A new and potentially more costly proposal aimed at companies attempting to classify drivers as independent contractors is working its way through California’s legislature as trucking interests scramble for an exemption from the statute.
The legislation, known as AB 5, seeks to codify into law the so-called “ABC Test,” an assessment set forth in last year’s landmark Dynamex decision handed down by the Supreme Court of California that essentially makes it more difficult for companies to label workers as independent contractors rather than employees.
Under the ABC test, a worker will be deemed to have been “suffered or permitted to work,” and thus an employee for wage order purposes, unless the employer proves:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
But AB 5, which overwhelmingly passed California’s Assembly on May 29 and is now being considered by the state Senate, actually goes beyond Dynamex: it would expand the ruling to apply to unemployment insurance taxes – which was not covered within the Dynamex decision – thereby exposing trucking companies to additional employment costs for which they would be liable.
The proposal includes exemptions for several industries, including doctors and surgeons, securities brokers and dealers, and real estate agents. They instead would be subject to a test set forth in another decision, S.G. Borello & Sons Inc. v. Department of Industrial Relations. Truck drivers, however, are not a part of the current exemptions.
“Although the trucking industry is not included in the list of exempted industries, stakeholders continue to work with the legislation’s sponsor to establish a workable exemption for the trucking industry,” confirmed transportation law firm Scopelitis.
Gaining that exemption could be difficult in California, which has typically sided with legislation perceived to lean in favor of individual workers. If an exemption isn’t in the cards, it doesn’t end the fight from a trucking company perspective.
“If AB 5 is enacted without the exemption, the argument that federal law preempts California law is still in place,” Scopelitis attorney Greg Feary told FreightWaves.
“The Ninth Circuit [Court of Appeals] will weigh-in on whether federal preemption applies, and one side or the other, depending on how the appeals court rules, will likely appeal that decision to the U.S. Supreme Court,” Feary said. “So even if AB 5 passes, there’s still a fair amount of uncertainty as to where things stand in California with regard to independent contractors in the trucking industry due to likely appeals on the federal preemption question.”