Motor Carrier’s Get Temporary Relief From AB5 (Independent Contractor or Employee)
California Assembly Bill 5 (“AB5”) took effect on January 1, 2020, but its implications were felt by all California employers in countless industries in the months leading up to this new year.
However, for at least the trucking industry, there is a temporary silver-lining.
AB5 established a three-prong, mandatory test for purposes of determining whether a person is characterized as an employee or an independent contractor. Under this test, a worker is presumed to be an employee and the burden is placed on the employer to demonstrate their independent contractor status.
To do so, the worker must satisfy all 3 criteria of the test:
- The worker is free from control and direction in the performance of services;
- The worker is performing work outside the usual course of the business of the hiring company; and
- The worker is customarily engaged in an independently established trade, occupation, or business.
The implications of AB5 are definitely far-reaching, and we’ve had clients in a variety of industries grabbling with application of this new law to their specific employment circumstances.
Once classified as employees, your workers would be entitled to the protection of California’s labor laws and the applicable wage orders requiring, among other things, payment of minimum wage, maintaining unemployment insurance; maintaining workers’ compensation insurance, providing for expense reimbursement, and providing for legally mandated sick days and medical leaves.
AB5 provides certain exemptions, but many industries were left off that exemption list.
The trucking industry, in large part, was one of those that did not receive an exemption.
Nevertheless, the California Trucking Association (“CTA”) filed a lawsuit challenging AB5, and on December 31, 2019, a federal judge issued a temporary restraining order preventing the State of California from enforcing AB as to any motor carriers operating in California.
The Court found that AB5 was likely preempted by the Federal Aviation Administration Authorization Act which prohibits any state from enacting or enforcing a law related to price, route, or service of any motor carrier with respect to the transportation of property.
This is a great sign for the motor carrier industry, but we’ll need to stay tuned as the Court is set to decide whether a preliminary injunction will be issued.
There are other legal challenges being brought by other industries seeking similar relief from AB5 so the legal landscape is currently unsettled. We will continue to keep you apprised of new legal developments that directly impact your business operations.