Blog Post

What exactly is the AB-5 Law? The AB-5 (Assembly Bill 5) law is a bill that was created to protect workers from being mis-classified as contractors. It was initally supported by labor unions throughout California as a way to bring employee benefits to the gig industries like Uber and Lyft. It was recently passed by the California State Legislature and signed into law by Governor Gavin Newsom in September of 2019. The problem with the AB-5 law is that it does not discrimate. Meaning that employees and contractors alike across all industries may be affected. That's very bad if you're the owner operator of an 18 wheel tractor trailer(s).

Imagine having a fleet of tractor trailers that you have leased on with FedEx or UPS only to be told that you cannot function as a independant contractor for these companies anymore because your duties/job description does not fall outside of the usual course of the hiring entity’s business. Meaning that if you basically perform the same work that the hiring entity and receive directions from the hiring entity you legally fall into the category of an employee. This is really bad news for both the owner operator and the hiring entity.

Both will have to create a new business model as well as spend untold sums of money to restructure their organization. In most cases the Owner Operators will likely go out of business. Let's seriously think about this for a minute. What will the Owner Operator do with all of his drivers and assets (trucks)? Will the hiring entity be willing / able to hire him and all of his drivers as well as assume his assets? If not, will he be able sell his assets in a timely fashion and find employment else where? It seems to me that laws like the AB-5 will curtail the freedom and pursuit of happiness of many Americans in our nation. Keep in mind that this is not the only regulation structured in this way in the U.S. Many states use a similar “ABC test” to determine a workers classification. The AB-5 law in california just happens to be the strictest.

The AB-5 Law normally require that these three rquirements are met: A) They are free from the control and direction of the hiring entity when performing their work. B) The work performed is outside the usual course of the hiring entity’s business. C) The worker is customarily engaged in an independently established trade, occupation or business. Whether or not AB5 applies to the trucking industry was a topic of heated debate — and a series of court cases in California. There was a federal injunction exempting trucking companies from AB5, however, on June 30, 2022 the injunction was lifted when the Supreme Court of the United States declined to hear the case.

This is really bad news for the trucking industry as a whole. Keep in mind that California is the largest state economy in the U.S. and home to the busiest port in North America. What ever happens in California has the tendency to spread to other states or even at the federal level. The AB-5 may only be a current concern for California drivers at the moment but it has the potential to destabilize the trucking labor market in California, which could create challenges for any company who needs to move freight in the state.

Capacity could also take a hit if truckers decide to leave the state (which they probably will), and rates could rise if carrier expenses go up when they have to pay drivers as full-time employees. There are currently over 70,000 owner operators in California who will be affected by the AB-5 Law. A law which in reality should never really exist. Keep in mind that this law was proposed by California legislators as a result all of the complaints that came from Uber & Lyft drivers who signed up as "indepent contractors" for these companies but then had a change of heart when they realized that they could make decent money with these gigs but they were lacking benefits.

The greed and desire of these "independent contract drivers" could have a very costly and negative effect across many industry's here in the U.S. This is one of those times where other states should not adapt the "monkey see monkey do" approach but carefully contemplate the damage adapting similar laws could have on their economies and the nation as a whole. There's an old saying in Las Vegas "what happens in Vegas stays in Vegas". This writer believes that saying should be applied to California as well.