California AB 5 Law: Many Challenges, Difficult Solutions

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SAN DIEGO — The good news for motor carriers under California’s AB 5 law is that legal experts say state prosecutors haven’t sued the carriers to enforce the state’s controversial law on misclassification of independent contractors.

Not yet, according to Gregory Feary, managing partner of Indianapolis-based Scopelitis, Garvin, Light, Hanson & Feary. But if, and when, the court battles start, it’s likely to be the very big, high-profile and very small carriers that don’t do it right that will have targets on their backs, Feary said during an Oct. 23 session. at the American Trucking Association. ‘ Management conference and exhibition.

“The right of independent contractors is a matter of fact and law,” Feary said. “It is also a question of mixed law and politics. Politics, even when it’s not in your face, it works just underneath. All these judges who are trying to balance all the factors have a political point of view.

“If the policy view is that we need to stop the big, bad hauliers from taking advantage of the little ones, then you’re going to see a lot of those subjective factors weigh in favor of jobs.”

The AB 5 law, which was originally slated to go into effect in January 2020, was stalled for just over two years due to a federal lawsuit filed by the California Trucking Association, which argued the law made it almost impossible for road hauliers. use independent contractors. The Supreme Court, however, declined earlier this year to hear the CTA’s challenge to the AB 5 Act which uses a so-called ABC test designed to reclassify independent contractors as employees of motor carriers.

The law was struck down on July 1 and a federal district court preliminary injunction was lifted on August 29, said Scopelitis partner Prasad Sharma.

The AB 5 session also included a number of complex legal strategies that could, but hardly guarantee, that motor carriers can successfully combat the effects of the law on independent contractors. They range from “strategic allocation” by having independent contractors spend more time working in states other than California, to properly compensating independent contractors so they cannot be presented in courtrooms as “oppressed” employees.

“Many of these solutions are developed under a very dynamic California law. But we don’t know if any of these solutions will work,” Feary said. “There is no miracle solution.”

McClellan speaks during the educational session. (John Sommers II for transport subjects)

Shannon McClellan, partner at Scopelitis, said any proposed legislative corrections to the law that favor truckers are unlikely to be possible until next year, when the state legislature resumes session.

“Certainly stakeholders are considering their options, they are preparing legislative proposals, but there will be no immediate solution,” McClellan said. “Governor. [Gavin] Newsome said in August: ‘Be ready for that because we’re going to enforce it.’ ”

“I think we all know California’s AB 5 is fundamentally flawed in many ways,” said panelist Glenn Fehribach, chief financial officer of World Group, a container holding company.

“Two ways it’s flawed is that it assumes independent contractors don’t want to own their own business or be their own boss. Also, it assumes that all independent contractors will magically convert into employees. We all know what happens when you have the wrong assumptions.

Fehribach called the challenges posed by AB 5 and the potential solutions “so confusing that it’s hard for people to understand.”