We wanted to take this opportunity to educate other truckers, owner operators, and trucking companies on AB5. In addition, share our thoughts and steps we will be taking to accommodate AB5.
A Breakdown of California Assembly Bill 5 (AB5)
Assembly Bill 5, sometimes known as AB5, is a piece of legislation that Governor Gavin Newsom of California signed into law back in September 2019. It became mandatory for businesses that recruit independent contractors to reclassify them as employees as of the first of the year 2020 with a few narrow exemptions. Such businesses include companies like ours, Sugar Creek Transportation.
The bill became effective in September 2019, however later overruled by Assembly Bill 2257 in September 2020. This particular bill revised a lot of the requirements that AB5 imposed and exempted a considerable list of employment types from those restrictions.
The expansion of a judgment that was issued in 2018 by the California Supreme Court in the case of Dynamex Operations West, Inc. vs. Supreme Court of Los Angeles was the basis for the passage of AB5. The California Supreme Court made the decision that businesses must follow a three-pronged examination. This became known as the ABC test. A test to help determine whether or not workers should be classified as employees or independent contractors.
This test operates on the presumption that workers are independent contractors unless the firm that engages them can provide evidence of all three of the following factors:
- The worker is not subject to the supervision or guidance of the corporation while carrying out their job responsibilities.
- The employee is responsible for completing work tasks that are not often included in the regular course of the company’s business operations.
- The worker is typically engaged in an independently established trade, activity, or business of the same sort as that which is involved in the task that is being performed.
How Traditional Trucking Company Models May Have To Change
There are a variety of different alternatives in the way the traditional trucking company business model will change. This is also precisely a catch 22 situation because of the lack of certainty and compliance when it comes to those variations with the actual AB5. Even so, here are some examples of these variations and how your company might be impacted by one of these.
The first option is a model for employee drivers that is comparable to what representatives from labor unions would want to see. Another alternative is to essentially transform a carrier that now works with independent owner-operators into a brokerage house. This involves handing over control of the freight to the drivers in the same manner as a conventional brokerage would. Because the moving of freight would no longer be one of the company’s activities, the independent owner-operators would be involved in “work that is outside the regular course of the hiring entity’s business,” to use the precise terminology used in the B prong.
AB5 included the business-to-business exemption. It is a multipronged test that must be completely completed in order to lawfully recruit an independent contractor who could otherwise breach the ABC test. If the ABC test is not satisfied, then hiring the independent contractor is illegal. There is a lack of consensus among industry professionals on whether or not the exception’s stringent testing and need for 100% compliance render it mostly impracticable.
What Sugar Creek Transportation Is Doing About AB5
There still is a lot of uncertainty about AB5. Lots of gray areas that many companies, including Sugar Creek Transportation are wondering about. However, here is what we know and what our plans are when it comes to compliance with this bill.
“Our independent contractors can remain independent contractors. That is their right!” said Monica Byers, President of Sugar Creek Transportation. In the past, we have classified all truckers as 1099’d independent contractors. Therefore giving them the option to moonlight if they choose to do so.
“This is America!” said Monica Byers, President of Sugar Creek Transportation.
From a legal point of view, we are very much confused about how we should properly act in order to comply with AB5. However, we will also strive to do what is best, what is ethical for our truckers, and keep their best interest in mind. Therefore, we are giving everyone a choice to make:
- The people who are considered employees will have taxes taken out. They will still be compensated for their work on a daily basis. They will now have other options such as sick days available to them.
- These employees will need to get up and show up to work on time. They will also need to sign a contractual agreement with Sugar Creek Transportation. A mutual employee-employer relationship type of agreement.
- These employees will be eligible for vacation and health insurance benefits.
There are pros and cons to this approach. For instance, if they previously did not have benefits then those will now be offered to them. Also, if you employ more than five people in the State of California, you are required to offer a 401K. Having said that, these employees will now have access to these options. The drawback is that these people are now treated similarly to our office staff with regards to attendance when in the past they weren’t because they were subcontractors.
Conclusion
There are a lot of carriers out there who have operated under the terms of AB5. Before even it was a bill and it has worked out beautifully for them. AB5 has many intricacies and gray areas that still need to be ironed out. We remain hopeful and will strive to be in compliance to the best of our abilities. The transition into AB5 compliance will be a challenging one, however we are confident that we will be able to adapt and continue to thrive.
Are you a truck driver looking for a company that will not treat you like a number? Do you want to be a part of a family instead of a company that treats you like a notch on the belt? We are always looking for self-motivated, driven, and energetic people to join our family. Reach out to us at (909) 746-0370 or by email at: recruiting@scetrans.com. You can also follow us on LinkedIn, Instagram, Facebook, and Twitter.
