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TRANSPORTATION: New California Legislature May Jeopardize Independent Trucking Operations in State

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Recent California legislation signed into law by Governor Gavin Newsome may have profound impact on the trucking industry within the State. The law, known as “AB5,” codifies and expands upon the California Supreme Court case Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903; which made it more difficult for a contracted individual performing work within California to be classified as an independent contractor. Dynamex, and by extension AB5, essentially creates a presumption that a contracted worker is an employee, and the presumption must be overcome by consideration of certain factors. Although AB5 included a number of exempted professions, owner-operator truck drivers was not among them. Uncertainty in how owner-operators will be treated in the aftermath of this legislation may lead to a reduction of these vital small business operations within the State.

AB5 was spurred by California Supreme Court decision Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Under Dynamex and now AB5, in order to maintain an independent contractor classification, a hiring entity must establish that its contracted worker meets each of the following three factors (known as the ABC test):

(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; and

(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.

With respect to the trucking industry, factor (B) will likely be the most difficult hurdle to overcome. If a company is in the business of trucking, transportation or logistics, it will be difficult to establish that a truck driver is performing work outside the usual course of the company’s business.

After the Dynamex decision was rendered, the California Trucking Association (“CTA”) filed a lawsuit in Federal court (California Trucking Association v. Becerra, et al., case number 3:18-cv-02458) seeking to block state officials from implementing the ABC test. U.S. District Judge Roger T. Benitez dismissed the complaint on the grounds that CTA’s challenge was not yet ripe; it was unclear whether the group was harmed by the standard which had not yet been implemented. More importantly, however, was the Court’s representation that the claims may be moot in light of AB5.

In the days leading up to the bill’s signing, a number of groups lobbied for, and were granted, exemptions. These professions include, to name a few: lawyers, doctors, hairstylists, barbers, commercial fisherman, marketing professionals, fine artists and payment processing agents. The commonality or rational for granting some groups exemptions over others is not readily apparent, but as of now, independent owner-operators were not granted exemption status. The effect of exemption means that workers under these professions are analyzed under a different factor tests known as the “Borello test” established under S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, instead of the ABC test described above. It is much more difficult to establish independent contractor status under the ABC test over the Borello test.

AB5 was promoted as a means to safeguard or repair a deteriorating middle class. However, its actual effects may end up causing more harm than expected. Although the law has an “effective date of January 1, 2020, the Legislature has assigned a retroactive effect, since the provisions of AB 5 were described as “an interpretation of existing law.” Consequently, business owners may become liable for violations in the past, dating back three (and possibly four) years. A significant concern is that this new law may have a chilling effect on owner-operator’s ability to receive load assignments out of fear of being classified as an employee of the contracting entity. Some operators may be discouraged from continuing their businesses or transfer their businesses out of California entirely. The owner-operator trucking industry is vital in keeping the State’s commerce moving. The Legislature’s decision to codify Dynamex may disrupt the flow of commerce and may even erode the middle class instead of reinforcing it.

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