AB 5 Exemption for Construction Trucking Operators Expires

AB 5 Exemption for Construction Trucking Operators Expires

Posted on: January 1st, 2025 by Leaders' Choice Staff No Comments

A temporary exemption that construction trucking providers had enjoyed from the controversial AB 5 law, sunsetted on Dec. 31. AB 5, which took effect in 2021, created a higher standard for determining who is a worker or a contractor in California.

This expiration will require employers who had benefited from the exemption for such service providers to now apply a three-pronged test, known as the “ABC test,” to determine an outside worker’s status as either an employee or an independent contractor.

Two sectors were given an exemption so that affected employers could prepare to comply with the new law. The temporary exemption was granted to construction trucking and manicurists in cleanup legislation to AB 5.

That bill, which took effect in late 2021, also carved out permanent exemptions for a range of workers — from freelance writers and graphic designers to dog groomers and youth sports coaches.

 

The ABC test explained

Under the ABC test, a worker is presumed to be an employee unless the employer can show that all three of the following “prongs,” or conditions, are satisfied:

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work,
  2. The worker performs work that is outside the usual course of the hiring entity’s business, and
  3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

 

Under AB 5, there is a presumption that workers are employees unless proven otherwise. This presumption places the burden of proof on the hiring entity to demonstrate that a worker meets all the requirements of the ABC test to be classified as an independent contractor.

 

Construction trucking services

Unlike the rest of the transportation industry, construction trucking was given an exemption that ended Dec. 31, 2024. That means that construction firms that hire outside owner-operated trucking providers now have to judge those relationships in light of the ABC test.

For many owner-operators, meeting the criteria of the ABC test — particularly part B, which requires workers to perform work outside the usual course of the hiring entity’s business — may be challenging.

With the exemption lifted, construction companies hiring owner-operators for trucking services may need to reclassify these independent drivers as employees. This reclassification brings additional obligations, including health insurance, workers’ compensation, overtime pay and adhering to labor protections.

Hiring trucking contractors as employees could raise labor expenses, potentially impacting project budgets and timelines. Companies may also seek to reduce their reliance on owner-operators, opting for fleet expansion or subcontracting to firms structured to comply with AB 5 requirements, such as an incorporated operation.

Owner-operators themselves face difficult decisions. Some may choose to transition to employee roles to maintain work opportunities, while others may explore moving to other states or industries where independent contractor models are less restrictive.

Another option would be for an owner-operator to restructure their business — for example, forming their own corporation. This would allow them to navigate AB 5’s requirements while preserving a degree of independence.

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