Make or Break: Assembly Bill 5 (AB5) and the California Transportation Market
September 14, 2022
California Governor Gavin Newsom signed Assembly Bill 5 (AB5), commonly known as the “Gig Worker Bill,” into law in September of 2019. This legislation went into effect on January 1, 2020, and required companies that employ independent contractors to reclassify them as fulltime employees. AB5 represents a major shift in employee classification with far-reaching consequences in many industries, including transportation.
Under AB5, a three-point test is used to determine a worker’s classification under the law. To be considered a contract worker and not a full employee, a worker must meet all the following criteria:
The worker is free from control and direction in the performance of services.
The worker is performing work outside the usual course of the business of the hiring company.
The worker is customarily engaged in an independently established trade, occupation, or business.
For business owners who previously relied on contract workers, it is clear that these standards would be hard to get around. The resulting shift toward a workforce made up of fulltime employees means that employers must provide these workers with benefits, withhold taxes, and take on all the other associated responsibilities. This means a major increase in the cost of doing business that some operations simply can’t afford.
Some California-based trucking companies have already made the difficult decision to relocate to other states. Others are doing what they can to survive, while some are forced out of business entirely. Whatever the case, the consequences of AB5 are having a major impact on the supply chain. Smaller operations that can’t afford to pay a fulltime workforce are perhaps the hardest hit. Meanwhile independent contractors face a lack of work as businesses can no longer afford to hire them.
Are there any AB5 work arounds? And how can businesses and independent contractors avoid AB5? Find the answer in the latest episode of the Stay In Your Lane Podcast.
AB5 has so far survived challenges in the courts and remains fully enforceable. For transport companies unwilling or unable to adapt to the demands of the legislation, some workarounds do exist. One option is deploying a freight brokerage model, in which carrier operations break off into two separate businesses to broker their own trucks. Obviously, this tactic and others intended to sidestep the rules can introduce many challenges of their own. Still, methods of getting around the restrictions put in place by AB5 might exist for business owners creative enough to find them.
The real impact of AB5 will largely come down to enforcement. If the government chooses to enforce legislation by the letter of the law—and all signs indicate it will—then many transport operations will have to adapt to survive. As officials and law enforcement work to enact these new policies for the first time, some leniency may apply. Unfortunately for many operations, this law seems to be here to stay.
It’s likely a driver shortage is on the horizon as small carriers shut down or former contract workers leave for other areas of employment. These disruptions could cause further rifts in an industry that has already faced unprecedented challenges in recent years. To stay ahead of the chaos, it’s important to surround yourself with industry partners you can trust. Triple T Transport provides award-winning third-party brokerage services that you can depend on, both inside and outside of California – and across the US and Canada. Click here to learn more.