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AB5 law continues to perplex trucking industry — Taking the Hire Road

California’s independent contractor rule still raises questions in other states

There remain plenty of questions about how California’s AB5 law will affect other states, truck driver retention and taxing efforts.

“You’re always one election away from things changing, but this is not a red-versus-blue issue,” said Doug Grawe, founder and CEO of The Grawe Group, a law firm as well as a business consultancy that assists companies within the trucking and logistics industry with special projects, leadership and general counsel services.

“A lot of this issue comes out of the ports. I would look first at the states that have ports. It is also important for owner-operators to have a voice in this. We need to encourage them to educate lawmakers.”

In regard to taxing, Grawe is not concerned with the tax disparities from state to state.

“There are differences, and sometimes differences can be very meaningful, but for the most part, whether someone is an independent contractor comes down to control, economic freedom and their ability to use their business acumen to succeed,” Grawe said. “If I am in the day-to-day operations, then I only need to worry about these three things.”

As of June 30, the AB5 law was put into effect in California.

Under AB5, in order to be considered an independent contractor in the state, a worker must meet three qualifications: “The person is free from the control and direction of the hiring entity — both in contract and in fact, performs work that is outside the usual course of the hiring entity’s business and is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.”

AB5, which established California’s ABC Test to determine worker classification, took effect on Jan. 1, 2021, but was put on pause due to legal hurdles within the court system. The delay ended after the U.S. Supreme Court denied the California Trucking Association’s petition for a hearing over the law.

While many states also participate in similar tests, California is set apart by the B prong of the ABC Test —  “the person performs work that is outside the usual course of the hiring entity’s business.” This makes it increasingly difficult for leased-on truck drivers to be considered an independent contractor.

Amid the change rests the importance of retaining drivers and mitigating grievances that lead to lawsuits. Every department in every organization within the trucking industry plays a role in mitigating conflict in the workplace, according to Grawe.

“It amounts to alignment and honesty,” he said. “The recruiters are the first interaction with owner-operators. You as a motor carrier need to make sure that the message the recruiter is delivering lines up with the message that the operations team is delivering, which matches what the sales team is selling and what the administration team is administering.” 

Grawe also pointed out that many disputes over pay, treatment, etc., occur because there was not good communication or alignment internally.

“We all need to be on the same page,” he said. “Most people try to do the best thing, but sometimes there is a disconnect. You have to absolutely ensure there is clear communication and alignment companywide for the sake of your drivers.”

Carriers have a front-row seat to all sorts of different owner-operators. That’s why Grawe also stresses the importance of gleaning best practices from others and sharing them within the industry.

Click for more FreightWaves content by Britni Chisenall.

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Britni Chisenall

Britni Chisenall is a sponsored content writer for FreightWaves. She lives in Ooltewah, TN with her husband, Garrett and her cat, Lily. Britni is a graduate of Dalton State College.