Will Changes Come for AB5?

AB5, the new California State law limiting use and classification of independent contractors, went into effect on January 1, and is already seeing significant pushback from impacted industries, including the construction community. The construction community has already been actively engaged in fighting the bill, resulting in an exemption under the law. However, the law could have significant impact on transportation uses related to construction, and the community is continuing to fight for further exemptions.

“The construction industry has been actively engaged throughout the legislative process,” Dwayne McKenzie, a partner at Cox, Castle & Nicholson, tells GlobeSt.com. “As a result, the construction industry and related construction trucking services exemptions were included in the bill, otherwise, we could have seen the industry have to take more significant action. Even as enacted, AB 5 has created significant issues over the use of owner-operators, so the industry is closely monitoring the trucking industry opposition to AB 5.”

The trucking association has already made active moves in court to block the legislation. “Last month, the Western States Trucking Association filed a lawsuit in California federal court challenging application of AB 5 to the trucking industry, which could affect individuals who provide construction trucking services,” says McKenzie. “The WSTA claims that this provision improperly seeks to preempt a 1994 federal statute, the FAAAA, regulating motor carriers. As that challenge progresses, we could see the construction industry seeking to participate to address the owner-operator issue.”

As a result of the significant pushback, it is likely the government will modify the current law.  “It is very possible that in light of the continued controversy over the law, the California Legislature will seek to clarify or modify AB 5 and some of its provisions over the course of the coming year,” Cathy Moses, a partner at Cox, Castle & Nicholson, tells GlobeSt.com. “This may become more likely as non-frivolous legal challenges continue to mount, or if stake-holders can demonstrate to lawmakers unintended but significant consequences of the law.”

As it is, the laws is already the most significant piece of legislation affecting California employers, according to Moses. It sets strict guidelines to define employees and employment in the state. As a result, the law impacts a wide variety of industries. “By presuming that workers are employees unless proven otherwise under the stringent three-factor “ABC” test, the law’s reach is extensive,” she says. “That said, employers in different industries and with different employee/independent contractor arrangements are being affected differently.  The first step has been to help employers identify if AB 5 will impact them and to what degree.  For those experiencing more than minor impacts, they need to assess how to modify their practices to avoid liability, while at the same time keeping a close eye on developments since there will continue to be significant debate, lobbying, and legal challenges to the law this year as employers and workers seek to understand the law’s requirements and exemptions.”