California Assembly Bill 5

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Enforcing Workers Comp Insurance In CA

An act to amend Section 3351 of, and to add Section 2750.3 to, the Labor Code, and to amend Sections 606.5 and 621 of the Unemployment Insurance Code, relating to employment, and making an appropriation therefor.

What Is The California Assembly Bill 5?

The California Assembly Bill 5 was introduced in the house in December 2018, and on September 11th, 2019, the state’s legislature passed it. On September 18, 2019, California Governor Gavin Newsom signed California Assembly Bill 5 (AB5) into law. The legislation is scheduled to take effect and becomes operational from January 1, 2020. The bill expands on a ruling made by the California Supreme Court on April 30, 2018, and involved Dynamex Operations West, Inc. The Supreme Court of California ruled that Dynamex impose stricter requirements for employee classification. In its ruling, the court created a 3-part test, commonly known as the “ABC” test, to determine whether an employee could be classified as a contractor rather than an employee, replacing a previous 11-point standard set in 1989 (the Borello test). California Assembly Bill 5, popularly known as the “gig worker bill,” is a piece of legislation which seeks to classify and redefine the status of what it means to be an employee in California. However, there are a few specified exceptions in certain occupations and professions where Borello will continue to apply. Examples of such profession include, doctors, architects, engineers, independent hairstylists, dentists, psychologists, insurance agents, stockbrokers, lawyers, accountants, dentists, psychologists, investment advisors, veterinarians, private investigators, direct salespersons, licensed insurance agents, commercial fisherman, real estate agents as well as a variety of other occupations engaged under a contract for professional services . The law also provides that those who violate it be held liable and give the California Attorney General’s office, local prosecutors, cities in the state and the affected workers the right to sue companies for the violation, where previously they could not.

How Does This Bill Affect The Trucking Industry?

Saberlines Insurance ServicesContrary to the past, where businesses were at liberty to skirt state and federal labor laws, trucking will be among the sectors to experience the immediate implication of the California Assembly Bill 5. The new law will help reduce the misclassification of truck drivers as independent contractors rather than employees. Reclassified trucking workers will be eligible for full-time employment status and will be entitled to minimum wage, employee benefits, rest breaks, expense reimbursements, paid parental leave, overtime pay, unemployment Insurance, workers’ compensation insurance, employer contributions to Social Security, Medicare and other benefits afforded to employees under California state law. Most trucking companies employ truck drivers as independent contractors, under which the drivers perform work that is within the company’s usual course of business which is a violation under the new law. Some of those who are aggrieved by the new law are trucking driver who own and operate a single truck in their business. Most feel that they would be misclassified because they own a single truck which they operate and as such they don’t need to be classified as employees. Despite the gains that this law brings to the trucking drivers, it will also be problematic to trucking. The law may eventually be deemed inapplicable to the trucking industry because most truckers operate inter-state and it would be a challenge to categorize those drivers according to the laws of those different states. In one state the truckers are regarded as independent contractors and in California they will be regarded as employees and this may be a point of conflict. State laws cannot interfere with certain federal laws, and this may be the best point the trucking industry can use to challenge the law in court.

However, under 2750.3(f)(8), the licensing requirement won’t apply to trucking companies if their work doesn’t require a license and all the following criteria are met:

  1. They’re a business formed as a sole proprietorship, partnership, LLC, LLP, or corporation.
  2. Their work is performed after January 1, 2020, and they’re registered with the Department of Industrial Relations as a public works contractor (even for work on private jobs).
  3. The subcontractor utilizes its own employees to perform the construction trucking services, unless the subcontractor is a sole proprietor, operating their own truck to perform the entire subcontract and holds a valid motor carrier permit issued by the Department of Motor Vehicles.
  4. The subcontractor negotiates and contracts with, and is compensated directly by, the licensed contractor.

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What Does This Bill Mean To The Transportation & Construction Industry?

In California, there are thousands of workers in transportation and construction industry who have been termed as independent contractors. They range from workers for tech-based companies, like Uber, Lyft, and DoorDash, to construction workers who are hired as sub-contracted workers and truck drivers. These are the workers who will be reclassified as real employees and will be entitled to all the benefits as stated in the new law and will be allowed to unionize. Unionized workers have the advantage of being able to collectively bargain for better terms of employment. The new law also allows workers who fill disenfranchised by misclassification to take legal action against their employer. Besides, both cities and the state have been allowed to challenge companies’ worker classifications, overriding any or all arbitration agreements that many businesses use to shield themselves from worker complaints

Pursuant to a subcontract in the construction industry, the determination of whether the individual is an employee of the contractor shall be governed by Cal. Labor Code 2750.5 and by Borello if the contractor satisfies all the following criteria:

  1. The subcontractor is routinely engaged in an independently established business of the same nature as that involved in the work performed.
  2. The subcontract is in writing.
  3. If the subcontractor is residing in a jurisdiction that requires the subcontractor to have a business license or business tax registration, the subcontractor has the required business license or business tax registration.
  4. The subcontractor is licensed by the Contractors State License Board and the work is within the scope of that license.
  5. The subcontractor undertakes financial accountability for oversights in labor or services as proved by insurance, legally certified indemnity obligations, performance bonds, or warranties relating to the labor or services being provided.
  6. The subcontractor maintains a business location that is separate from the business or work location of the contractor.
  7. The subcontractor has the authority to hire and to fire other persons to provide or to assist in providing the services.

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What Is The Bill’s Impact To The Commercial Trucking Industry?

Under California Assembly Bill 5 extends labor protections and benefits such as health care, sick leave, unemployment and workers’ compensation benefits, overtime, and minimum wage to many workers formerly labeled as independent contractors by reclassifing them as employees instead of contractors. Within the commercial trucking & transportation industry it will require companies that hire independent contractors to reclassify them as employees. Assembly Bill 5 codifies the three-part test in determining whether to classify a worker as an employee or independent contractor. This leaves the employer with the burden of proof to show that a worker is properly classified as an independent contractor. Unless the company that hires them can prove otherwise, the new law assumes that the worker is an employee. A three-part test mandates that the following conditions must be met for a worker to be considered a legally independent contractor.

  1. The worker is free to perform services without the control or direction of the hirer in connection with the performance of the work.
  2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
  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.

Additionally, the bill provides that an employer such as a commercial trucking supplier is not permitted to reclassify an individual who was an employee on January 1, 2019, to an independent contractor due to the bill’s enactment. The bill also states that existing claims and actions will apply retroactively to the maximum extent permitted by law and specified Labor Code provisions of the bill, while other provisions apply to work performed on or after January 1, 2020.

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What Are The Bill’s Benefits To Current Independent Contractors?

Existing law defines “employee” for those purposes to include among other individuals, an individual providing labor or services for remuneration and who has the status of an employee. This will include any individual performing work that is outside the usual course of the hiring entity’s business. Any worker fitting that criteria should be regarded as an employee rather than an independent contractor unless the hiring entity demonstrates that the individual meets all the specified conditions in the three-part test. The bill states for purposes of unemployment insurance provisions, employers must make contributions concerning unemployment and disability insurance from the wages paid to their employees. The bill also provides for an increase in the reclassification of workers eligible to receive benefits and sees to it that those who were disadvantaged in the gig economy get benefits which they deserve.

Below is a comparative chart showing the benefits and protections that an employee is entitled versus what is offered to independent contractors.

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