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AB 5 and What It Means for Motor Carriers and Their Unbiased Contractors

This submit is a part of a sequence sponsored by IAT Insurance coverage Group.

For the final two-and-a-half years your entire nation has been monitoring California Meeting Invoice 5 (AB 5), which modified the definition of who is taken into account an impartial contractor (IC) throughout many industries.

Not too long ago the injunction to maintain AB 5 out of the trucking sector was lifted. This determination is impacting the roughly 70,000 ICs in California already confronted with a myriad of challenges, together with elevated regulation, rising gas prices and different provide chain calls for.[1]

Up till the 2019 California courtroom determination that modified the definition of who’s an IC throughout industries, the Borello take a look at was used to find out the frequent legislation relationship between a enterprise proprietor and an IC. With the brand new determination, employees at the moment are presumed staff except the business-to-business exemption is met, or the trucking firm can show all three “prongs” of the ABC take a look at are glad:

  1. The employee is free from the employer’s management or course when performing work.
  2. The work takes place exterior the same old course of the enterprise.
  3. The employee is engaged in an impartial commerce, occupation, career or enterprise.[2]

The ABC take a look at is positioned to supply a extra predictable and less complicated strategy to find out IC standing,[3] but the problematic piece for the trucking trade is B. IC drivers carry out work inside the traditional course of enterprise for the motor service.

Why AB 5 hit a nerve within the trucking trade

Initially, AB 5 had far-reaching impacts on ICs from all industries. Freelance writers, newspaper supply individuals, enterprise consultants, actual property and insurance coverage brokers and Uber drivers, for instance, have been affected. Nevertheless, because the authentic ruling, numerous these industries obtained exemptions, together with trucking.

The trucking injunction was lifted on August 29, and AB 5 because it stands is the legislation of the land in California. As soon as the Supreme Court docket refused to listen to the case, a number of ICs at California ports went on strike placing a pressure on the coastal provide chain as many drivers ceased to perform.[4]

Who does AB 5 have an effect on?

Motor carriers domiciled in California are impacted by AB 5. Drivers dwelling out of state can keep an IC standing as of proper now nevertheless it’s sensible to hunt skilled authorized counsel to find out whether or not you might be topic to AB 5 when hauling to and from California.

Some corporations are encouraging drivers to maneuver out of state, however not everybody can take such aggressive motion. In an trade that’s quick 80,000 drivers[5], the mixture of AB 5 and the upcoming California emissions deadline is quickly chipping away at hauling capability.

As of now, motor carriers have two choices:

  1. Stick with the IC mannequin. When you choose to proceed hiring ICs, receive authorized recommendation on how you can construction your corporation mannequin to satisfy the compliance standards.
  2. Make all ICs staff. Presently the most secure choice, bringing all ICs into the fold as staff can eradicate confusion. However bringing on staff is a large endeavor. From buying or leasing autos to including wages and advantages, having staff is a complete new enterprise mannequin for a lot of motor carriers. Sadly, many small corporations don’t have the upfront sources they should convert ICs to staff.

Discovering workarounds

Whereas impending appeals are anticipated because the injunction was lifted[6], a potential workaround at the moment exists; a provision in AB 5 permits for a business-to-business exemption. ICs would wish to determine a enterprise entity and contract with a third-party logistics firm.

This exemption may be very slender for these within the trucking trade, and B2B approval means assembly a number of exemption provisions, starting from standards surrounding enterprise location and clientele restrictions to supplying providers on to contracting companies, slightly than supporting clients of the contracting enterprise.

Whereas the dialog surrounding AB 5 is way from over, your insurance coverage dealer may also help you discover the options vital to alter present enterprise fashions equivalent to acquiring bigger Employees Compensation insurance policies, restructuring your corporation and placing you in touch with the right authorized illustration to restructure as a B2B IC group.

Contact IAT Insurance coverage to be taught extra about how AB 5 can impression industrial transportation protection.

By Scott Miller

[1] Freight Waves “California Trucking Prepares for Shake-up Throughout Unbiased Contractor Legislation AB 5,” July 2022.

[2] Justia “Dynamex Operations West, Inc. v. Superior Court docket of Los Angeles County,” 2018.

[3] State of California Division of Industrial Relations “Unbiased contractor versus worker,” January 2022.

[4] Wall Avenue Journal “Protesting Truckers Pledge Lengthen Blockade of Port of Oakland,” July 2022.

[5] American Trucking Associations “ATA Chief Economist Pegs Driver Scarcity at Historic Excessive,”August 2022.

[6] Trucking Data “AB% Injunction Lifted however CTA Plans to Renew Problem,” August 2022.


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