Truck drivers recently lost their exemption to the AB5 law when the U.S. Supreme Court denied an appeal by the California Trucking Association. The law effectively prohibits owner-operators from hauling freight unless they become company employees. It also impacted approximately 1 million self-employed workers since becoming state law in 2019.
But not everyone buckled and signed on as an employee or fled the Golden State. Many scrutinized how the law differentiates between an employee and an independent contractor. Legal experts indicate there may be so-called “workarounds” that allow people to maintain their work-life freedom without breaking the law.
“Why we see the spike in independent contractors now forming corporations and an LLC is because of the fact that there are strategies that you can employ to get around this bill,” Nellie Akalp, CEO of Corpnet, a document filing service that helps clients form LLCs, reportedly said.
When Gov. Gavin Newsom signed AB5 in 2019, business applications reportedly spiked to a record 900,000 during the fourth quarter. California saw a marked increase of nearly 6 percent from 2018 to 2019, and AB5 played a hand.
Forming a corporation appears to be an option in a limited number of cases. That’s largely because the second prong of the AB5 test states, “The worker performs work that is outside the usual course of the hiring entity’s business.”
It may be necessary for owner-operators to position their companies as niche service providers. Hazardous materials transportation or reefer hauls might qualify if those are outside the carrier’s normal course of business.
“I really think that in this economy, everything is so personal, right? It’s really hard in this day and age to make generalizations. It’s not like when everyone would work in factories or offices, you know, there’s more give and take now,” Frankfurt Kurnit law partner Tricia Legittino reportedly said. “If you want to continue to at least try to be an independent contractor in the state of California, you need to go get a business license. It is maybe the only exception that they can qualify for under AB5.”
Another route would be for independent contractors to essentially negotiate an employment contract that checks all the state’s boxes but leaves the relationship intact. Although not the freedom owner-operators prefer, an employment contract could set a mileage rate consistent with other occupations. Balancing that facet against a salary that takes out taxes may satisfy the state’s desire to receive direct deductions from companies.
Although some see the implementation of AB5 as the end of independent trucking in California, legal and business experts may be able to help truckers restructure and continue earning high salaries doing what they love — hauling freight without a boss looking over their shoulder.
Sources:
https://www.yahoo.com/now/independent-contractors-already-finding-ways-090212092.html
https://www.ftb.ca.gov/file/business/industries/worker-classification-and-ab-5-faq.html
https://www.ftb.ca.gov/file/business/industries/worker-classification-and-ab-5-faq.html
“These are the nine scariest words in the English language: We’re from the government, and we’re here to help.”
– Ronald Reagan
Be nice if the government would quit trying to tell a what’s best for us…
Better question is can this big government administration keep it’s nose out of everyones Business?? THIS MEANS YOU BRANDON!!
Trucking companies have been ripping off gypos for years, not paying for work comp insurance, Social Security and Medicare contributions, and not following many laws that benefit employees.
This is a California law, has nothing to do with President Biden.
Trucking companies can easily pay gypos as employees ie 30% gross revenue as W-2 employee with witholdings etc, and 70% to the truck as a lease. It’s been done for decades-no problem.
Only the dumbest gypo would be against a law like this.
If they were smart they’d have a real contracting business like mowing lawns, if they could handle the paperwork that goes with it.
As a Owner Operator I totally agree. Don’t blame Cali for Trucking Companies problems. Let get it right so we can start doing things right, and not in back Allie’s so to speak.
I agree