Update: On October 23, 2020 a judge ruled that Uber and Lyft have to reclassify their workers. Earlier in the year, the rideshare companies appealed to the decision and sued for the right to claim their drivers as independent contractors. This ruling has forced compliance with the law that went into effect in January.
Currently, rideshare companies have sponsored a state ballot measure campaign with nearly $200 million to bring the issue to voters. Proposition 22 aims to create an exemption for the companies to AB5 and allow them to continue classifying their workers as independent contractors. The upcoming election will decide the fate of these companies in California.
Assembly Bill 5 or AB5 makes it harder for companies to label workers as independent contractors.
This new law does not just apply to Uber and Lyft drivers or office workers brought on as independent contractors. This new law also drastically impacts the way the trucking industry in California operates.
The new law assumes workers are employees. To prove otherwise, the hiring company has the burden of demonstrating that the worker meets a very specific test.
Namely, a worker can only be classified as an independent contractor if the company can show that the worker meets all three of the following prongs:
A - The worker is free from control and direction in the performance of services; and
B - The worker is performing work outside the usual course of the business of the hiring company; and
C - The worker is customarily engaged in an independently established trade, occupation, or business.
Prong B will be the biggest obstacle for hiring companies in the trucking business.
For example, if the hiring company’s business is trucking, transportation, or logistics, then it will be very difficult for the company to show the truck drivers they contract with are performing work outside of the usual course of the company’s business.
The Western States Trucking Association has told its members the new law, particularly Prong B, “sets an impossible standard for most of its members to meet.”
Even then, the drivers would still have to be free from the hiring company’s control (Prong A) and have an independently established business or provide trucking services to other companies (Prong C).
According to Bloomberg Law, it's estimated that about 64 percent of independent contractors would be reclassified as employees under AB5.
On January 13, 2020, a judge upheld a temporary restraining order that keeps officials from enforce the terms of AB5 on motor carriers. The lawsuit was brought by the California Trucking Association who challenged the ABC test of the bill. The order will stand until a preliminary ruling is made. As of now, the temporary order stands until a permanent ruling can be made.
The new law does carve out a short-lived exemption for drivers working within the construction industry. These drivers may continue operating as independent truckers during a two-year grace period.
However, this is not a blanket exemption; the hiring entities must still meet nearly a dozen specific requirements in order to show that their drivers are not employees. And, any entity that provides construction trucking services to a licensed contractor utilizing more than one truck will be deemed the employer of all drivers of those trucks.
Because of how the law is written, it’s also possible that it could apply to companies outside of California—if those companies contract with independent contractors who cross into California.
This new law will go into effect January 1, 2020. Companies should start preparing now for the new risks and regulations associated with AB5.
How Centerline can help
Working with a driver staffing company, such as Centerline Drivers, will eliminate the risk of misclassifying your drivers. By partnering with us, Centerline will take on the cost and burden of employing these drivers directly.
We can also help companies who utilize delivery drivers. If you’re struggling to find drivers after the AB5 ruling, consider partnering with Centerline to ensure you always have qualified and reliable delivery drivers.
Contact us today to see how we can help you keep your business moving forward.
We will continue to update this article as the story develops