The AB5 Situation in California

Assembly Bill 5 (AB5) was signed into law in California in late 2019 and became effective 1/1/2020. The controversial bill created a three prong test to determine when individuals can be classified as independent contractors. The following three statements must be true.

• A worker performs duties or services without the direct control or direction of the company.
• A worker performs tasks and services that fall outside of the usual course of the employing company’s business activities.
• A worker regularly performs independent services similar to those which they perform for the employing company.

The second prong is obviously a difficult hurdle for a transportation company using independent contractors to haul freight. Failing to meet all three tests generally means the worker must be classified as an employee and receive the benefits that employees get such as a minimum wage, health insurance, breaks, overtime pay, etc.

The application of AB5 was challenged by the California Trucking Association (CTA) on the primary position that the bill conflicts with the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which state law cannot pre-emt, in regards to motor carrier prices, routes or service. The U.S. District Court for the Southern District of California issued a preliminary injunction blocking the state from enforcing AB5 against motor carriers. The ruling was appealed to the 9th Circuit where the district court ruling was reversed in a 2-1 decision that AB5 does not pre-emt FAAAA. The fight is not over though. The Circuit Court granted the CTA its request for a stay to allow them time to petition the U.S. Supreme Court. It may be some time before the Supreme Court makes a decision on whether to hear the case. If AB5 is determined to be in effect for motor carriers many companies current business models will need to change and it’s important to plan for that possibility. It’s also important to note the New Jersey is currently working on a similar bill and that the Biden administration has expressed approval of AB5.

Sources: Scopelitis, Truckinginfo, SHRM, Top Class Actions