An update on AB 5, the ABC test

Santa Clarita Valley Business Journal
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Jaion Chung, Partner for Poole, Shaffery & Koegle

California’s new worker classification law, Assembly Bill 5, or AB 5, may have profound impact on the trucking industry within the State. AB 5 codifies and expands upon the California Supreme Court case Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903. Under Dynamex, and now AB 5, a contracted worker is presumed to be an employee unless the hiring entity can meet three factors, known as the ABC test.

Although AB 5 included a number of exempted professions (including lawyers, doctors, hair stylists, barbers, commercial fisherman, marketing professionals, fine artists and payment processing agents), owner-operator truck drivers was not included. Uncertainty in how they will be treated in the aftermath of this legislation may lead to a reduction of these small business operations within the State, which is vital in keeping the State’s commerce moving.

To overcome the employee status presumption, the ABC test requires the hiring entity to establish that the worker:

(A) 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; and

(B) performs work that is outside the usual course of the hiring entity’s business; and

(C) is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

As for the trucking industry, factor B will likely be the most difficult hurdle to overcome for companies engaged in the business of trucking, transportation or logistics in establishing that an independent truck driver is performing work outside the usual course of the company’s business. Accordingly, a significant concern is that this new law may have a chilling effect on owner-operator’s ability to receive load assignments out of fear of being classified as an employee of the contracting entity.

Hope is not lost as a federal judge recently issued a temporary restraining order preventing California from enforcing it against truck drivers. The order will remain in effect until the judge rules on a request for an injunction brought by the California Trucking Association.

In addition, although the law became effective as of Jan. 1, 2020, AB5 includes a retroactive effect. Consequently, business owners may become liable for violations in the past, dating back three (and possibly four) years

Jaion Chung is a partner in the Los Angeles and Orange county offices of Poole, Shaffery & Koegle, LLP.  For more information on Poole Shaffery & Koegle, call 855-997-7522, or visit pooleshaffery.com.

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