In early 2019, California legislators pushed through labor legislation what many business analysts suggest will have a negative impact on the freight industry as a whole. At the heart of Bill AB-5, referred to as the Dynamex Decision, is an attempt to quash a freight company’s ability to outsource independent contractors to handle tasks that go beyond the purview and/or scope of their traditional business model.
Despite protests from the California Trucking Association, the pro-labor bureaucrats in Sacramento have pushed along the Dyanmex Decision, consequences are damned. As a result, this change to independent contract status could have negative impacts on your business, particularly if you don’t meet compliance. Therefore, it’s essential that you take the steps to align your business with this new legislation or else face fines. To help you avoid such consequences, TPIA will discuss the decision and outline what you need to do to meet compliance.
Read on to find out what those steps are.
The Dynamex Decision
Dynamex Operations West Inc. v Superior Court was a labor interest battle that used the ABC test to claim that all workers, including independent contractors, would be considered employees and thus be protected by California’s wage laws. This meant that they would be guaranteed:
Overtime pay
Meal and rest breaks
Minimum wage guarantees
This ruling failed to account for the fact that the vast majority of smaller owner-operator freight companies wouldn’t pass a strict ABC test due to their reliance on independent contracting in order to compete with larger companies. According to Laura Curtis, a policy advocate who opposed the decision:
“Failure to add exemptions could eliminate the majority of independent contractors in California. This not only hurts the business model of a broad swath of industries and billions of venture capital dollars that are increasingly invested in the business, but also it hinders California as a national leader in the innovation economy.”
As has been the case with minimum wage laws, which forced small businesses to eliminate jobs or reduce employee hours, this ruling will have “unintended consequences” that impact the very people they’re intended to help, particularly minority-owned businesses. For example, Swift has already abandoned the use of owner-operators in California in order to avoid potential liability.
What Trucking Carriers Should Do Following The Dynamex Decision
Naturally, if your operation utilizes owner-operators of 10,000+ lbs. trucks, you might be worried about the ramifications this decision could have on your business. TPIA understands your concerns and is partnering with Sheppard Mullin to audit our client’s:
IC Contracts
DMV Motor Carrier Permits
US DOT
Our goal is to help you avoid unexpected fines as well as retroactive fines. So, in order to avoid employee misclassification, you need to ensure that your workers meet the three criteria to be categorized as an independent contractor:
The worker must be free from control and direction of the hiring entity.
The work performed must be outside the usual course of the hiring entity's business.
The worker must be engaged in an independently established trade, occupation or business.
Criteria #2 is where the vast majority of owner-operators will run into trouble since driving trucks lies at the very heart of a trucking company’s business model. Shawn Yadon, CEO of the California Trucking Association, had this to say about the issues this ruling raise:
“Owner-operators are integral to the trucking industry and many of today’s largest trucking companies started with just a single truck. Not only is the new ‘A-B-C’ test, set by the Dynamex decision, to determine whether a worker is an employee or independent contractor unconstitutional, but its implementation and enforcement will also deprive the next generation of truckers the entrepreneurial opportunity to grow.”
So, what can you do to protect yourself? To start, TPIA suggests you take three actions:
Add a brokerage to your operations – This allows you to circumvent the rules by separating trucking operations from lease owner operations.
Have leased-on drivers obtain their own MC numbers – This grants drivers their own MC and DOT numbers, state and federal permits, and allows them to further avoid the employee classification requirements.
Independent drivers procure their own insurance - This further separates your business entity from the driver and helps establish that the driver is acting as a sole proprietor.
Besides these steps, TPIA will work tirelessly with you to ensure that you can continue business as usual. Rest assured that we’ll notify you as to any changes to the decision or alternative solutions that you can employ.
Moving Forward
Trucking Proud Insurance Agency wants to help trucking carriers avoid the negative ramifications of the Dynamex Decision. Going forward, we will work with you to ensure that you meet these evolving compliance issues.
If you have further questions or concerns, reach out and we’ll be more than happy to assist you.
Sources
Zwahlen, C. Trucks. New Labor Rulings Favor Motor Carriers Operating in California. (2019). https://www.trucks.com/2019/05/15/trucker-labor-rulings-california-dynamex/
Pitz, P. DAT. End of Owner-Operators in California? (2019). https://www.dat.com/blog/post/end-of-owner-operators-in-california
HDT. California Truckers Sue to Prevent Application of Dynamex Driver Wage Decision. (2018).
Jaillet, J. Overdrive. California lawmakers proceeding with bill that imperils owner-operator model. (2019). https://www.overdriveonline.com/calif-lawmakers-proceeding-with-bill-that-imperils-owner-operator-model/?utm_source=daily&utm_medium=email&utm_content=07-14-2019&utm_campaign=Overdrive&ust_id=[-MD5-]
