Industry Updates

AB5 FAQs: Experts Answer Motor Carriers’ Frequently Asked Questions

February 23, 2021

The regulations around AB5 are constantly changing, leaving many motor carriers scratching their heads about how to become and stay compliant. We want carriers to feel knowledgeable and prepared to make an informed decision for their business if the injunction is lifted and AB5 becomes law. That’s why we gathered a panel of experts to provide their insights around the industry’s most frequently asked questions (FAQs).

Below are the AB5 FAQs from motor carriers:

Where is the current AB5 litigation?

The Temporary Restraining Order issued by the federal district court prohibiting California from enforcing an ABC test on the trucking industry was appealed to the U.S. Court of Appeals for the Ninth Circuit. A hearing was held in November 2020 and we are still awaiting the decision on whether the TRO stays in place.

What if I move my company out of state but still operate in California?

If the owner operator/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?

The 9th circuit heard the final arguments in September 2020. A decision still has not been made yet but is anticipated to happen any day.

We haul 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 was the cost to make a transition to direct hire employees or using a third-party driver employer?

Answer provided by a TransForce Group customer:

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.

Are we preemptive by 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?

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.

Will an adverse decision be appealed to the United States Supreme Court?

It is possible with the current litigation, depending on the decision of the litigants to appeal.  The U.S. Supreme Court might decide to hear the case or let the lower court decision stand.

What if I put 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.

 

Meet our panel:

To answer the questions above, we looked to leaders from TransForce Group and the transportation industry at large. This dynamic team also presented information on AB5 including regulation updates, compliance risks, and benefits of teaming with TransForce Group during our AB5 readiness webinar

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Lisa Mitchell, Regional Vice President, West Coast, TransForce Group

Lisa has been with Transforce Group for over 19 years. As the Regional Vice President for the West Coast, she manages more than 500 drivers, nine offices, and sales and operations for the region. Since the inception of the Dynamex decision, Lisa has followed and studied the court cases to its pending status with AB5 to its current state of temporary injunction. She has attended numerous court legislative hearings, spoken with the assembly women of the bill Lorena Gonzales, and as well as held public speaking events at Western Trucking Association and Harbor Trucking association.  Lisa is a dedicated leader to helping trucking business navigate the ever changing landscape.

Michael Malarney, Vice President, General Counsel, TransForce Group

Michael is Vice President and General Counsel for TransForce Group.  He has worked for multiple transportation staffing companies throughout his career with experience in operations, sales, sales and executive management.  Michael graduated from Purdue University and later obtained his JD from Indiana University School of Law.  He oversees Legal and Risk for TransForce Group and supports all TransForce Group business units.  Michael is also current President of the Driver Employer Council of America – an industry association supporting Driver Employers in Staffing.

Joe Rajkovacz, Director of Governmental Affairs & Communications, Western States Trucking Association

Joe currently serves as Director of Governmental Affairs & Communications at WSTA.  Prior to this role, Joe served as Director of Regulatory Affairs for the Owner-Operator Independent Drivers Association in Kansas City, MO and served on their Board from 2000-2012.  Some of Joe’s primary job duties require him to monitor state and federal rulemakings as well as legislation and devise association responses. He also started and manages the association’s business service unit that performs authority and permitting work for motor carriers nationwide

Wendy Ockerman, Director of Human Resources and Legal Affairs, Osterkamp Group

Osterkamp is a current TransForce Group AB5 Solution Customer- As the Director of Human Resources and Legal Affairs, Wendy leads Safety, Compliance, Human Resource and Risk Management for the Okerman Transportation Group.  Her tenure includes over 34 years in the transportation industry.   Wendy is a trusted advisor and part of the Osterkamp leadership team.  She is an advocate and strategic leader for developing strategies to improve operations, customer satisfaction and driver development and safety programs. The Osterkamp Transportation group was started in 1959,  by Gus Osterkamp and headquartered in Pomona, CA.  A privately held company, its primary services include Truckload and LTL, servicing the eight western states.  They have 5 terminals between California and Arizona, and also operate in Las Vegas.

Get AB5 Compliant with TransForce Group

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. 

Learn more

Related Content:

[SOLUTION] TransForce Group Dedicated Solution for AB5 Compliance

[WEBINAR] California AB5 and the Big Impact of the ABC Test: What Motor Carriers Need to Know

[BLOG] AB5 Compliance – Comprehensive Resource Guide for Motor Carriers

 

LEGAL DISCLAIMER: The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.