California AB5: What It Means For Trucking Companies

California AB5: What It Means For Trucking Companies

In the trucking industry, AB5 has been a cause for concern for companies who use independent contractors. The law went into effect in the state of California at the beginning of this year and has since been met with opposition. 

Despite the law being largely directed towards businesses in the gig economy, trucking companies in California have been affected because of independent contractors hired to complete short-term jobs.

As of August, the trucking industry in California continues to be wary of this law, as there’s no telling whether this situation may change. Here’s what you need to know:

AB5 Law Breakdown

AB5, or Assembly Bill 5, is a law in California calling for businesses to classify workers as employees rather than independent contractors. On January 1st, 2020, AB5 went into effect and has stricken businesses heavily in the transportation industry. This bill was introduced by unions to help organize workers into employees and make the workforce more stable. 

This heavily impacts the gig economy, as these types of businesses thrive on the flexibility of workers, and the bill is not skewed in their favor. Unfortunately, this impacts independent contractor truck drivers in California as well.

Employees vs. Gig Workers

AB5 requires any businesses with independent contractors to instead label them as employees. While some workers prefer the flexibility of being independent, the bill is effectively eliminating that choice and putting pressure on businesses to conform. AB5 has an approach to what constitutes an employee and a gig worker with a three-pronged test. If the company cannot prove a worker is all of the following, they are classified as an employee:

  • The worker is free to perform services without the control and direction of the company
  • The worker performs work that is outside the usual course of the company’s business activities
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity

Who is Affected?

Gig economy companies like rideshare and food delivery businesses who are involved in transportation are the most affected, as the bill intends to disrupt their business model. Other industries have also been affected, specifically for workers who freelance, as they are now forced out of their means of income. Businesses must also consider the extra costs of having regular employees, such as paid time off and benefits. 

For now, California trucking companies remain exempt from AB5 via an injunction by the California Trucking Association (CTA).

 

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