How does AB5 affect California’s motorcoach companies?
In 2018, the California Supreme Court decided Dynamex Operations West, Inc. vs. Superior Court of Los Angeles. At issue was how to determine when workers should be classified as employees or independent contractors.
In the decision, the California Supreme Court laid out a three-prong test:
A. The worker is free to perform services without the control or direction of the company.
B. The worker is performing work tasks that are outside the usual course of the company’s business activities.
C. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
Workers are presumed to be employees unless the company that hires them can prove, using the three-prong test, that they are independent contractors.
In 2019, the California legislature expanded the court decision and essentially adopted the three-prong test in AB5 – largely targeted to regulate companies that hire “gig” workers in large numbers, such as Uber and Lyft.
Much of the trucking industry utilizes the services of independent drivers that operate their own equipment; however, “B” of three-prong test created a problem, and the California Trucking Association sued the State using language from the Federal Aviation Administration Authorization Act (FAAAA) as the underpinning for their argument. Enacted in 1994, FAAAA preempted many state laws, regulations, or other provision related to a motor carrier’s price, route, or service and afforded the transportation industry with uniformity and predictability.
The court challenge has been winding its way through the courts and finally arrived at the United States Court of Appeals for the Ninth Circuit where an injunction was issued (very promising) while the parties made their arguments.
Ultimately the Ninth Circuit determined AB5 did not violate the F4A Act; however, they left the injunction in place pending an appeal to the U.S. Supreme Court.
On June 30, 2022, the U.S. Supreme Court declined to hear the case, allowing the Ninth Circuit decision to stand. The injunction will be lifted any day now.
A question arose during yesterday’s UMA Town Hall regarding how this will affect the bus and motorcoach industry, particularly those that classify drivers as “independent contractors”.
Various entities have different interpretations regarding what constitutes an employee versus an independent contractor. The Internal Revenue Service (https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee), state departments of revenue, and state workers’ compensation laws all have various legal interpretations. While it is almost always safe to classify workers as employees, classifying workers as independent contractors requires the advice of a competent labor attorney familiar with your state laws and regulations, advice from your accountant, and likely some guidance from your insurance agent or company.
As the so-called gig economy has expanded, states and labor advocates have been concerned that many workers are losing protections such as minimum wage, matching FICA, expense reimbursements, health insurance, rest breaks, and the other benefits afforded to employees under the various state laws (unemployment comes to mind). These concerns have led to more challenges of employers seeking to classify workers as independent contractors. For now, AB5 is the law for California employers and adherence is not an option.