California’s Assembly Bill 5, also known as AB5 or the “gig economy bill,” starts Jan. 1, 2020. It codifies, clarifies, and grants exemptions to a 2018 California Supreme Court decision involving Dynamex Operations West, a parcel-delivery company that reclassified its employees as independent contractors. The court determined that independent contract workers must be treated as employees if their jobs are central to a company’s core business or if the bosses direct the way the work is done.

AB5 states that workers must meet three criteria to be classified as independent contractors:

• The worker must be free from control and direction of the hiring entity.
• The work performed must be outside the usual course of the hiring entity’s business.
• The worker must be engaged in an independently established trade, occupation or business.

The second requirement is virtually impossible for a trucking company to meet because driving trucks is part of its core business…

Dozens of professions have won exemptions from AB5, usually on the grounds that they set or negotiate their own rates, among other factors. They include doctors, psychologists, dentists, hairstylists, and accountants.

So far, trucking companies and owner-operators have no such exemption. Some trucking officials say taking on independent drivers as full-time employees will likely prove costly and could make operations less nimble.

Another option that carriers are pursuing is expanding their businesses by starting their own freight brokerage. It used to be more challenging to start out as a broker/3PL due to lengthy back-office processes. Luckily, with modern tech and automation, new brokers and carriers alike can get started and be running efficiently from day one. For more info on this, check out Tranflo’s all-encompassing digital solution for freight brokers called Velocity+.

In a nutshell, carriers need to convert their owner-operators into company drivers, OR, start their own freight brokerage…the only other alternative is to move out of California.

Transportation lawyers at Scopelitis, Greg Feary and Shannon Cohen, have a concise brief on AB5 you can view here.