What are the AB5 Business-to-Business Exemptions?

California’s Assembly Bill 5 (CA AB5) has been making headlines since it was originally proposed in April of 2018. Under the new law, companies must classify independent contractors as employees – having a significant impact on truck drivers and the companies who contract them.

[UPDATE] June 30, 2022 - Effective Immediately: Owner Operators must be reclassified under California law

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To understand if your business must reclassify drivers, the 3-pronged ABC test is the recommended first course of action. The next step is understanding if your business has exemption status under one of the many exemption classifications.

In this blog, we address the most common exemption status our customers turn to when investigating their exemption criteria: Business-to-Business exemptions.

AB5 Business-to-Business Exemptions

Unfortunately for motor carriers, Business–to–Business (B2B) exemptions for AB5 are among the narrowest. The statute defines these as relationships in which a “business service provider” (driver) provides services to a “contracting business” (motor carrier).

This exemption only applies to entities that are actual “service providers” – defined as “a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation.”

For a Business-to-Business contract to be considered exempt from AB5, ALL of the following criteria must be met:

• The “business service provider” is free from the hiring firm’s control and direction while performing the work (this must be in the contract and be true in fact).
• The business service provider supplies services directly to the contracting business, rather than to customers of the contracting business.
• The contract with the business service provider must be in writing.
• The business service provider has all the required business licenses or business tax registration.
• The business service provider maintains a business location that is separate from the business or work location of the contracting business.
• The business service provider is regularly engaged in an independently established business of the same nature as that involved in the work performed.
• The business service provider contracts with other businesses to supply the same or similar services and keeps a clientele without restrictions from the contracting business.
• The business service provider advertises and holds itself out to the public as available to supply the same or similar services.
• The business service provider supplies its own tools, vehicles, and equipment to perform the services.
• The contractor can set its own hours and location of work.
• The business service provider is not performing the type of work for which a license from the Contractor’s State License Board is required.
• The “business-to-business” exemption does not apply to an individual worker (as opposed to a business entity) who performs labor or services for a contracting business.

In most cases, motor carriers are not able to apply for B2B exemptions under AB5 when contracting to owner–operators because drivers are:

• Not free from the hiring firm’s control and direction while performing the work.
• Often performing a customer facing service on behalf of the employer.
• Required to obtain a license from the State License Board.

When do B2B Exemptions Apply to Motor Carriers?

B2B exemptions can apply to motor carriers when the business service provider is performing a non-business-related service, such as:

• A trucking company hires a plumber.
• A citrus grower needs to move oranges from a farm in one location to their processing facility in another.

Get AB5 Compliant with TransForce

By partnering with TransForce Group, we can help you get compliant with AB5 regulations quickly and eliminate the risk of misclassifying workers – so you can continue to keep your trucks moving without disruption to your customers.

Additional AB5 Resources for Motor carriers:

• AB5 Trucking Updates - Comprehensive Resource Guide
• AB5 FAQ: Get your questions answered now