In 2019, California’s Governor signed into law Assembly Bill No. 5 (AB 5). This bill, among other things, established a new test for determining a worker’s employment status for purposes of workers’ compensation.1
AB 5 took effect on July 1, 2020 with respect to workers’ compensation and applied to policies issued on or after July 1, 2020, as well as policies in force as of July 1, 2020. Unless a worker is in one of the enumerated occupations or relationships subject to exemption, AB 5 creates a presumption that an entity’s workers are employees unless the worker meets three conditions, known as the “ABC Test.”2
Several industry groups not exempted from AB 5 filed lawsuits challenging the law. One of these lawsuits was filed in federal court by the California Trucking Association (CTA) – a trade association representing motor carriers that hire independent contractors who own their own trucks – as well as two individual owner-operator drivers. This lawsuit attempted to block the enforcement of AB 53 against the motor carrier industry.4
Initially, the court granted a preliminary injunction barring AB 5 from applying to motor carriers doing business in California. In April 2021, however, the Ninth Circuit reversed the preliminary injunction and held that AB 5 applied to the motor carrier industry. The CTA appealed that decision to the U.S. Supreme Court, which declined to hear the case on June 30, 2022.
As a result of the Supreme Court’s decision, the injunction is lifted and motor carriers doing business in California are subject to AB 5 for purposes of workers’ compensation. As an outcome of the application of AB 5, workers previously considered to be independent contractors, and thus not covered under an employer’s workers’ compensation policy, may be considered employees and thus subject to the California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP) provisions regarding the determination and classification of reportable payrolls. The Workers’ Compensation Insurance Rating Bureau of California does not have authority to make employment status determinations and will not be applying the ABC Test or any other test to determine whether an employer’s workers should be considered employees. Any required unit statistical report corrections showing updated exposure, classification or final premium amounts must be submitted as soon as the revised information is available. See USRP, Part 4, Section VII, Subsequent Reports, Correction Reports, and Reporting Methods, Rule 2, Correction Reports, Subrule b, Exposure, Standard Classification, Experience Modification and Final Premium Corrections.
1. AB 5 was amended by AB 2257 in September 2020; the amendments codified the law in Labor Code Sections 2775, et seq.
2. For the workers specifically exempted from the ABC Test, the determination of employee or independent contractor status continues to be governed by the California Supreme Court’s 1989 decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (Borello), which established a multi-factor test used to determine employment status for workers’ compensation insurance purposes.
3. The CTA argued that the Federal Aviation Administration Authorization Act (FAAAA) preempts the state law.
4. Please note that Labor Code Sections 2777(b)(2), 2779(c) and 2781(h) address certain trucking operations.