How AB5 Affects Carriers In California And What To Do About It

How AB5 Affects Carriers In California And What To Do About It

There’s been a lot of news and opinions circulating about AB5 and the legal action and protests from the trucking industry that surround it. On Monday, August 29, the injunction keeping the new law out of the trucking sector was officially lifted. (Read more about the latest in this case on Freightwaves.) Though the legal arguments against AB5 being applied to the trucking industry are still ongoing, the new law is a reality for the foreseeable future. Carriers in California need to be ready for how it will affect their businesses.

In this article, we’ll cover what AB5 is and what you can do as a carrier running in California. Please be aware that this information is meant for educational purposes only and is not a substitute for legal advice.

What is AB5?

California Assembly Bill 5 (AB5), also known as the “gig worker bill” is a piece of legislation that requires companies to apply a more rigid test in order to consider a worker an independent contractor. This means many companies that hire independent contractors must reclassify them as employees. It was signed into law in September 2019 and went into effect in January 2020. It then got held up in the courts. When the California Trucking Association’s petition against AB5 was denied review by the Supreme Court at the end of June 2022, the stay on the law was lifted and AB5 went into effect for the trucking industry.

According to Investopedia, reclassifying independent contractors as employees means workers are entitled to minimum wage, expense reimbursements, health insurance, rest breaks, and other benefits under California state law. It also means potentially higher costs to companies that don’t offer things like paid time off, health insurance, or worker’s compensation benefits for contract employees.

How does AB5 affect the trucking industry in California?

Carriers, brokers, and shippers have to show that their arrangements with owner-operators satisfy a three-part test called the “ABC test.” To be considered an independent contractor, the worker has to…

  1. Be free from the control and direction of the hiring entity, both in contract and in fact
  2. Perform work that is outside the usual course of the hiring entity’s business
  3. Be customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Item B of the test is the most disruptive to the status quo of the trucking industry, as it’s been operated largely by independent contractors for many decades. Most of these contractors work part-time under a contract with a carrier and part-time on their own. This way of work will change drastically now, if not vanish, in the state.

AB5 has been in effect for the trucking industry for a little over a month now as of the publication of this article and has already made larger impacts on the supply chain as a whole.

What carriers should do

If you’re a carrier running in the state of California, we highly recommend seeking legal counsel to review your contractor agreements and ensure you’re complying with AB5. 

Risks associated with noncompliance can include misclassification lawsuits, civil penalties, and workers’ compensation penalties.

Compliance with AB5 may mean additional costs for your business. If you’re looking for a boost to your cash flow, please reach out to us by signing up here or calling +1 (410) 204 2084.

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Stay up-to-date with all new information regarding AB5

It’s important to stay up to date on all new information coming out about AB5. Here’s a list of sources we used to better understand the law and put this article together:

Caroline Asiala is the Digital Marketing Manager at Bobtail. With a background rooted in advocating for migrant rights, Caroline leverages her expertise in content creation to support small trucking businesses, many of which are immigrant-owned and operated, with the information they need to make their businesses thrive.