California Assembly Bill 5 (often written as AB5, AB 5, and AB-5) came into effect in the summer of 2022. After legal battles over its validity, it is now law. This new law has already drastically changed the operating environment for truck drivers and trucking companies.
This law requires that most independent contractors pass a rigorous, three-part assessment of their roles to maintain that status. Otherwise, the law classifies them as employees.
This is a sudden, seismic, and very difficult shift for truck drivers and trucking companies. It can negatively influence the companies that work with them, and even the general public. Let’s take a closer look at this law and its wide-ranging impact on the industry.
What is California Law AB-5?
The core concept of the AB 5 law in California is a significant change in how independent contractors are classified. Most workers are automatically classified as employees under the law. That means they receive certain protections and benefits that aren’t part of an independent contractor relationship.
Businesses must demonstrate a worker qualifies as an independent contractor to receive an exemption, the Los Angeles Times explains. The law includes a three-part test to determine if a worker is an independent contractor.
All of the answers must align with the law for an employee in California to be considered an independent contractor. These are the three requirements that must be satisfied, according to the California Trucking Association:
- The worker is neither controlled nor directed by the company or hiring entity. This must be proven both in contractual language and in actual day-to-day work.
- The worker’s services do not directly contribute to the usual course of the hiring company’s core business activities.
- The worker has an independent trade or business established, related to the same type of services they provide.
What Was the Original Goal of the AB 5 California Law?
The AB 5 law in California in 2022 impacts a wide variety of businesses and workers. Investopedia explains that, originally, AB 5 focused on the gig economy. The initial goal was to address issues faced by drivers — although not truck drivers. Instead, legislators targeted food delivery and rideshare companies, like GrubHub and Lyft.
What Does AB 5 Mean for Independent Contractors?
Thanks to lobbying efforts from those same app-based companies, the AB 5 law no longer applies to their workers. Gig workers who use their own vehicles, who serve as independent contractors for these app-based companies, can continue to do so.
The law also includes a different type of test for certain professionals, like doctors and attorneys.
Additionally, other legislation exempted many additional types of workers from the three-part independent contractor vs. employee test. Unfortunately, that doesn’t include truck drivers working with more traditional businesses, including drayage providers.
How the AB 5 California Law Impacts Trucking Companies and Drivers
Owner-operators own their vehicles and own a company separate from the trucking industry business that they work for. Additionally, they can choose when to take work from the companies they partner with.
Those two facts satisfy two parts of the three-part independent contractor test. But that’s not enough — there’s another requirement under California AB 5 law for truck drivers that can’t be avoided. Drivers must perform work that’s outside of or beyond the company’s usual business. Because trucking is their core business, independent owner-operators will fail this test.
Why Does it Matter if AB 5 Applies to Trucking Companies?
A drastic change to the normal relationship between independently contracted owner-operators and the companies they work with could have far-reaching effects. The California Trucking Association had this to say:
“In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation.”
Transport Dive highlights truck driver protests about this issue during the summer of 2022 at major intermodal ports in California. With the law no longer applying to gig drivers, it’s easy to see the new rule as “California truck law AB 5.” The result, while not intentional, is a focus on an established and proven business model instead of a newer, less-regulated one.
AB 5 California Law: Our Final Thoughts
AB-5 is a law that will detrimentally impact the trucking industry, but that’s not all. It will harm independent businesses (many of which are small, minority-owned transportation firms) throughout the state of California as well. Ultimately, it could negatively influence the US economy as a whole.
This is a misguided law. Lawmakers took no consideration of the guidance of members of the trucking community or the trade organizations that pleaded not to bring this law to fruition.
Despite these challenges, Iraheta Bros. has worked hard to align with legal requirements and continue to provide drayage, secure cold storage, and many related services to our customers.
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