The California Court of Appeals has issued an opinion declaring that motor carriers are not exempt from AB5. In other words, many truck drivers will need to be re-classified as employees under California law.
The facts of the case are as follows. In January 2018, the Los Angeles City Attorney’s office sued NFI Industries and its subsidiaries, Cal Cartage Transportation Express, CMI Transportation, and K&R Transportation California, for allegedly misclassifying its truck drivers. After the lawsuit was filed, California revised how it determines independent contractors and put in place the more stringent ABC test.
Under AB 5, which utilizes the ABC test, a worker can be considered an independent contractor only if the hiring entity proves all of the following:
a) The worker is free from the control and direction of the hiring entity in connection with the work’s performance, both under the contract for the performance of the work and in fact.
b) The worker performs work that 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 of the same nature as the work performed.
You can read more about AB5 and how it affects your classification as a California worker here.
Prong B of the ABC test requires that a worker be classified as an employee, unless the employer establishes that the worker “performs work that is outside the usual course of the hiring entity’s business.” The City of Los Angeles believed this essentially outlawed the longstanding owner-operator model used in the trucking industry and brought a misclassification lawsuit against the major trucking companies. To potentially meet any exemptions, the independent contractor truck driver would have to have a business entity (such as an LLC, a corporation, etc.) that is registered by the state. The business must have a separate business location and be “customarily engaged in an independently established business as the area of work performed,” advertise those services to the public, provide its own equipment, be able to negotiate its own rates and set its own hours, and has to enter into contracts with other businesses performing the same work. Hiring entities are unlikely to satisfy these stringent rules, meaning truck drivers should be receiving benefits afforded to employees.
The state appeals court ruling reverses the trial court’s decision in People v. Cal Cartage Transportation Express.
In its ruling, the state court of appeals stated that “two-thirds of California port drayage drivers” should be classified as employees and that “rampant misclassification of drivers contributes to wage theft and leaves drivers in a cycle of poverty.
If you are a truck driver who has questions about whether you should be classified as an employee or independent contractor, you will want to speak with experienced legal counsel. Contact the skilled employment attorneys at LOEAB Law today for a free, no obligation consultation.