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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 will take effect and become operational on January 1, 2020.

Expansion of the California Supreme Court Ruling

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.

The ABC Test 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).

Purpose of California Assembly Bill 5

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 holds violators liable and grants the California Attorney General’s office, local prosecutors, cities in the state, and affected workers the right to sue companies for the violation, where they could not before.

How Does This Bill Affect The Trucking Industry?

Contrary 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.

Reduction of Misclassification for Truck Drivers

The new law will help reduce the misclassification of truck drivers as independent contractors rather than employees.

Employee Benefits for Reclassified Trucking Workers

Reclassified trucking workers will gain full-time employment status and receive 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.

Misclassification Concerns for Independent Truck Owners

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.

Challenges to the Law in the Trucking Industry

Despite the gains that this law brings to the trucking drivers, it will also be problematic to trucking. The trucking industry may eventually deem the law inapplicable because most truckers operate interstate, and categorizing those drivers according to the laws of different states would be challenging.

Conflict Between State and Federal Laws

In one state, truckers are regarded as independent contractors, while in California, they will be regarded as employees, which may create 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 form a business as a sole proprietorship, partnership, LLC, LLP, or corporation.
2. They perform their work after January 1, 2020, and register 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 the licensed contractor and receives compensation directly from them.

Please contact our agents today for a Workers Comp or other Trucking Insurance quote!

866-747-4242 | commercial@saberlinesins.com

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. Workers range from those employed by tech-based companies like Uber, Lyft, and DoorDash to construction workers hired as subcontractors and truck drivers.

Rights of Reclassified Workers

These workers will reclassify as real employees, gain all the benefits stated in the new law, and gain the right 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 can challenge companies’ worker classifications, overriding any or all arbitration agreements 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 routinely engages in an independently established business of the same nature as 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 holds a license from the Contractors State License Board, and the work falls 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.

Please contact our agents today for Workers Comp or other Business insurance quote!

866-747-4242 | commercial@saberlinesins.com

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 apply 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 customarily engages in an independently established trade, occupation, or business of the same nature as the work performed.

Additionally, the bill prevents an employer, such as a commercial trucking supplier, from reclassifying 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.

Please contact our agents today for a truck insurance quote!

866-747-4242 | commercial@saberlinesins.com

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 increases the reclassification of workers eligible to receive benefits and ensures that those disadvantaged in the gig economy receive the benefits they deserve.

The comparative chart below compares the benefits and protections employees are entitled to with those offered to independent contractors.