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California motor carriers lose a battle in the ongoing independent contractor war

Appeals court lifts the injunction protecting California carriers from complying with AB 5

Posted May 14, 2021 

The California Trucking Association (CTA) recently lost a court battle in the ongoing war to keep commercial truck drivers as independent contractors, not employees.

At the end of April, a California appeals court lifted the injunction that was protecting motor carriers from complying with the state’s well-known, contentious employment law known as AB 5. The CTA is planning to appeal.

What is AB 5?

AB 5 is a California law that went into effect on January 1, 2020. The law says a California worker is an employee and not an independent contractor unless:

  1. The person is free from the control and direction of the hiring entity in connection with the performance of the work,
  2. The person performs work that is outside the usual course of the hiring entity’s business, and
  3. The person is customarily engaged in an independently established trade, occupation, or business.

These three prongs together are referred to as the “ABC” test. The “B” prong is especially problematic for motor carriers. If California carriers must comply with AB 5, the owner-operator business model throughout the state will likely be in jeopardy.

Next Steps

The CTA has until May 26, 2021 to file an appeal. An appeal would keep carriers from having to comply with AB 5 – at least for now.

There is also a chance the CTA could take their case to the U.S. Supreme Court.

At this point, California motor carriers don’t have to comply with AB 5 – meaning they have more flexibility in hiring independent contractors as drivers. However, the injunction could be lifted in a matter of weeks or months … no one knows for sure.

Until a final decision is made, carriers and leased contractors can operate despite the contractor being in the same business as the carrier (“B-prong” violation).

Many interstate carriers have already changed their contractor business model in California to avoid retroactive issues if the injunction is not upheld.

How does AB 5 overlap with federal laws?

Generally, it doesn’t. Motor carriers across the rest of the country must look at how other entities – like the Department of Labor or the IRS – define who is (or is not) an independent contractor.

While AB 5 is only a California law, it’s something to keep an eye on. President Biden reportedly is a fan of AB 5. And the U.S. DOL recently withdrew the independent contractor final rule.

This article was written by Michelle Higgins of J. J. Keller & Associates, Inc.

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