB5 and the Motor Carrier Industry?

In January, CTA requested a temporary restraining order. Their argument was based on the Federal Aviation Administration Authorization Act of 1994, known as the F4A act. This law, they argued, blocked the state’s authority from passing laws that impact motor carriers involved in the transportation of property.

Federal District Court Judge Roger Benitez agreed, handing down a temporary restraining order and then extending the injunction.

In September, the Ninth Circuit Court of Appeals panel heard oral arguments on the temporary injunction and whether it should be allowed to stand. Two of the three judges questioned the reasoning behind the injunction and a ruling should be announced soon.

On November 19, the State of California’s Second Appellate District Court ruled that Assembly Bill 5 is not preempted by federal law. This was in response to a lawsuit against Cal Cartage Transportation Express, CMI Transportation, and K&R Transportation.

Los Angeles County stated that truck drivers working around the ports of Long Beach and Los Angeles were misclassified as independent contractors. The defendants argued that Prong B of the ABC test makes it impossible for a motor carrier to contract with an owner-operator as an independent contractor, and thus the ABC test is preempted by the F4A.

While the ruling does not affect the CTA’s lawsuit in the U.S. Court of Appeals, it does not bode well for the trucking industry or the owner-operator drivers.

Organization Feedback

As imagined, more organizations around the country are rallying against this law that would affect tens of thousands of interstate motor carriers and independent owner-operators. The Truckload Carriers Association (TCA) joined an amicus brief in support of the California Trucking Association’s lawsuit.

The Owner-Operator Independent Drivers Association (OOIDA) stated, “AB5 not only threatens the business models and balance sheets of large motor carriers, but it will also result in irreparable harm to owner-operators and small-business motor carriers — businesses that are a critical component of interstate commerce.”

The Western States Trucking Association WSTA) filed a lawsuit against California’s AB5. The judge of the U.S. District Court of the State of California granted a motion filed by the International Brotherhood of Teamsters to dismiss the case.

How is AB5 Affecting Other Industries?

Uber and Lyft are fighting back and did not reclassify their California drivers as employees. The state and several cities filed legal action against the two companies.

They responded with a request for a stay on legal action until their challenges were concluded. These included a constitutional challenge, additional AB5 litigation circulating through the court systems, and an initiative placed on the November ballot that would exempt them from AB5.

The court rejected the argument. According to the law firm, Scopelitis Garvin Light Hanson & Feary, “(The court’s) conclusion was based entirely on analysis of the B Prong and the court’s determination that drivers perform work in the usual course of Uber’s and Lyft’s business.”

On November 3, Proposition 22, which defined app-based transportation and delivery drivers as independent contractors, passed.

Other workers that have been impacted, such as freelance writers, said the legislation destroyed their business. Due to the effect California s AB5 law had on these and other industries, another California law was passed on September 4. AB2257 exempting freelance writers, content contributors, editors, translators, fine artists, photographers, and musicians.

What are the National Effects of AB5?

The success or failure of motor carriers exemption from California’s AB5 has national effects. Already, there is growing concern that additional states are considering this legislation, including New Jersey, New York, Illinois, and Washington.

Find the Right Commercial Trucking Insurance

It’s important now, more than ever, that independent operators obtain affordable commercial trucking insurance. Let us help you obtain the protection you need during these unstable times.

For a no-obligation quote, contact our team at Strong Tie Insurance today.