Download my FREE eBook. This is a MUST HAVE resource for anyone who is considering the freight broker industry (About 40 pgs, 19 Topics) Enter your email address and name for an immediate download.
California’s Earthquake, Part 1 of 4
There’s an earthquake occurring in California and it has nothing to do with the San Andreas Fault. A legal decision on or about April 28, 2021 is the cause.
Motor carriers in California that are operating with owner operators, who are and have been independent contractors, may cease to exist with the implementation of the new California AB5 (Assembly Bill 5) law.
California’s AB5 law simply requires workers to become employees thus destroying the current business model of carriers using independent 1099 owner operators. Contractors in many other businesses in California are under the same requirement as well.
California’s Supreme Court had already stated that all workers are presumed to be employees unless the hiring company (the motor carrier as an example) passes the “ABC” test.
The ABC test is three stringent conditions that employers are required to use to establish whether workers are employees or not. In fact, workers are presumed to be employees unless the employer meets the requirements of these three conditions.
It’s the “B” part of the test that destroys any hope of owner operators remaining independent.
The B part of the test states that motor carriers need to establish that driving for a motor carrier is outside the usual course of the motor carrier’s business. And, of course, the owner operator driver’s function is inherently the same as the motor carrier’s business – transporting freight.
AB5 will result in a most damaging blow to the trucking industry in different ways and in different areas. And other states may attempt to pursue this course as well.
Three Justices from the Ninth Circuit Court of Appeals voted 2 to 1 in the decision that now has cleared the way for California’s Assembly Bill 5 law to take effect, requiring independent owner operators to become employees. The dissenting judge accurately stated that the law will cause California’s truckers to “suffer irreparable injury”.
The California Trucking Association (CTA) that opposed AB5 in court states that “There is also a lot of uncertainty about the reach of this law. It’s unclear if the law applies to an owner-operator who resides outside of California but is leased to a California-based carrier, or an owner-operator who resides in California but is leased to a carrier based outside of California, or even whether or not the law might apply to certain owner-operators with their own authority.”
In another comment from the President of the Owner-Operators Independent Drivers Association (OOIDA), Todd Spencer says that “AB5 will likely be litigated for years to come, perhaps eventually reaching the U.S. Supreme Court,” Spencer continues, “To the best of our knowledge, California officials have not publicly released any information that provides clarity on how businesses can comply with the law.”
Possible next steps could include requesting a rehearing en banc, which would allow the case to be heard by all of the judges in the court.
What’s the likely outcome if this occurs? In this writer’s opinion, the plight to keep owner operators in California will not prevail.
For sure, the AB5 law will impact freight brokers as well but it’s too early at this moment for this writer to delve into this impact.
In Part 2 of this series, we’ll take a look at WHY California legislators have moved in this direction of eliminating independent contractors in general and owner operators in particular.
Go here to read Part 2: