AB5 FAQs: Experts Answer Motor Carriers’ Frequently Asked Questions

Written by TransForce | Feb 23, 2021 5:00:00 AM

For years, the laws around California AB5 and how it will impact trucking has been constantly changing. In these AB5 FAQ from motor carriers, we address your most pressing questions.

CA AB5 FAQ from Carriers

Where is the current AB5 litigation?

As of June 30, 2022 - California’s Trucking Associations' petition against AB5 has been denied. Effective immediately: Motor Carriers with operations in the state of California must become AB5 compliant. For more information on how to become compliant, view the TransForce AB5 Compliance Solution to learn more or schedule time with an expert.

As a trucking company, what are my AB5 compliance options?

There are essentially 4 options for carriers operating in the state of California and utilizing owner operators who live there:

Cease business in the state of California - an unrealistic and costly choice for all parties involved.
Adopt an employer-employee model - as an employer, you would be assuming risk of workers comp and unemployment, among other responsibilities and overhead. This includes recruiters, payroll, benefits and other employee support.
Utilize or establish a broker - driver's would need to obtain their own operating authority (time consuming and costly) and you would lose operating control. Worth noting: Brokers may be tried as employers in the future under dynamex.
Qualify under the B2B exemption - it's a very narrow exemption, but you may qualify for AB5 B2B exemptions if you and your driver meet all 11 requirements.
Adopt a 2-check system - the 2-check system simply means: partner with a driver staffing and recruiting firm to employ the driver. Then, lease the owner operator equipment from the driver.

If I move my company out of state, but still operate in California, am I exempt from CA AB5?

If the owner operator/Independent contractor (IC) lives in the state of California, all of California rules must be followed, making the ABC test still apply to the company.

What if all the drivers have their own authority? Then I am exempt?

The ABC test applies to the contracting entity, not the independent contractor. If you as the contracting entity are engaged in the same business (trucking) as the independent contractor, you are still vulnerable under the B prong of the test.

What is PROAct?

The Protecting the Right to Organize Act, or “PRO Act,” is a Federal legislation initiative in Congress that would significantly alter labor law in the United States. There are many facets to the legislation but most relevant to AB5, it includes a provision that would basically nationalize AB5 setting a nationwide standard of using an ABC test to determine proper employment classification (IC vs. employee).

What is the general sense when AB5 will be implemented?

[UPDATE] AB5 is effective for trucking companies as of June 30th, 2022. AB5 has been effective in other industries since January 1st, 2021.

My business hauls construction materials and sometimes we subcontract our construction work. What is my liability with the subcontractor?

Depending on satisfying criteria outlined in Section 2750.3 of the California Labor Code, you may be exempt from AB5. However, you should seek the advice of Counsel to confirm.

What is the cost to make a transition to direct hire employees or using a third-party driver employer?

Osterkamp Group (TransForce customer) Response:

"We compared it to if we brought the owner operators in house as employees, what it would cost to us, additional headcount, benefits, payroll tax etc. There wasn’t a significant increase between us handling it and TransForce, so we decided to use TransForce to minimize our exposure and compliance risk."
- Wendy Ockerman, Director of Human Resources and Legal Affairs
Osterkamp Group

Is my business preemptive by The Federal Aviation Administration Authorization Act FAAAA?

The Federal Aviation Administration Authorization Act (FAAAA or F4A) is the federal law passed in the mid 1990’s that deregulated “intrastate” trucking within the U.S. The Act prohibits states from enforcing laws related to the price, route and services of motor carriers. The FAAAA is the key legal argument being used by the trucking industry to thwart enforcement of an ABC test on the industry.

Is construction trucking exempt from CA AB5?

Depending on satisfying criteria outlined in Section 2750.3 of the California Labor Code, you may be exempt from AB5 but you should seek the advice of Counsel.

What if my independent contractors don’t want to convert to direct employment or be hired by a third-party driver employer?

Owner operators have other options but, once enforced, AB5 results in the presumption that the driver is an employee of the carrier if nothing changes. Everyone is facing the same thing, so being able to just contract somewhere else isn’t really an option as they have to abide by the AB5 ruling as well.

What are the benefits provided to the owner operators as a result of the transition?

Once the owner operator becomes an employee, they will be offered the standard benefits packages including health, dental, vision, 401K, and other perks.

Under AB5, does an employee receive a W2 or a 1099?

If the independent contract becomes a TransForce employee, we provide a W-2, and the carrier provides a 1099 for the utilization of their equipment, a rental agreement.

How does a driver qualify for benefits like healthcare coverage, 401K etc.?

If the IC becomes a TransForce employee of record, we then have the ability to offer the standard benefits, health, dental, 401k and vision.

Can I put my drivers through a brokerage?

AB5 does not distinguish between a carrier or a brokerage, thus, a broker would need to also abide by the ABC test on classification.