California judge puts brakes on AB 5 battle — What’s next for carriers?
It’s madness in March for motor carriers that operate in California. On March 15, 2024, a federal judge ruled against continued attempts by the trucking industry to stop the state from applying strict independent contractor rules to truckers.
While AB 5 is not trucking-specific legislation, but rather an employment law, carriers argue their industry faces a unique set of challenges with complying.
What’s next for California carriers?
With their appeal benched, this means that carriers with leased independent contractor drivers working in California remain subject to AB 5.
The California Trucking Association (CTA) expressed their disappointment with the latest ruling by saying on their website: “We will be discussing remaining options moving forward with counsel and supporters of the litigation.”
What is AB 5?
Under AB 5, a person providing labor or services for pay must be considered an employee rather than an independent contractor unless:
- A. The person is free from the control and direction of the hiring entity in connection with the performance of the work,
- B. The person performs work that is outside the usual course of the hiring entity’s business, and
- C. The person is customarily engaged in an independently established trade, occupation, or business.
These three prongs together are referred to as the “ABC” test. And it’s the “B” prong of the test that could be particularly relevant for motor carriers.
Timeline
California’s AB 5 went into effect on January 1, 2020, making it harder for employers (including motor carriers) to claim that workers are independent contractors.
However, Judge Roger Benitez — the same judge who ruled against the trucking industry’s most recent appeal — issued an injunction on December 31, 2019, temporarily protecting carriers from the law’s implications.
On January 14, 2021, the California Supreme Court ruled that AB 5’s “ABC” test should be applied retroactively to 2018. This decision concerned motor carriers with pending litigation against workers who claimed they were misclassified as independent contractors and not employees. When a worker is misclassified, they lose out on certain employment protections, such as minimum wage, workers’ compensation benefits, etc.
On June 30, 2022, the U.S. Supreme Court announced it wouldn’t hear the CTA case about their frustrations over carriers having to comply with AB 5. This decision lifted the injunction that had been in place the past few years, exposing carriers to more risk when it came to driver misclassification.
The Supreme Court’s decision essentially upended the model with independent contractors and their trucks leased to motor carriers that do business in California. Motor carriers — including interstate carriers — had already seen the writing on the wall and began changing their contractor business model in California to avoid issues.
Does AB 5 impact compliance with the DOL federal independent contractor law?
Since AB 5 is a California state law, it doesn’t necessarily overlap with federal independent contractor laws — in fact, AB 5 is stricter than federal law. Employers with workers in California, however, want to make sure they’re complying with both state and federal laws.
Independent contractor laws have been in the news lately. On January 9, 2024, the U.S. Department of Labor (DOL) released the final rule about how employers are to classify workers as employees or independent contractors under federal law.
The DOL rule took effect on March 11, 2024. It rescinded the 2021 federal independent contractor rule and replaced it with an analysis for determining employee or independent contractor status.
The DOL rule uses a multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).
Many employers have wondered (and worried) about the federal final independent contractor rule morphing into an ABC-type law, which it hasn't. The DOL rule does NOT mimic California’s rule.
The DOL states the “ABC” test is inconsistent with Supreme Court precedent interpreting the FLSA, and as such, cannot be adopted without Supreme Court or congressional alteration of the applicable analysis under the FLSA. In other words, the DOL is not adopting an ABC test because the totality-of-the-circumstances test of this final rule stands in stark contrast to an “ABC” test.
There are six factors in the DOL rule to determine if someone is an independent contractor:
- Opportunity for profit or loss depending on managerial skill,
- Investments by the worker and the potential employer,
- Degree of permanence of the work relationship,
- Nature and degree of control,
- Extent to which the work performed is an integral part of the potential employer’s business, and
- Worker’s skill and initiative.
Key to remember: Motor carriers operating in California lost another battle against the employment classification law known as AB 5.
