An appellate court in California has ruled that a strict employee classification standard known as the “ABC test” can be applied retroactively, a decision that will have little impact on shippers but could prompt truck drivers to file class-action lawsuits early next year.
The Oct. 8 ruling means a driver who was misclassified as an independent contractor can calculate damages for lost wages, overtime wages, meal and rest break violations, and other missed benefits based on errors made by trucking companies after the ABC test was established 18 months ago.
AB5 is the landmark legislation that codified the standard outlined in the California Supreme Court’s decision in April 2018 in Dynamex Operations West Inc. v. Superior Court. In order to be an independent contractor, a company must prove the worker is free from the control and direction of the hiring entity (Prong A), that the work performed is outside the usual course of the company’s business (Prong B), and the worker is engaged in an independently established trade or occupation (Prong C). Trucking companies generally run into legal problems complying with the “B” prong.
Trucking companies are likely to take one of three approaches when the bill becomes law on Jan. 1, 2020 — become a freight property broker, convert the drivers to employees, or do nothing and wait on the federal courts to make a decision on the ABC test.
While the California court's decision to make damages retroactive will have little, if any, impact on shippers using well-known trucking companies, the law itself will likely cause drayage rates to rise in 2020.
By becoming a freight property broker, the driver will have to get his or her own operating authority from the US Department of Transportation, a costly process that industry sources have told JOC.com totals into the five figures. Converting independent contractors to employees, however, also carries additional costs of paying benefits to workers.