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If you’re in the trucking industry and you pass through California — or even if you don’t — chances are that you’ve heard whispers of AB5 and what it means for drivers like you.
The employee classification, designed to address the gig economy and individuals working for themselves, doesn’t just affect rideshare drivers and freelance graphic designers and writers. It affects trucking independent contractors.
In this article, you’ll learn:
- What is AB5?
- The three-part ABC test
- How AB5 impacts truck drivers in California
- What AB5 means for independent contractors outside California
When you’re finished reading, you’ll have a better understanding of how AB5 affects you in California and where you stand if you’re a non-California resident who takes loads through California as an independent contractor.
What is AB5?
AB5 — shortened for Assembly Bill 5 — is a law introduced in California in 2019. While AB5 was signed by Governor Newsom in 2019, it didn’t go into effect for the transportation industry until 2022 because it was held up in court challenges.
AB5 deals with the question of employee classification and was in part a response to the gig economy. There’re a lot of people that are working for themselves, so California decided to provide a set of criteria individuals can use to determine if they’re classified as a business owner or an employee. You’re either working for somebody or you’re working for yourself.
There are different dynamics in an employer-employee relationship that don’t exist in a vendor relationship. There are good and bad things for both the company providing the check and the person providing labor.
California was concerned that, because it’s so much easier to start a gig business and work for companies as individual business owners, businesses were taking advantage — partially because they have to deal with different tax and minimum wage rules and hiring and firing requirements when working with businesses versus individual employees.
AB5 isn’t targeted at trucking, but it does affect the trucking industry. There are several industries and companies — Uber, for example — that either had an exception carved into the rule or got an exception after a ballot amendment.
The AB5 ABC Test
The AB5 criteria are stated in the form of a three-part ABC test. AB5 states that you have to satisfy three different elements to be considered an employee.
Generally speaking, the ABC test is as follows:
- Does the hiring entity get to direct and control the work?
- Is the work part of the ordinary course of business for the hiring entity?
- Is the worker engaged in this as part of their ordinary business?
If a driver says yes to any of the categories, they might qualify as an employee and would need to be treated as such by the company they’re contracted with.
To give you an example of how this works, consider the following:
If you’re somebody who’s working in a trade — let’s say you’re an architect — and you provide services for 20 different companies, you’re more likely to be considered a business person. On the other hand, if you’re doing a certain kind of work for a certain employer in their line of business and the employer is making the decisions about how you spend your time, you’re more likely to be considered an employee.
This becomes problematic in the trucking industry because of the wide use of the independent contractor model.
Section B is what likely “gets” most truck drivers. Virtually any independent contractor who leases their truck and services to a motor carrier could be argued to be contributing to the ordinary course of that motor carrier’s business.
Drivers might not be able to be classified as independent contractors; they’d either have to sign on as company drivers or become motor carriers and get their own authority.
How Does AB5 Affect Truck Drivers in California?
AB5 uniquely impacts the trucking industry and is particularly frustrating because it eliminates a career pathway for drivers to own their own business. The transportation industry is one of the few places where individuals have a realistic shot of developing their own businesses.
A lot of businesses require either a certain level of education that takes a lot of years and a lot of money to get under your belt or it requires a significant capital investment in property and equipment. There are a lot of things that keep people away from being able to realize that dream of working for themselves.
The trucking industry is somewhat unique because it has a storied history in this space. A lot of the big-name carriers out there like J.B. Hunt and Schneider started out with one guy, one truck, one dream. J.B. Hunt was just Johnnie Bryan Hunt back in 1961. Schneider was just Al Schneider back in 1935. Even our own, Harold Anderson, was just one truck back in 1955 moving blocks of granite before he built what we know and love as ATS today.
One of the paths drivers take in this industry is to start out as a company driver where they’re considered an employee of the company. They use this as their first stepping stone to get good experience in the industry.
The next step is to get into an independent contractor agreement by either purchasing a truck of your own or leasing a truck from a company or an equipment provider and then leasing out your truck and services to a motor carrier with a DOT number.
This allows you to get a lot of experience managing your finances and your business. You get to control your hours and how you spend your time, but you don’t have to incur the larger cost of getting your own authority as a true motor carrier. You don’t have to find your own freight, negotiate your contracts, front the administrative costs or go through the plethora of other steps it takes to run under your own authority.
This step — where drivers work as independent contractors and potentially lease their equipment before purchasing it — is a great transition step for drivers who eventually want to be their own motor carriers.
AB5 — more specifically, part B of the ABC test — effectively cuts out that transition path. A driver either has to be an employee (a company driver) or they have to jump through the hurdles it takes to get a DOT number and act as their own motor carrier. There’s no in-between, and that’s why there has been so much outrage about what’s happening here. For many drivers, it takes away the American dream of starting your own business.
AB5 reduces the opportunity drivers have. And, it puts you in a tricky place. You’re in a position where you have to choose. Do you go through all the hoops and regulations to set up your own authority? Or do you switch to company driving? Do you decide to move out of California altogether so you can continue your career as an independent contractor?
Depending on your decision, a whole new string of questions comes into play. How do you get your authority? How do you effectively run your own trucking company? If you already own your truck and decide to go back to company driving, how do you sell your truck? If you’re in the middle of a lease agreement, do you have to end your lease?
Either way, none of these are great options — especially for truck drivers that have been in the driver’s seat for years and now have to take a step back.
Does AB5 Apply to Contractors Outside of California?
If you’re a non-California driver but you drive through California as an over-the-road (OTR) driver, you might be wondering how you’re affected. You’re not alone in that. There are a lot of drivers in your same position.
The question is, how far does this California employment law reach?
Right now, at the time of this writing, it’s still an ongoing issue. Some of the details are not worked out yet. That’s part of the ambiguity surrounding AB5 and why so many individuals have so many questions.
If you don’t live in the state of California, but you spend a significant amount of your time hauling there, could AB5 still apply to your business? Unfortunately, truckers don’t have a clear answer to that question yet. However, certain things will likely be clarified, changed, or challenged with this law in the future. Therefore, it’s best to have a conversation with the company you’re hauling freight for.
The Future of California AB5 Law in Trucking
AB5 will remain in effect until the law changes, the Supreme Court takes up the issue, the law is challenged by a court case or the voters or legislature in California make a reasonable carve-out for truck drivers.
It’s important to understand, again, that AB5 is not specific to the trucking industry. It just has a large effect on it, even though most drivers themselves are not in favor. In fact, the Owner-Operator Independent Drivers Association (OOIDA) has filed briefs and is advocating for drivers struggling with this.
This issue — of classifying individuals as either employees or business owners — has been a hot-button issue for 30 years. Different states have rolled out laws to handle this issue in varying ways. Many states very thoughtfully put in a carve-out for truck drivers when they implemented laws similar to AB5. But none of these other states push as far as California has. The way it’s worded makes it very hard for drivers.
Moving Forward
AB5 is, no doubt, a frustrating law if you’re an independent contractor.
If you’re a California driver, make sure you come up with a plan concerning what you’ll do. Will you become a company driver or get your authority? Will you move out of California entirely?
If you’re not a California resident but you take loads through California as an independent contractor, make sure you talk to the person/company you haul freight for to see how the law affects you.
Are you a California driver trying to figure out what you should do next? Learn more about the benefits of being a company driver or how you can pursue the owner-operator path in these articles.
If you’re an ATS driver and you still have some questions, don’t hesitate to contact us.
Disclaimer: This article is provided as-is for information purposes only, is not legal advice, and should not be relied on as a substitute for legal advice.