Assembly Bill 5 (AB 5) determines a new standard for whether a worker in California is considered an employee or independent contractor.

In California, the difference between a person legally-classified as an employee or independent contractor is vast.

California’s minimum wage and hours worked laws, workplace safety laws and retaliation laws protect employees, not independent contractors. Additionally, employees can go to state agencies such as the Labor Commissioner’s Office to seek enforcement of these laws, whereas independent contractors must resolve their disputes or enforce their rights under their contracts through other means.

What is AB 5?

AB 5 is a bill the California Governor signed into law September 2019 addressing employment status when a company claims a person hired is an independent contractor. An injunction in place since 2020 has prevented the law from being enforced while a lawsuit on the bill made its way through the judicial system.

On June 30, 2022 the U.S. Supreme Court denied a petition from the California Trucking Association to hear the case, paving the way for full enforcement of the law.

AB 5 requires the application of the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code and the Industrial Welfare Commission (IWC) wage orders. 

What is the ABC test?

• A) 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;
• B) The worker performs work that is outside the usual course of the hiring entity’s business; and
• C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

How will AB 5 effect owner-operators?

The AB 5 law may cause motor carriers and owner-operators to bear substantial costs and burdens associated with shifting to an employer-employee business model. Provisions in the bill will prevent independent owner-operator truck drivers from contracting with other trucking companies for services, essentially leaving trucking companies no choice but to use only employee drivers. 

Does AB 5 automatically reclassify independent contractors as employees?

In short, no. Labor Code section 2775 starts with an assumption that all workers are employees, and provides the test that a company would have to satisfy to prove the workers are independent contractors. Employers may wish to evaluate their working arrangements and ensure they are appropriately classifying their workers as required under the law, and workers may file a claim if they believe they have been misclassified. 

Please click here for more information on Assembly Bill 5 and how it may impact owner-operators across the country. 

About Drive Logistics

Founded in 2016, Jacksonville-based Drive Logistics is a veteran-owned trucking company that provides business support services to trucker owner operators with the passion to run their own trucking business. Drive Logistics is recognized as the premier company for truckers to secure comprehensive business solutions, innovative tools and benefits committed to help its clients make their entrepreneurial dreams a reality. Drive Logistics offers billing, collections, broker negotiation, IT services, back-office support and many other business services to trucking company owners. Drive Logistics operates in the contiguous 48 states and its executive team has over 100 years of combined experience in the trucking industry. For more information, please visit www.drivelogistics.com.

If you have any questions about factoring, you may contact Drive Logistics here.