Carriers and owner operators have been looking for solutions to California's new law governing contract work, but brokerages will need to find solutions as well.
Although a temporary restraining order remains in place exempting motor carriers from California's AB5 law, that doesn't mean everyone in the trucking industry can breathe easier. AB5 also affects freight brokerages who use outside agents — people who perform the same duties as a broker but work off site and are considered independent contractors. And California isn't the only state trying to reclassify contractors as employees.
Independent contractor or employee?
One of the most controversial aspects of AB5 is its "ABC test." The B part of the test states that to be classified as independent contractor, "the work performed must be outside the usual course of the hiring entity's business."
That definition means a truck driver can't be an independent contractor for a trucking company and a freight broker can't be an independent contractor for a freight brokerage.
When issuing the temporary restraining order for AB5, the judge wrote, "the plaintiffs have shown that AB5’s Prong B is likely preempted by the FAAAA." That's a federal law that prohibits states from enacting policies related to “price, route, or service of any motor carrier.”
So, if truckers prevail against AB5 and receive a permanent injunction in California, would that apply to freight brokers too?
"Probably not" says Chris Chris Burroughs, vice president of Government Affairs for the Transportation Intermediaries Association (TIA), which has been following AB5 legislation and its potential impact on brokerages in California. "It's likely to only exempt motor carriers."
Legislation targets employee misclassification
Burroughs says employee misclassification legislation is not going to go away. He notes that states like New Jersey and Washington State have considered AB5-type laws, and that during the Obama administration 13 states signed a Memorandum of Understanding stating that employee misclassification is a "huge problem" in the U.S. workforce.
In fact, earlier this month the Democratic controlled House of Representatives passed the Protecting the Right to Organize Act, which extends protections to union workers and also calls for the ABC test to be used to determine if a worker should be classified as an employee.
"It's not going to pass because it won't get past the Republican-controlled Senate," said Burroughs. "However, if the Senate were to flip in November and a Democrat takes the White House, making AB5 the law of the land might be one of the first things they do."