What is California AB5? How Does it Impact the Trucking Industry?

January 20, 2021

What is California AB5? How Does it Impact the Trucking Industry?

What is California AB5?

California AB5, or Assembly Bill 5 (AB5 CA), is a law that restricts businesses from classifying workers as independent contractors, forcing companies to shift classification of these workers to employees. Experts warn that AB5 CA will increase labor costs, reduce the quality of service, create higher costs for consumers, and undoubtedly reduce the flexibility of workers.

[UPDATE] June 30, 2022 - Effective Immediately: Owner Operators must be reclassified under California law

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Unfortunately, the bill will unintentionally affect independent contractor truck drivers (otherwise known as owner operators) in the state of California. CA AB5 will make it difficult, if not impossible, for truck drivers to work for themselves. AB5 presumes all workers are employees and it’s up to the companies themselves to prove the status of workers by applying the ABC test.

Dynamex and the ABC test

On April 30, 2018 the California Supreme Court ruling on a case known as Dynamex set the CA AB5 precedent. The ruling established a presumption that workers are employees unless the hiring company can prove otherwise. Prior to Dynamex, there was an 11-prong measure known as the Borello test (in place since 1989) that most independent contractors (owner operators) were able to pass. The Dynamex ruling replaced the owner operator friendly Borello test with a new ABC test with only 3-prongs.

The three prongs of the ABC test are:

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

*This is the prong that owner-operators leased to trucking companies are having difficulty passing with their current hiring model.

California AB5 impact on the trucking industry

Currently, motor carriers must evaluate their existing business model to ensure they are compliant with the new ruling. If the motor carrier is found NON-compliant, the fines are up to 25,000 per violation.

AB5 compliance options for motor carriers

Carriers and owner operators have 3 main ways to achieve compliance under California AB5. these include:

  • Carriers can terminate agreements with ICs and hire new drivers directly.
  • Carriers can convert all independent contractors to employees.
  • Owner-operators can utilize or establish a brokerage (subjected to ABC test).

Get AB5 compliant with TransForce

By partnering with TransForce, we can help you get compliant with AB5 regulations quickly and eliminate the risk of misclassifying workers– so you can continue to keep your trucks moving without disruption to your customers.

Get AB5 Compliant

Related Content

For more information on AB5 compliance, check out the following: