When enforcement of California’s AB5 in the trucking sector begins, it may start with lawsuits filed by company employees rather than a top-down action by a state regulator.
That was one of the points in a recent webinar by TransForce, a transportation solutions firm that is touting its “two-check” system as a way for trucking companies to be compliant with AB5.
The bottom-up enforcement effort would fall under the state’s Private Attorney General Act, a 2004 law that empowers employees to sue employers as a sort of substitute for action by the attorney general or a regulator.
“It gives private citizens the power to do the work that the state doesn’t want to do,” Christopher Reilly, a labor attorney with the law firm of Ogletree Deakins, said on the webinar.
Reilly said the state’s Labor Commission could be a pathway to enforcement of AB5 in trucking but that is the “less likely scenario.” “They have generally chosen not to spend a ton of resources investigating wage and hour violations,” he said.
However, other observers of the state’s labor landscape have said the California Division of Labor Enforcement Standards, which is part of the Department of Labor, is likely to be on the front lines in enforcing AB5 in trucking.
Misclassification of an employee under AB5’s ABC test, used to determine independent contractor status, could be an action under PAGA.
When a misclassification suit under PAGA is filed, Reilly said, it “typically trickles down to a multitude of violations.” That could include missed meal or rest breaks.The PAGA action can then be expanded beyond misclassification, “so yes, it can get expensive and it is important you get ready,” Reilly said.
Because the person who files a PAGA action is acting as sort of a deputized attorney general, 75% of any settlement or award in the case goes to the state. Reilly said it was “on the list of incredibly frustrating things about PAGA from the employer’s point of view.”
These lawsuits generally benefit the attorneys filing the PAGA action “more than they do the workers and the employees,” Reilly said. Attorneys filing a successful PAGA action are entitled to a recovery of “reasonable expenses.” Going to trial often can result in costs in excess of $300,000, he said.
“So it’s a nightmare,” he added. At the end of the process, an employee might “walk out with $2.47.”
AB5, a law defining independent contractor status in California, had been kept out of the state’s trucking sector through earlier court actions. But that ended recently when the U.S. Supreme Court declined to hear an appeal of an appellate court decision that paved the way for AB5’s implementation in the sector.
During the webinar, Lisa Mitchell, an AB5 dedicated solutions specialist with TransForce, noted two other ways for the trucking sector to comply with AB5. One is to simply “cease doing business in California.” She conceded that is “completely unrealistic,” though there has been anecdotal evidence that it may have occurred with some smaller carriers. The second would be to convert workers to employees, which has been seen as the primary goal of the backers of AB5.
But in the few short weeks since the Supreme Court decision not to review AB5, it has been the so-called brokerage model versus TransForce’s two-check plan that appears to be the leading pathway by which some semblance of an independent contractor model can remain in California trucking.
Mitchell reviewed TransForce’s two-check plan, under which a driver who is now independent would be hired by TransForce while that same driver would lease equipment to a motor carrier. She expressed confidence such an arrangement would pass muster with any legal action, noting that the two-check system was not uniquely created to deal with AB5.
In social media comments on the publication of an earlier FreightWaves article on the TransForce two-check system, several commenters from the entertainment industry who had been independent contractors noted that they had switched to a two-check system when AB5 went into effect at the start of 2020. One sound engineer commented that he is paid by a hiring agency similar to TransForce while his equipment is leased by the entertainment company that needs his services.
Both Reilly and Mitchell emphasized that trucking companies that have done nothing to prepare for life with AB5 need to start getting ready.
The fact that some companies may still be hoping for AB5 to disappear was made clear in at least one written submission during the webinar’s question-and-answer session, when the two were asked about the chances for the law to be overturned. Their answer was unanimous: extremely small.
“Whatever you do, do something,” Reilly said.
While the main thrust of the webinar was to discuss the two-check system, Mitchell said the brokerage option is “very good … in satisfying the AB5 law.”
Under the brokerage model, drivers who are now leased on to a carrier and operating under the carrier’s authority would obtain their own authority from the Department of Transportation, and freight would be brokered into it. By doing that, if the carrier is now more of a brokerage than a traditional carrier, with employees and leased drivers operating under the carrier’s DOT authority, it can comply with the B prong of the ABC test that is at the heart of AB5. The B prong says a worker can be considered independent if he or she “performs work that is outside the usual course of the hiring entity’s business.”
Mitchell noted a few drawbacks to the brokerage system, though it should be noted that the two-check system is a competitor to a brokerage solution, and the webinar was the second at which TransForce talked about its two-check answer to AB5.
She said there is a significant backlog in applications for those seeking motor carrier authority in
California. Mitchell also noted the transition for a driver to having his or her own authority “can be very expensive.” Estimates have put that number at $20,000 to $30,000. Insurance also must be secured; coverage previously had been under the umbrella of the carrier that a driver had been leased on to.
In a slide accompanying her presentation, Mitchell laid out a few other potential drawbacks to the brokerage model. The bullet points: “Risk of no set rates and authority to accept loads elsewhere.” “Carriers lose operating control which can negatively impact business.” And possibly most significant, and probably one that will need the test of time and litigation to determine: “Brokerages may still be subject to ABC test.”
Other key points from the webinar:
— A trucking company based in another state that sends freight into California needs to comply with AB5. “Any worker who does work in California is subject to California labor laws,” Reilly said.
— Use of the business-to-business exception to keep a current independent contractor in that capacity will be “very rare and not likely,” Mitchell said.
— The owner of a truck that is leased to a carrier under the two-check system is responsible for its maintenance, Mitchell said. That would be a continuation of the current structure.