All Employers with CA Employees
June 30, 2022
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Motor carrier leased owner-operators who work in the state of California must now comply with AB 5 when determining whether they are employees or independent contractors. In California Trucking Association, Inc. v. Bonta, the Ninth Circuit Court of Appeals previously said that AB 5 was not preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which expressly preempts state laws that relate to a price, route, or service, of any motor carrier. As a result, AB 5 does apply to motor carriers and independent owner-operators. The California Trucking Association appealed the Ninth Circuit’s decision to the U.S. Supreme Court hoping to resolve this issue, but the Supreme Court declined to review the case, effectively ending the trucking industry’s challenges to AB 5.
AB 5 was passed in 2020 and codified the ABC test for independent contractor status set forth in Dynamex Operations West, Inc. v. Superior Court of Los Angeles. Under AB 5, a hiring party must show the following to classify a worker as an independent contractor: 1) the worker is free from control; 2) the worker performs work outside the company’s usual business; and 3) the worker independently performs work of the same nature as the work for the hiring party. Leased independent owner-operators typically run afoul of the second prong of the ABC test: they do not perform work outside the hiring company’s usual business. If an independent contractor is hauling goods for motor carriers, then they are only performing work for the carriers’ business.
Trucking businesses with leased owner-operator models in place in California must evaluate their independent contractor relationships for compliance. Motor carriers with national business models will now have to contend with different business operations for different parts of the country.
- Have independent leased owner-operator relationships reviewed by legal counsel for compliance.
- Implement employee wages, payroll tax, benefits, and other rights and employment obligations for reclassified employees.
- Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2022 ManagEase