Truck Law

A Transportation Law Blog from TransportationAttorneys.NET

Work Comp Premium Audits

by G. Spencer Mynko, Esq.

WORKERS COMPENSATION INSURANCE PREMIUM AUDITS CAN DEVASTATE TRUCKING COMPANIES. I’VE HEARD THESE REFERRED TO BY THE TERM “SHOCK AUDITS”.

Unfortunately, trucking companies may go into “shock” when they receive an audit bill for a recently expired Worker’s Compensation insurance policy. Of course, this is due to an unexpectedly high increase in premium from an audit. What is particularly troubling is that the increase in premium can be so high, that the viability of the trucking company is threatened. Hence the term “shock audit”.

Understandably, these audits can result in serious distress and frustration for the owners of a trucking company. And while outrage is a common reaction to being on the receiving end of such an audit, a cool, methodical, and specific analysis of the facts, along with supporting evidence, are what you will need to successfully dispute an unfavorable audit.

Finally, I want to make you aware of a trucking company that is facing CRIMINAL LIABILITY FOR FRAUD in a work comp audit for improperly classifying drivers as ICs.

WHAT DO YOU DO IF YOU WANT TO DISPUTE THE AUDIT RESULTS?

The procedures involved in disputing a work comp audit are specific, detailed and deadline driven. Here is information directly from the WCIRB’s website:

Disputing Your Insurer’s Decision

To dispute a decision made by your insurer, the dispute must be in writing and sent to your insurer’s designated office. Contact information for your insurer’s dispute process is found in a policyholder notice attached to your policy titled “Your Right to Rating and Dividend Information,” under the paragraph “Our Dispute Resolution Process.” Issues disputed with your insurer may include classification assignments or premium issues. Claims-handling issues are not addressed in this procedure and should be directed to your claims adjuster.

Disputing the WCIRB’s Decision

To dispute a decision made by the WCIRB, such as the classification of the operations assigned on a WCIRB inspection report or the calculation of your experience modification, follow the process explained in the
California Workers’ Compensation Uniform Statistical Reporting Plan – 1995, the California Workers’ Compensation Experience Rating Plan – 1995 and the Miscellaneous Regulations for the Recording and Reporting of Data – 1995 under a section titled “Inquiries, Complaints and Requests for Action, Reconsideration, and Appeals.”

Appealing to the Insurance Commissioner

If you have exhausted either your insurer’s dispute process or the WCIRB’s dispute process, and you are still not satisfied with the outcome, you have the right to appeal the issue to the Administrative Hearing Bureau at the California Department of Insurance. When responding to your dispute, your insurer or the WCIRB should provide you with contact information for filing your appeal with the Department of Insurance. The information is also found in the “Your Right to Rating and Dividend Information” policyholder notice attached to your workers’ compensation policy; Part 1, Section V of the California Workers’ Compensation Uniform Statistical Reporting Plan – 1995; and Section VIII of the California Workers’ Compensation Experience Rating Plan – 1995. The appeals process is also found in the California Code of Regulations, Title 10, Chapter 5, Subchapter 3, Article 9.7. When filing an appeal, you should be as specific as possible concerning your issue and include any supporting documentation. You should also clearly explain why you believe your insurer or the WCIRB acted (or failed to act) in error.”

If you happen to be insured by State Compensation Insurance Fund (SCIF), The dispute resolution process is very specific:

A written statement detailing the specific information claimed to be inaccurate must be submitted to the dispute department. Any claim of inaccurate audit information must be supported by a detailed explanation of what is believed to be incorrect and what the correction should be. Copies of original financial and/or other records that support the discrepancy must cover all disputed information. All information needs to be received within 10 CALENDAR DAYS, if not SCIF will consider the matter closed. (You may wish to referred to SCIF’s Premium Audit Guide which is available online.)

Obviously this may seem intimidating and unfair: try to keep these things in mind if you feel your audit is incorrect:

Do not wait until the last minute to respond to the audit; Do not procrastinate. You have to get in front of this! If your account is turned over to a collection agency or a lawsuit is filed against you, you have very limited ability to negotiate directly with the insurance company.

Be proactive at correcting your audit. mistakes occur in a high percentage of audits. Insurance carriers know that. Be proactive at correcting those errors!


Follow the rules established by your insurance carrier for filing a workers compensation audit dispute. And be sure to be aware of the various deadlines in place for filing disputes and the appeal of any unfavorable decision. Again, do not delay.

So what do auditors look for and what are they interested in?

First and foremost: Do the drivers on their own trucks? AB5 and the ABC Test be damned, I have always stated that if the driver owns his own truck, and the truck is registered in the independent contractor’s name, this will get the Company 90 yards down the field toward being successful in their argument that the drivers are properly classified as independent contractors. One of the tests of whether someone is an independent contractor is whether they have made a substantial investment into their business: because a truck clearly qualifies as a “substantial investment”, owning a truck and have it having it registered in the driver’s name goes along way toward establishing that they are independent contractors. However, and many trucking companies may find this frightening, simply because the drivers own their own trucks does not guarantee the Work Comp auditor will agree that they are independent contractors. I have actually had Work Comp auditors decide that the drivers were independent contractors despite the fact that they owned their own trucks.

Who pays for fuel, insurance, and maintenance: Work Comp auditors will almost universally be interested in who is responsible for paying for fuel, insurance, and maintenance. More often than not, independent contractors will purchase fuel and insurance through the company. The critical issue though, is whether the drivers are free to pay for their own insurance and get fuel wherever they choose. As long as the driver is not forced to purchase fuel, maintenance, and insurance through the trucking company, the scale will tilt toward independence.

Work Comp auditors will ask whether the drivers drive for other companies. Obviously, if you work with independent contractors who actually drive for other companies, you want the work comp auditor to be aware of that. If they don’t drive for other companies, then you need to make it clear to the auditor that they have the freedom to drive for any company they choose to, but simply choose to only drive for your company. Again this is a huge issue.

Work Comp auditors will always ask whether drivers are free to accept or reject loads. If the driver accepts 100% of the loads they are offered, the work comp auditor maybe skeptical of their true independence. That is why it is so important to convince the auditor that the drivers are truly free to accept or reject loads as they please. Furthermore, there can be no reprisal for rejecting a load. It also needs to be made clear to the auditor that there are no guaranteed number of loads, and just because the driver gets a load this week, doesn’t mean he will get another load next week or for that matter, ever again.

Operating authority: Work Comp auditors always ask whether drivers have their own operating authority. While it is common industry practice for independent contractor drivers to drive under the companies’ authority, and I think it’s proper to do so, they still ask whether they have their own authority. This is why I always advise clients to work with drivers who do have their own authority, even if it is simply a CA number. Obviously, it’s nice if they have their own MC or DOT number, but some authority is better than no authority.

Contracts: Work Comp auditors always ask whether the independent contractor driver has a written contract establishing that the driver is in an independent contractor relationship with the company. While having a contract in place stating that “I am an independent contractor” is necessary in my opinion, it is not sufficient, nor will it guarantee, that a driver is an independent contractor. Auditors will always look beyond the contract and scrutinize the actual conduct of the parties.

Instructions and training. Remember, an independent contractor decides how to do the job and will establish his or hour and procedures, and act without supervision. So as far as a trucking company is concerned, the trucking company should only be concerned that the driver gets the freight from point A to point B The “how” that happens is entirely up to the driver. A company should never admit to providing the driver with “training” . Again, the driver uses his own methods and receives no training from the trucking company. Nor should the driver be required to attend meetings

Does the driver have any proof or indicators that he or she is truly in business for him or herself. Things like business licenses, incorporation, business cards, website, etc. are all important indicators that the driver is genuinely in business for himself. This is another reason I encourage companies to work with drivers who are incorporated. I’ve had work comp auditors clear drivers if they are incorporated and the 1099 that the company issues is attached to an EIN number as opposed to a Social Security number. Remember, an independent contractor is supposed to be in business for him or herself, and hold him or herself out to the general public as a professional driver who is free to drive for any company he or she chooses.

Membership in Owner Operators Independent Drivers Association. Membership in OOIDA helps make a driver look as if he’s truly independent.

Occupational accident Insurance: I have always felt it is a great idea to work with contractors who carry their own occupational accident Insurance . First of all, it makes them look independent if they purchase insurance to protect themselves against injury. Secondly, it protects the company if, God forbid, something horrible happened.

Understandably, these audits can result in serious distress and frustration for the owners of a trucking company. And while outrage is a common reaction to being on the receiving end of such an audit, a cool, methodical, and specific analysis of the facts are what you will need to successfully dispute an unfavorable audit.

The starting point in your fact-finding mission will include the original policy, the audit billing statement, and the audit worksheets.

A company will need to examine how the estimated original premium was calculated. Critical to this analysis are two important considerations: 1) what classification codes were used, and 2) how much payroll was assigned to each classification. For example, this frequently becomes an issue where the auditor assigns clerical workers into the higher risk “truckmen’s” classification. Another example is where independent contractor truck drivers are considered to be company or employee truck drivers. If the auditors misunderstood the nature of work done by some employees, the auditor may have misclassified certain workers into the wrong classification.

Certainly, estimated payroll on the original policy will need to be compared with the payroll used in the audit. Furthermore, any increase in additional premium will need to correlate with an increase in payroll. If you receive a significant audit bill, but any increase in payroll does not justify such a large additional premium bill, there may be a problem. Furthermore You must also compare the experience modification factor on the policy to the experience modifier on the audit.

What About Those Criminals You Mentioned Earlier?

OK, first of let me say I’m referring to “alleged” criminals since everyone is presumed innocent until proven guilty beyond a reasonable doubt. Here’s the link to the story: California Trucking Firm Owners Charged in Alleged $450K Workers Comp Fraud

“Trucking company owners were charged this week with multiple counts of insurance fraud after allegedly misclassifying employees as independent contractors in a scheme to underreport payroll by more than $1.4 million, resulting in a $234,000 loss to their insurer and a $220,000 loss to the Employment Development Department. [The owners] were doing business as Trust Transport Inc., a long-haul trucking company based out of their residence in Sacramento and a separate trucking yard in West Sacramento. From Feb. 25, 2014 through Oct. 20, 2016, Trust Transport maintained workers’ compensation insurance coverage with State Compensation Insurance Fund and reported $105,811 in payroll.”

“SCIF conducted audits to confirm the payroll and found that several workers were issued 1099s and had been misclassified as independent contractors.


California Department of Insurance detectives served a search warrant at Trust Transport’s bank for financial records and discovered roughly $1.4 million in unreported payroll from the misclassified “independent contractors.” The investigation reportedly revealed [the owners] fraudulently misclassified these employees in order to avoid paying higher workers’ comp insurance premiums.”

See https://www.insurancejournal.com/news/west/2020/10/22/587159.htm

Don’t be those guys.

Finally, if you are unsure as to what you need to do, contact someone who does. If you find yourself at risk for undergoing a workers compensation premium audit or you are in the midst of one or you have been assessed, call Transportation Attorneys ASAP.

Ninth Circuit Appeals Court Rules AB5 and ABC Test Are Not Preempted by Federal Law!

by G. Spencer Mynko, Esq.

Ninth Circuit Appeals Court Rules AB5 and ABC Test Are Not Preempted by Federal Law!
California Trucking Companies Who Use ICs Are Now Easy Prey

In January 2020, federal judge Roger Benitez from the Southern District of California became the hero of trucking companies everywhere when he granted an injunction that would prevent the state of California from enforcing the dreaded “ABC test“ against trucking companies. As all of you know all too well, the ABC test makes it practically impossible for trucking companies to utilize independent contractor truck drivers. Judge Benitez ruled AB5 and the ABC test ran afoul of Federal law. Of course, we all rejoiced at this court order – here are some of the highlights of that decision:

“For decades, the trucking industry has used an owner-operator model to provide the transportation of property in interstate commerce. That model generally involves a licensed motor carrier contracting with an independent contractor driver to transport the carrier-customer’s property…Motor carriers offer many types of trucking services, including conventional trucking, the transport of hazardous materials, refrigerated transportation, flatbed conveyance, intermodal container transport, long-haul shipping, movement of oversized loads, and more. Motor carriers meet the fluctuating demand for highly varied services by relying upon independent-contractor drivers”.

“Individual owner-operators use a business model common in both California and across the country. They typically buy or lease their own trucks, a significant personal investment considering that the record reflects a single truck can cost in excess of $100,000… Then, the owner-operators typically work for themselves for some time to build up their experience and reputation in the industry. Once the owner-operator is ready to expand their business, they contract for or bid on jobs that require more than one truck, at which time, the owner-operator will subcontract with one or more other owner-operators to complete the job. Many individual owner-operators have invested in specialized equipment and have obtained the skills to operate that equipment efficiently “

“[T]here is little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking. In so doing, California disregards Congress’ intent to deregulate interstate trucking, instead adopting a law that produces the patchwork of state regulations Congress sought to prevent. With AB-5, California runs off the road and into the preemption ditch of the FAAAA. Accordingly, Plaintiffs’ motion for a preliminary injunction is GRANTED.

Well, it was good while it lasted…common sense has now been replaced by legal mumbo-jumbo.

Appeals Court Rules AB5 and ABC are A-OK!

The Ninth Circuit, in a 2 to 1 split decision, reversed the District court’s injunction order. The majority stated that the district court “abused its discretion” in ordering the injunction. Unfortunately, this doesn’t really surprise me – when I listened to the oral arguments, I could tell that one judge was on the side of trucking, another judge was against the trucking industry, and a third judge was better suited to handing out Halloween candy.

The case, now referred to as California Trucking Association v. Bonta (The new Attorney General since Xavier Becerra was called to Washington by the Biden administration to run the Health and Human Services department), has taken a serious turn for the worst. In a decision that is detached from reality and basically filled with a bunch of legal bullshit, the two judge majority stated that “AB5 is a law of general applicability“ and therefore is not preempted by federal law, specifically the Federal Aviation Administration Authorization Act (F4A). “Because AB-5 is a generally applicable labor law that impacts the relationship between a motor carrier and its workforce, and does not bind, compel, or otherwise freeze into place a particular price, route, or service of a motor carrier at the level of its customers, it is not preempted by the [FAAAA].” The majority came to the absurd conclusion that the ABC test is “not sufficiently related to the price, route, or service of any motor carrier… with respect to the transportation of property“. The majority stated that the ABC test “merely” affects the classification of workers, and does not compel a motor carrier to implement a “particular price, route or service that a carrier would otherwise not provide“.

You heard that right: The majority opined that converting all of your independent contractor drivers to employees will not affect the prices you have to charge to move freight around this country. Unfortunately, their bullshit will severely expose trucking companies to millions, if not billions, of dollars in fines, penalties, judgments, etc., if they hire independent contractors and, at the same time, destroy the livelihood of owner-operators that contract with motor carriers as independents. I ask, does ANYONE reading this think converting all of your Owner-Ops to Employees isn’t going to affect freight charges?

The dissenting judge severely criticized the majority for ignoring the reality that this law could affect a motor carriers’ prices, routes, or services. Judge Mark Bennett wrote that AB5 both affects motor carriers’ relationship with their workers and significantly impacts the services motor carriers are able to provide to their customers, and it therefore is preempted as applied to the California Trucking Association’s members. The judge noted that the “all or nothing“ approach required by the ABC test would essentially require all trucking companies to re-classify their owner operators as employees, which would “significantly impact motor carriers’ services by mandating the means by which they are provided” and “will now suffer irreparable injury.” That point was completely lost on the majority.

The CTA may appeal to the U.S. Supreme Court.

“We continue to stand by our initial claim that the implementation of AB 5’s classification test is preempted by federal law and is clearly detrimental to the long-standing and historical place California’s 70,000 owner-operators have had in the transportation industry,” said Shawn Yadon, CEO of the California Trucking Association. “The California Trucking Association will take whatever legal steps are necessary to continue this fight on behalf of independent owner-operators and motor carriers operating in California”.

Well, good luck with that, for while I would love to see that happen, betting on the USSC taking up your case is gambling, pure and simple. In the mean time you have a situation where California forbids the use of Owner-Operators, while the rest of country allows them.

What Can California Trucking Companies Do?

Going to your window and yelling “I’m mad as hell and I’m not going to take it anymore” isn’t going to help. Neither will calling Ghostbusters. But you can, and should, call Transportation Attorneys.

As many of you know, I have been writing about the business to business exemption in AB 2257. While it is a narrow exemption, getting good legal advice on the finer points of the exemption could spare your trucking company from disaster. While it is not easy, I do believe the business to business exemption to AB5 and the “ABC” test is attainable with meticulous attention to detail. Furthermore, every trucking company should note that the business to business exemption requires a “written contract“ between the company and the contractor. My proactive clients have been anticipating a negative decision from the Ninth Circuit Court of Appeals, and therefore made certain that their business practices satisfy the business to business exemption, and their independent contractor operating agreement is up-to-date. They are moving forward with confidence.

Obviously, I want you to contact my law firm to get advice on how to satisfy the business to business exemption and hire my law firm to draft your independent contractor operating agreement. There is the faintest of light at the end of the tunnel. If you are a California trucking company using independent contractors, the question is whether you are going to make it to the light or crash in the darkness.

Contact Transportation Attorneys for legal advice on how to comply with the laws and regulations that confront your company.

Piece-Rate, Commision, and Bonus Pay for Truck Drivers, Revisited – and a brief mention of Section 925 (Venue/Choice of Law)

by gspencermynko

Piece-rate, commission, and bonus pay for truck drivers, revisited

Recently, I have advised a number of clients about driver pay and compliance with California Labor Law, specifically as it relates to piece-rate compensation, commissions, and bonuses. While the law has been in effect for quite some time, since 2015, recent conversations with trucking companies – and their confusion on payroll practices – motivated me to review this critically important aspect of California labor law.

Traditionally, trucking companies have employed commissions and piece rate compensation to reward drivers and encourage productivity, beyond that achieved by hourly wages. Typically, this would involve paying by the mile, paying by the load, and paying some type of productivity bonus.

These types of payment schemes were turned on their head in 2015 by the enactment of California Labor Code 226.2. Specifically, employees who work under either a piece rate compensation or commission pay structure must be paid at least minimum wage for their non-productive time, including rest breaks. Courts have confirmed that workers must be paid for “rest and recovery periods and other non-productive time separate from any piece-rate compensation.” “Non-productive time“ is defined as “time under the employers control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece rate basis.“

The California court of appeals in Vaquero V. Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98 stated that the law applied to commissioned employees as well, and required that they be compensated for rest, recovery, and other non-productive time.

Most people know California requires employees be provided with one 10 minute paid rest break for every four hours worked. The courts have reasoned that payment plans that are based on productivity or commission violate the rest period provision because the employee is not earning compensation during a rest break. Hence, in a strictly piece-rate, production-based, or commission based pay scheme, rest breaks are uncompensated and therefore violate California law.

Non-productive Time

Non-productive time is a big issue in trucking. After 226.2 was enacted, A federal court ruled that Pre-trip and post-trip safety inspections were not productive work under California law, and therefore the trucking company was violating the law because the drivers were not specifically compensated for their time spent performing pre-trip and post-trip inspections.

A California state court subsequently agreed that piece-rate truck drivers had to be paid separately at at least minimum wage or a contract hourly rate for time spent on rest periods. The Vaquero court followed suit, by stating that employees paid on commission had to be paid separately for rest periods. So take heed that employees compensated by way of commissions or piece-rate compensation must still be paid at least the applicable minimum wage for not only their productive time, but for rest breaks, recovery periods, and non-productive work.

As a state that has a strong public policy to ensure employees are paid for all hours worked, California is extremely strict on enforcing these policies, despite the fact that the employee may be enjoying generous compensation by way of commissions or piece-rates.

A simple way of dealing with this is to pay drivers an hourly wage, at least the applicable minimum wage, for all hours worked. Hence, I advise clients to make sure that their drivers are being paid at least minimum wage from the moment they clock in to the moment they clock out – excluding meal breaks. Then, the trucking company can pay a “bonus“ or commission on top of that and still be in compliance with the law.

Now that 226.2 has been around for sometime, A substantial body of case law, has developed interpreting the law. In 2019 the California Court of Appeals held that the labor code requirement that piece-rate employees be separately compensated for “non-productive time“ was not unconstitutional. In other words, the court held that the law is fair and gives California employers adequate notice in terms of their legal duties and obligations to abide by the labor code.

Again, the simplest way to deal with this is to pay employees, truck drivers included, separate wages for their rest, recovery and non-productive time at minimum wage.

Choice Of Law and Choice Of Venue

I want to briefly mention California Labor code section 925. Section 925 prohibits employers from requiring employees who reside and work primarily in California to agree to any provision that would require the employee to litigate any claim that arises within California, outside of California. In other words, if your drivers, and other employees for that matter, work or live in California, you cannot force them to litigate employment disputes outside of California and/or require them to litigate under non-California law. While I am mentioning this to make readers aware of section 925, I don’t think it changes how I have been advising clients for years, which is simply if you wish to avoid California labor laws, do not hire drivers who live in California, and do not base your operations within California. Otherwise, you and your company will fall within the grip of California jurisdiction. If you are an out-of-state trucking company with a base of operations within California, and more significantly, you are hiring drivers who are California residents, you can expect to be hauled into a California court should a dispute arise. Furthermore, in this scenario, any efforts to move the case out of state will likely fail.

So for you folks looking to incorporate in the Lone Star State or the Grand Canyon State or whatever greener pastures you think may relieve you of the Golden State’s heavy-handed regulation, you probably should base your operations out of that state and NOT hire California residents.

Contact Transportation Attorneys for legal advice on how to comply with the laws and regulations that confront your company.

Pandemic Unemployment Assistance (PUA) and Paycheck Protection (PPP) For Independent Contractors and Small Trucking Companies – CARES Act III

by gspencermynko

PUA and PPP Update: This article is of major importance to all small trucking and transportation companies and independent contractor/owner operators everywhere.
Paycheck Protection Program (PPP)

Everyone knows that the COVID-19 pandemic hit small trucking and transportation companies and independent contractors hard. However, The most recent Paycheck Protection Program (PPP) enacted under the CARES Act III grants forgiveable loans to small businesses. NOTE: this program ends March 31, 2021. This most recent version of the PPP is geared toward helping small businesses obtain federal relief. As of February 24, 2021, businesses with more than 20 employees will not be approved for PPP loans for a two week period to help low and moderate income businesses access PPP funds. If you are a small company, sole proprietor or an independent contractor, now is the time to look into PPP.

Furthermore, there have been changes to the program which will further help small businesses. The PPP loan calculation for independent contractors, sole proprietor‘s and self-employed individuals will receive greater financial support. The Biden administration committed $1 billion to be set aside for these types of small businesses who have no employees.

Another change in the program allows individuals with non-fraud related felonies to apply for PPP funds. Therefore, as long as you have not been convicted of a felony related to financial assistance fraud within the previous five years, you may apply for a PPP loan, unless you are currently incarcerated – which is highly unlikely if you’re reading this now.

Another change is that individuals delinquent on student loans are now eligible for PPP loans, and non-citizen small business owners who are legal residents, including green card holders and those on visas are also eligible to apply.

Again, PPP funding is set to expire March 31, 2021. While this may be extended, you should not count on it and act quickly to take advantage of this program. Similarly, businesses with 20 or fewer employees can still apply for PPP loans.

Applicants should also take into account that the government is paying close attention to individuals who violate PPP rules. Therefore, if you do decide to go down this road, small businesses and independent contractors must be compliant with the rules of this program.

For more information, readers may wish to go to: PPP FAQs

OR – https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

Pandemic Unemployment Assistance (PUA)

The CARES Act III also extends pandemic unemployment assistance (PUA) for independent contractors. Act III maintains the $300 weekly PUA benefit, but gets rid of the $300 per week enhancement which ends March 14, 2021.

American Rescue Plan Act

Another benefit for independent contractors is that the first $10,200 in unemployment benefits received in 2020 will be tax-free for individuals earning under $150,000 per year. For married couples are running under $150,000 per year, the tax free benefit goes up to $20,800 for benefits received in 2020. so good news there for independent contractors.

Families First Coronavirus Response Act

CARES III also provides for paid sick and paid family leave benefits through September 6, 2021 under the Families First Coronavirus Response Act (FFCRA). Also, independent contractors who have been receiving PUA benefits, will continue to do so without the requirement of re-applying for the program. If you are an independent contractor who has never received PUA benefits, plan on filing an application for this program.

For more details on PUA, readers may wish to go to:

https://www.edd.ca.gov/about_edd/coronavirus-2019/cares-act.htmhttps://www.edd.ca.gov/about_edd/coronavirus-2019/cares-act.htm

How Shippers Shift Liability To Brokers and Carriers; Biden Administration Withdraws Trump Era Sleeper Berth Compensation Opinion Letter – FLSA2019-10

by gspencermynko

This Article Discusses Two Important Issues Facing Trucking Companies Everyday: Compensation For Sleeper Time and How Shippers Avoid Liability In Motor Carrier Claims
The Carrier Must Get Paid – UNLESS The Contract Says Otherwise

The general rule in the law is that “the carrier must get paid“. Of course, the purpose of this rule is to protect innocent motor carriers from getting stiffed on freight charges. The practical effect of this rule is that motor carriers have a legal cause of action against anyone in the supply chain from shippers, brokers, and consignees, for unpaid freight bills. 
Shippers however find this rule unfair because they may have to “pay twice“, when a broker they hired doesn’t pay the motor carrier. As a result, shippers are taking a more active role in protecting themselves against unpaid motor carrier claims AND claims of all types. I’m writing this article to put motor carriers and brokers on notice of how shippers shift liability away from themselves. Furthermore, some of these practices can be utilized by brokers and carriers as well to protect their business interests.

Shipper Broker contracts
 
Lawyers for shippers are advising their clients to require brokers or carriers they deal with to have a written contract. If that is the case, be sure to not only read the contract carefully, but have it reviewed by a transportation attorney so you understand exactly what you’re getting yourself into.

Shippers are investigating the brokers and carriers they deal with. This includes looking them up on the Secretary of State website to make sure that their corporations or LLCs are active. Shippers are requesting copies of insurance certificates, copies of surety bonds, and Ansonia reports to investigate the payment history of every broker to the motor carriers they use. Finally, shippers are doing background checks looking for reports of litigation against brokers and motor carriers. Unfortunately, for brokers and motor carriers, even the filing of a lawsuit can create a bad impression for someone doing a background check: being a party to a lawsuit creates a unfortunate “presumption of guilt“. (This is a good reason to pursue legal disputes in private arbitration if possible, because there is no public record of private arbitration.)

Shipper Broker contract provisions

Usually, these contracts require that brokers will only use motor carriers with active and unconditional authority and who are adequately insured. Brokers should be careful about the last part of this provision, because if some thing bad happens out on the road, and the motor carrier’s insurance company doesn’t want to step up to the plate and denies a claim, the shipper could attempt to hold the broker liable. Frequently, shippers will require that brokers and motor carriers also have a written contract in place. Carrier alert: some of these contracts will have provisions where the carrier will look only to the broker for payment of their charges. Furthermore, these contracts may require that carriers agree to never seek payment of their charges from the shipper. Motor carriers give up big rights when provisions like this are held against them. 

Watch out for shippers who require that only their bill of lading will be used, and the motor carriers bill of lading is considered invalid.

There are many other provisions in shipper broker contracts that brokers and carriers need to be aware of. Also watch out for contracts that contain waiver of claims against the shipper and waiver of tariffs. 

Bill of Lading No-recourse Provision

Brokers and carriers need to be on the lookout for a section 7 “no-recourse provision“ in a bill of lading. These provisions say something to the effect of “in the case of brokered loads, carrier agrees that shipper will have no liability for freight charges and carrier shall look only to the broker for payment of its charges, regardless of whether the shipment is freight prepaid or collect.”  A clause like this in a bill of lading could be devastating to a motor carrier who falls a victim to an unscrupulous or insolvent broker. Don’t agree to it and don’t put up with it : feel free to draw a line through it and say “rejected“. Whatever the case, reject such a provision.

The bottom line is that shippers are acting aggressively to limit their liability and shift it to brokers and motor carriers. If a shipper requires YOU to sign THEIR contracts and use their bills of lading, be sure to have a 
Transportation Attorney review those documents to protect your interests and rights.

Sleeper Berth Time – Is Sleeper Berth Time Compensable?

On February 19, 2021, the US Department of Labor Wage and Hour Division withdrew a Trump administration era opinion letter related to whether time spent sleeping is compensable time for truck drivers. FLSA2019-10 opined that time truck drivers spend sleeping is presumptively non-compensable, as long as it is for a sufficient lengths of time with adequate facilities, and the truck driver is relieved of all duties.  Well, the Biden administration didn’t particularly care for the implications of that letter, and withdrew it. The new administration believes that the Wage and Hour Division’s long-standing policy is that truck drivers could go a maximum of eight hours of sleep time without compensation.  Furthermore, prior letters consistent with the WHD’s long-standing interpretations have been reinstated. While the differences may be subtle, people in the industry should be aware that they can no longer rely on FLSA2019-10. As such, this is a good time to consult with a transportation attorney to revisit and review your company’s sleeper berth time compensation policies.

California Supreme Court Rules Dynamex is Retroactive

by G. Spencer Mynko, Esq.


This is a case that should make business owners in general, and trucking company owners in particular, both one) extremely mad; two) somewhat relieved that The statute of limitations is about to completely pass on any conduct this case may affect; and three) afraid because you live in a state where this kind of stuff can happen.

And what can fairly be described as a legal kick in the groin, The California Supreme Court ruled in Vasquez v. Jan-Pro Franchising International, Inc., that it’s decision in Dynamex applies retroactively to all pending cases that pre-date the Dynamex decision.

As all of my readers know all too well, the California Supreme Court upended decades of precedent by instituting the infamous “ABC“ test to determine independence:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

(B) The person performs work that is outside the usual course of the hiring entity’s’ business; and

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The prior test, known as the “Borello” test, focused primarily on the right of the employer to control the activities of the worker. The use of the ABC test is far more strict in its requirements on trucking companies seeking to properly classify drivers and others as independent contractors.

The prior test, which was known as the “Borello“ test or common law test focused on the right of the hiring entity to control the activities of the worker, and also looked at the “economic realities“ of the relationship to establish whether truck drivers and others in the industry are properly classified as independent contractors. However, the Dynamex decision was a bombshell and it raised many questions, because in certain situations a person may legally be considered an independent contractor, while in other situations they would be an employee. Further adding to the unfairness, was the big question as to whether or not the Dynamex decision could be applied retroactively: meaning that conduct that was legal the day before the Dynamex decision was handed down, was now illegal, and even though you were abiding by the law before the decision came down, you were now acting illegally for conduct that occurred prior to the decision. See what I mean by legal kick in the you know whats?

Of course, and as I have written about, the legislature which was so enamored with the “ABC“ test, decided to make this into law , which we know as the even more infamous AB5, which went into effect January 1, 2020. AB5, was then modified further by AB2257 which was enacted September 4, 2020. That said, I don’t wish to rehash the sordid history of AB5.

So what did the California Supreme Court say? Well, they said that Dynamex does apply retroactively:

“In concluding that the standard set forth in Dynamex applies retroactively — that is, to all cases not yet final as of the date our decision in Dynamex became final — we rely primarily on the fact that Dynamex addressed an issue of first impression. It did not change a settled rule on which the parties below had relied. No decision of this court prior to Dynamex had determined how the “suffer or permit to work” definition in California’s wage orders should be applied in distinguishing employees from independent contractors. Particularly because we had not previously issued a definitive ruling on the issue addressed in Dynamex, we see no reason to depart from the general rule that judicial decisions are given retroactive effect.”

The Court rejected reliance on the Borello test to justify an exception to the general rule of retroactivity (despite thousands upon thousands of businesses and their lawyers relying upon it). The Court explained that Borello apllied to workers’ compensation instead of wage and hour matters (why that makes a difference I have no clue), and the ABC Test in Dynamex applies to wage and hour matters only. And here’s the kicker: because no prior decision set a test for independent contractorship under California’s wage orders prior to Dynamex, it was unreasonable for employers to think the Borello test would govern. Yeah – see why you should be angry and afraid: You could be acting legally one day, until a court changes the law, and now your previously legal behavior is illegal and may destroy your business. Are you still in California?

And while the Court tried to minimize the impact of the decision by noting that the applicable statutes of limitations are about to run because the Dynamex decision is nearly three years old, that’s a lame way of minimizing the damage caused. That’s cold comfort to clients of mine who are appealing decisions about conduct that occurred prior to Dynamex, where they reasoanbly relied on Borello, only to be told that in this fairyland state we live in, a court can punish and criminalize conduct today that was legal yesterday. And so another nail is nailed into business’ coffin.

NEW CALIFORNIA LAW

by G. Spencer Mynko, Esq.

THESE NEW LAWS WILL GO INTO EFFECT IN CALIFORNIA – MOST ON 1/1/21: MAKE SURE YOU AND YOUR COMPANY ARE UP TO SPEED ON THIS.

This is not a complete list, but rather a list of new laws that are relevant to my typical clients.

COVID-19

AB 685

AB 685 requires employers to notify employees of potential COVID-19 exposure upon notice that any person at the worksite has received a laboratory-confirmed COVID-19 case, medical diagnosis, or isolation order.

Per the CDPH: “Upon identifying a COVID-19 case in the workplace, you need to provide the following information:
Notice to your employees and the employer of subcontracted workers that they may have been exposed to COVID-19.
You can inform other workers of the dates that an individual with COVID-19 was at the worksite but should not share information that could identify the affected individual. You must also provide this information to the exclusive labor representative, if any.
Information about benefits & options
You must provide your employees with information about COVID-19 benefits under federal, state, or local laws. This includes workers’ compensation, company sick leave, state-mandated leave, supplemental sick leave, negotiated leave, and anti-retaliation and anti-discrimination protections.
A disinfection & safety plan
You need to inform your employees and the employer of subcontracted workers of your disinfection and safety plan for the worksite, in accordance with CDC guidelines. You must also provide this information to the exclusive labor representative, if any.


AB 685 allows Cal/OSHA to:
Issue an Order Prohibiting Use[3] to shut down an entire worksite or a specific worksite area that exposes employees to an imminent hazard related to COVID-19.
Cite or fine employers for serious violations related to COVID-19 without having to provide 15-days’ notice.
Cite or fine employers for violations of AB 685 worker notification provisions.”


SB 1159

This “codifies Governor Newsom’s Executive Order , which created a rebuttable presumption that COVID-19 and related conditions were compensable for workers not subject to the Governor’s stay-home order.

“Labor Code § 3212.86 has requirements which must be met before the rebuttable presumption applies. These are:

  1. The employee has tested positive for or was diagnosed with COVID-19 within 14 days after a day that the employee performed labor or services at the employee’s place(s) of employment at the employer’s direction.
  2. The employee’s place(s) of employment do not include the employee’s residence.
  3. The day that the employee performed labor or services is between March 19 and July 5.
  4. If the employee makes a claim for workers’ compensation benefits based upon a diagnosis of COVID-19, the diagnosis must be done by a licensed physician and surgeon holding an M.D. or D.O. degree, or a state licensed physician assistant or nurse practitioner, acting under the review or supervision of a physician and surgeon pursuant to standardized procedures or protocols within their lawfully authorized scope of practice, and that diagnosis is confirmed by testing or by a COVID-19 serologic test within 30 days of the date of the diagnosis.
  5. If an employee has paid sick leave benefits specifically available in response to COVID-19, those benefits shall be used and exhausted before any temporary disability benefits or benefits are due and payable. If an employee does not have those sick leave benefits, the employee shall be provided temporary disability benefits or Section 4850 benefits, if applicable, from the date of disability. There shall not be a waiting period for temporary disability benefits.
  6. If temporary disability (TD) is awarded, the employee must be recertified for TD by a physician every 15 days for the first 45 days following the diagnosis.
  7. The claims administrator has 30 days in which to reject or accept the claim. After that 30 days, the claim can only be contested with evidence discovered after the 30-day period.
  8. The law sunsets on January 1, 2023.” See https://www.natl.com/Documents/CA%20SB%201159%20Summary.pdf

Leaves of Absence

SB 1383

The new law, which goes into effect on January 1, 2021, expands the California Family Rights Act (“CFRA”), affecting large and small employers. SB 1383 expands California’s Family Rights Act provisions to employers with as few as five employees. The employer is required to provide up to 12 weeks of unpaid, job-protected leave for an employee’s own serious health condition or that of a qualifying family member, for the birth or adoption of a child, or for a qualifying family member’s active duty in the U.S. Armed Services. Only employees who have worked for the employer for more than 12 months, and for more than 1,250 hours during the previous 12-month period are eligible for such leaves. Upon completion of the leave, the employee is entitled to return to the same or a comparable position.

Under current law, employers do not have to provide more than 12 weeks of leave to parents who both work for the same company in connection with the birth, adoption, or foster care placement. Employers will now have to provide
12 weeks leave to both employees in such situations.

AB 2992

AB 2992 extends job-protected leave for a victim of a crime or abuse that caused physical injury or mental injury and a threat of physical injury.

Labor Law

Minimum wage will go to $14.00 per hour for employers with 26 or more employees and $13.00 per hour for employers with 25 or fewer employees. Local ordinances (see LA and SF) may impose further increases to the minimum wage.

SB 1384

SB 1384 empowers the Labor Commissioner to legally represent wage and hour claimants forced into arbitration but cannot afford their own lawyer. That’s very generous of the state – I mean the people of California – who will be forced to pay for people’s lawyers in arbitration of labor code violations.

Employer Reporting Requirements

AB 3075

Employers Must Disclose Final Judgments for Violation of Wage Order on Statement of Information : Beginning Jan. 1, 2022, or when the California Business Connect is implemented, whichever is earlier, business entities will have to include on their Statement of Information whether “any officer or any director, or, in the case of a limited liability company, any member or any manager,” has outstanding final judgment that was issued for the violation of any wage order.

This expands liability of “successor employers”, which basically means Bad Company A owned by Bad People can’t avoid liability by closing Bad Company A and opening Bad Company B that does the same Bad Stuff that Bad Company A did. If Bad Company A defaults on a judgment, Bad Company B and its owners will be liable for that judgment. Successor employers will be liable for unpaid wages and penalties owed by the “predecessor employer” to its employees.

AB 1281

California Consumer Privacy Act’s Employer Exemption Extended. This bill extends the employer exemption from certain provisions of the California Consumer Privacy Act (CCPA) to January 2022: Employers must provide notice to applicants and employees of information collected by the company and the purposes for which said information is collected.

This is merely a sample of new laws: in the interest of brevity, I focused on those that are most relevant to my readers.

Appeals Court Rules AB-5 and “ABC” Test NOT Preempted By Federal Law

by gspencermynko

DEVASTATING NEWS FOR TRUCKING COMPANIES WHO WORK WITH ICs COMING FROM A CALIFORNIA APPEALS COURT. THE ENEMIES OF OWNER-OPERATORS AND THE TRUCKING COMPANIES WHO HIRE THEM STRIKE A MAJOR BLOW TO  THE IC BUSINESS MODEL.

Get ready for some bad news…I mean, really bad news. The California State Court of Appeals issued a decision in People of the State of California v. Superior Court Los Angeles County ruling that California’s ABC Test is not preempted by the Federal Aviation Administration Authorization Act (FAAAA) and that motor carriers may comply with the business-to-business exemption as outlined in AB 2257. I urge my readers to review my article from September 25, 2020 article on AB 2257: Specifically my discussion of the “business to business exemption.”

What did the California Court of Appeals say (that was so bad)?

Let’s cut to the chase by looking at the “Introduction” which tells you everything you need to know about how this court feels about the use of ICs in trucking. “Does the Federal Aviation Administration Authorization Act of 1994 (FAAAA) preempt application of California’s “ABC” test, originally set forth in Dynamex Operations W. v. Superior Court (2018) 4 Cal.5th 903 (Dynamex) and eventually codified by Assembly Bill 2257 (AB 2257), to determine whether a federally licensed interstate motor carrier has correctly classified its truck drivers as independent contractors? The FAAAA preempts state laws “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” (49 U.S.C. § 14501 (c)(1).) After surveying the FAAAA’s legislative history and relevant federal caselaw, our Supreme Court held the FAAAA does not preempt generally applicable worker-classification laws that do not prohibit the use of independent contractors.  We hold the ABC test, as codified by AB 2257, is such a law, and therefore is not preempted by the FAAAA.”


Did you catch that?  These guys basically just said the use of ICs by trucking companies is illegal because the “ABC” is “A-OK” as far as these guys are concerned. Remember how the “B-prong” prevents the use of Owner-Operators to contract with a trucking company? Here: (B)  that the worker performs work that is outside the usual course of the hiring entity’s business; and

Yeah, that’s kind of hard to do when you’re a trucker doing work for a trucking company.  But the Court of Appeals didn’t really seem to care about the plight of ICs and the trucking companies who use them. Of course, courts being courts, they need to make long winded explanations and justifications to why they are saying “f-you”, and this court took 20 pages of legalese to make you feel better about being screwed.  That may be a trifle crass – but also reflects my attitude that courtrooms are no place to expect justice or fairness, and why I advise clients to steer clear of the courthouse.  But let’s get back to this case and figure out why the court ruled as they did.  


First of all, the Court of Appeals ruled that the “ABC” test is not preempted by Federal Law (Specifically the FAAAA). 


The court stated “The FAAAA Does Not Preempt the ABC Test”:
“Defendants (i.e., trucking folk) contend prong B of the ABC test makes it impossible for a motor carrier to contract with an owner-operator as an independent contractor, and thus the ABC test is preempted by the FAAAA under the clear terms of Pac Anchor. [California] counter[s] the ABC test is not preempted because it is a generally applicable employment law that does not prohibit the use of independent contractors, and therefore does not have an impermissible effect on prices, routes, or services. We agree with [California].

Here’s some more twisted logic as to why the court is so enamored with the ABC test:


“The ABC test does not mandate the use of employees for any business or hiring entity. Instead, the ABC test is a worker-classification test that states a general and rebuttable presumption that a worker is an employee unless the hiring entity demonstrates certain conditions. That independent owner-operator truck drivers, as defendants currently use them, may be incorrectly classified, does not mean the ABC test prohibits motor carriers from using independent contractors. The ABC test, therefore, is not the type of law Congress intended to preempt.”

W…T…F?  The B prong makes it clear that trucking companies can’t use ICs, yet these judges go on to say the ABC test doesn’t prohibit motor carriers from using ICs.  Really?  I’m not sure what reality the court lives in, but it certainly bears no resemblance to the world my readers and clients live in.  Of course, the court never really addressed the absolute bar the B-prong creates to the use of ICs. I guess real world problems trucking companies face is simply beneath their concern. Do you see why I have such a cynical opinion of our justice system?


The Court Then Goes On To Tout The “Business-to-business exemption” as a panacea for all of your misclassification woes.


“Defendants (trucking folk) argue independent owner-operators can never meet several of the requirements in the business-to-business exemption, and thus, the exemption does not save the statutes codified by AB 2257 from preemption. We are unpersuaded.” Well – what a surprise – the California court ruled against the trucking industry.  Of course, the court doesn’t actually have to work in trucking and is therefore unconcerned about the realities of running a trucking company. 
Remember, a few articles ago I said essentially the same thing: The business-to-business exemption sucks for trucking companies and good luck threading that camel through the eye of a needle. Here’s a few of the B2B exemption provisions that will be damn tough for trucking companies to comply with:

(1) The business service provider is free from the control and direction of the contracting business entity – Good luck with that one: be very, very careful about the extent of your “direction and control”.

(2) The business service provider is providing services directly to the contracting business rather than to customers of the contracting business. Of course, the court dismissed this concern: 


“Defendants contend this condition is impossible for an owner-operator to meet because an owner-operator contracting with a motor carrier necessarily is providing services to the motor carrier’s customers by moving the customer’s goods at the customer’s direction. But defendants provide no support for their strained reading of this provision.”  “Strained reading”? Really? – try that when a plaintiff lawyer beats you over the head with this.

Let’s pray the Federal Courts Put an end to this nonsense and the law and reality agree that the ABC test should be preempted by Federal Law.  Remember that the federal litigation in CTA v. Becerra is still ongoing and the 9th circuit is expected to rule soon on the current injunction. Maybe one day the US Supreme Court will deal with the issue, but until then I urge trucking companies using ICs to sit down with their transportation lawyers to sort this out and discuss the B2B exemption.

Can You Avoid California Labor Laws? Application of California Labor Law to Interstate Truck Drivers

by gspencermynko

Two Companion Decisions Affect Employers with workers in or traveling through California

I regularly am asked if there is any way to get around California labor laws. As most of my readers know, California is a very employee friendly and anti-employer state. I don’t think I need to remind anybody about the heavy-handed regulation in this state against trucking companies.

Unsurprisingly, I am frequently asked if there is a way to avoid California law. People will ask if setting up a trucking company in another state, forming a corporation in another state, running a trucking company in another state, etc. will “work” and are some of the more common schemes I am asked about. Other examples include forming a limited liability company and making every driver a member of the limited liability company, forming a limited liability company in a jurisdiction that will “hide” the identity of its owners, working with drivers who “incorporate”, etc.

But the reality is that there is no magic solution to avoiding California labor laws. After all, if there was, all of my trucking company clients would be doing it. While the clearest and easiest way to avoid California labor law is to not only run your business from another state, but avoid using drivers who are California residents, The California Supreme Court recently ruled on two cases that shed light on the situation and clarify some lingering issues.

Disclaimer: The rulings from the California Supreme Court are not particularly helpful, and do not deviate substantially from how I have been advising clients all along. That said, because the injunction against AB5 is being reviewed by the Ninth Circuit Court of Appeals, and trucking companies may be forced to either comply with the “ABC” test or try to figure out a way to take advantage of the business to business exemption, these recent cases deserve mentioning since classification of drivers is not a resolved issue.

In Oman v. Delta Air Lines, Inc., and Ward v. United Airlines, Inc., the California Supreme Court has addressed applying California law to employees who occasionally work in California – like truck drivers.

My motivation and writing this article is how trucking companies will be affected by California wage and hour laws and possibly class actions. The court was asked, in the context of interstate employment, “What kinds of California connections will suffice to trigger the relevant provisions of California law?” Vaguely, the Court stated “There is no single, all-purpose answer to the question of when state law will apply to an interstate employment relationship or set of transactions.” What the court did say was: California’s wage statement law (Labor Code § 226) and timing-of-pay law (Labor Code § 204) apply to any employees who, in any particular pay period, either: 1) perform the majority of their work in California; or 2) do not perform the majority of their state, but perform some work in California and California serves as base for their work operations

The California Supreme Court discussed when and under what circumstances employees who may only occasionally work in California are entitled to the protection of California wage and hour laws. The Court held that Labor Code Sections 204 (timing of pay) and 226 (wage statement requirements) apply to employees only if California is the principal place of their work, meaning the employee either works primarily in this state during the pay period, or does not work primarily in any state but has his or her base of operations in California. More specifically, the court ruled that under California labor code section 226, the law only applies to any pay period when the employees principal place of work occurs in California. Furthermore, the court went on to hold that for interstate workers, such as truck drivers, who do not work in any single state over 50% of the time, section 226 of the labor code will only apply if the workers “base of operations” is in California.

The court held employees are entitled to California compliant Wage Statements and California wage laws: An employee is entitled to a Section 226 itemized wage statement and the protections of California Labor Code section 204, establishing certain specific deadlines for twice-monthly pay, if that employee either 1) performs the majority of his or her work during the relevant pay period within California or 2) if the employee does not perform the majority of his or her work during the relevant pay period in any particular state but the employee is based in California for work purposes.

The court went to say that the employer’s location, employee’s residence, location where the employee receives his or her pay, and the state that the employee (or employer) pays taxes to are irrelevant for this analysis.

It is also worth noting that Collective Bargaining Agreements – as with unionized employees – do provide an exemption from California Labor Code Section 226.

The Court Also Addressed California Minimum Wage Laws and “Piece Rate” Pay.

The Court addressed compliance with state minimum wage laws for employers who pay their employees on a non-hourly basis. The Court held that although employers who pay on a non-hourly basis may “average” wages across the unit of payment to determine minimum wage compliance, they may not engage in “wage borrowing,” meaning, “borrowing compensation contractually owed for one set of hours or tasks to rectify compensation below the minimum wage for a second set of hours or tasks.”

Take Home Message

The bottom line is that California’s wage statement requirements apply only when employees, in particular pay periods:


perform the majority of their work in California; or
do not perform the majority of their work in any single state, but perform some work in California and California serves as base for their work operations


If either of these two situations apply, California wage and hour laws (specifically sections 204 and 226 apply), and if neither situation applies, then the sections 204 and 226 do NOT apply.

As always, if your goal is to avoid the long arm of California law, make sure what you are doing and where you are doing it is out of reach.

California “Modifies” AB 5: AB 2257

by gspencermynko

On September 4, 2020, California Governor Newsom signed into law AB 2257, a bill intended to clear up problems with AB 5 – Hahaha – yeah, right. Well, let’s see what AB5’s progeny offers up.

Do you know how breeding plants or animals with negative or undesirable characteristics seems to increasingly amplify those unwanted traits from generation to generation? Well, with that genetic premise in mind, let’s talk about AB 2257 – AB 5’s bastard child which is an imbecile spawned from a moron.


As we know, many industries were none too happy with the enactment of AB5. However, many industries were covered under specific exemptions from the “ABC test”, and independent contractorship would remain subject to the “Borello” or common-law multi factor test. Those industries and professions that weren’t able to afford paying off the whore politicians – I mean granted an exemption by astute legislators based on sound public policy – were left out in the cold to deal with the the heavy burden of the ABC test.

Of course, this created some hard feelings and raw emotions in those folks who didn’t get special treatment in Sacramento’s den of iniquity. As such, a number of groups pounded on the doors of the state brothel…I mean Capitol… until they were able to consort with lawmakers. As a result of this unholy union, AB 2257 was born with more special interest exemptions. Unfortunately Trucking, who could probably not afford the price of admission without offending the regular johns (I’m looking at you teamsters!), was still left out in the cold without an exemption.

Of course, the industry is still hoping that the CTA will ultimately prevail in their Federal preemption based lawsuit, without having to pay you know who for you know what. Well, here’s to righteousness. FYI – the injunction on AB5 is now in the hands of the Ninth Circuit – so don’t hold your breath for an industry favorable ruling. Excuse me, because now I am really digressing. The reason for this article is the modified “business to business exemption” in AB 2257, which may actually provide a sliver of light for trucking (big emphasis on “may”). But it does give us something to talk about besides prostitution.

AB 2257 broadens and clarifies the business-to-business (B2B) exception under AB 5:

AB 2257 expands the “business-to-business exemption” to apply to sole proprietors. Previously, under AB 5, this exemption was only applicable to business entities that were incorporated. AB 2257 broadens the business-to-business exemption. Also AB 2257 no longer requires that a business service provider “actually contracts” with other businesses “without restriction form the hiring entity.” Instead, AB 2257 merely requires that the business service provider can contract with other entities and maintain a clientele. This amendment might allow greater flexibility for ICs that have not actually contracted with other motor carriers: so long as they have the opportunity to do so – as with so many Owner-Operators who work exclusively for one trucking company. But this is uncertain because there is contradictory language in AB 2257: “the business service provider regularly contracts with other businesses.” This is confusing because on one hand they say “yes”, you are allowed to only contract with one trucking company, yet on the other hand, they say “no”. Do you see why I despise these people? The new B2B exemption also relaxes restrictions to allow business service providers to provide services directly to the customers of a contracting business.

How Might The B2B Exemption Work For IC/OO Truckers?

First, we have to look at the language of the New B2B Exemption:

  1. Section 2775 and the holding in Dynamex do not apply to a bona fide business-to-business contracting relationship, as defined below, under the following conditions:

(a) If an individual acting as a sole proprietor, or a business entity formed as a partnership, limited liability company, limited liability partnership, or corporation (“business service provider”) contracts to provide services to another such business or to a public agency or quasi-public corporation (“contracting business”), the determination of employee or independent contractor status of the business services provider shall be governed by Borello, if the contracting business demonstrates that all of the following criteria are satisfied:

(1) The business service provider is free from the control and direction of the contracting business entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(2) The business service provider is providing services directly to the contracting business rather than to customers of the contracting business. This subparagraph does not apply if the business service provider’s employees are solely performing the services under the contract
under the name of the business service provider and the business service provider regularly contracts with other businesses.

(3) The contract with the business service provider is in writing and specifies the payment amount, including any applicable rate of pay, for services to be performed, as well as the due date of payment for such services.

(4) If the work is performed in a jurisdiction that requires the business service provider to have a business license or business tax registration, the business service provider has the required business license or business tax registration.

(5) The business service provider maintains a business location, which may include the business service provider’s residence, that is separate from the business or work location of the contracting business.

(6) The business service provider is customarily engaged in an independently established business of the same nature as that involved in the work performed.

(7) The business service provider can contract with other businesses to provide the same or similar services and maintain a clientele without restrictions from the hiring entity.

(8) The business service provider advertises and holds itself out to the public as available to provide the same or similar services.

(9) Consistent with the nature of the work, the business service provider provides its own tools, vehicles, and equipment to perform the services, not including any proprietary materials that may be necessary to perform the services under the contract.

(10) The business service provider can negotiate its own rates.

(11) Consistent with the nature of the work, the business service provider can set its own hours and location of work.

Here are my thoughts on certain parts of the revised B2B Exemption.

My Comments On The “Red” Highlights

1) have a written contract

2) have a written contract and work with ICs who work with other trucking companies.

3) have a written contract that specifies reimbursement

4) a California MCP number should satisfy this requirement. Work with IC’s who have their own MCP.

7) The IC must be free to contract with other trucking companies – put that in the written contract.

8) A Facebook page, website, or perhaps a safer snapshot would satisfy the advertising requirement.

9) Use ICs who own their own stuff.

Most of these are pretty doable, except for criteria to that requires the IC to “regularly contract with other businesses” (section 2). What if the IC only wants to work with your company? That could make this new B2B exception very tough to satisfy.

Obviously, this is not great and let’s hope the CTA is successful in their lawsuit: AB 2257 is one bastard you don’t want to deal with.