Supreme Court Decision Upholds AB 5 in California for Truck Drivers

 Posted on July 18, 2022 in Taxation Law

Employers in California need to address a number of tax-related issues, and one area that has caused confusion in recent years involves worker classification. Whether workers may be treated as employees or independent contractors is a significant question that has been raised due to the passage of AB 5 in 2019. This law limited the situations where workers may be classified as independent contractors. 

Because the trucking industry has been affected by this law, the California Trucking Association (CTA) filed a lawsuit against the state of California seeking to block this law. This lawsuit claimed that federal regulations under the Federal Aviation Administration Authorization Act (FAAAA) prohibited the state from putting these types of tax laws in place. The 9th U.S. Circuit Court of Appeals had ruled that AB 5 is a general labor law that is not affected by the FAAAA. The CTA appealed to the U.S. Supreme Court, but the Supreme Court decided in June 2022 not to hear the case. This decision maintains AB 5 in place for the trucking industry.

How Does AB 5 Affect the Trucking Industry?

Under AB 5, a process known as the “ABC test” is used to determine whether workers should be considered employees or independent contractors. This three-pronged test states that a worker can only be classified as an independent contractor if all of the following requirements are met:

• The worker can perform tasks or services without direct control from the company that hired them.

• The work being performed is outside the regular scope of the hiring company’s regular course of business.

• The worker typically engages in an independently established business or occupation that is of the same nature as the work they are performing for the company that hired them.

Prior to the passage of AB 5, many employers in the trucking industry classified workers as independent contractors. In many cases, workers owned their own vehicles but did not work directly for companies as employees. Since the Supreme Court’s decision has left AB 5 in place for the trucking industry, this may affect many companies’ ability to hire independent contractors. Most truck drivers work exclusively for a single employer, are engaged in activities that are part of the employer’s usual course of business, and receive directions from an employer regarding when, where, and how they work. Because of this, many workers that had previously been treated as independent contractors must now be classified as employees.

Contact Our San Jose, CA Worker Classification Tax Attorney

Trucking companies or other businesses that hire truck drivers may need to address a variety of complex tax issues related to their classification of workers. If truck drivers need to be reclassified as employees, employers will need to ensure that they are filing the correct tax forms and withholding payroll taxes from employee wages. At John D. Teter Law Offices, we can work with employers to ensure they meet all tax requirements, and we can help address any other issues related to worker classification or employment taxes. Contact our San Jose payroll tax lawyer at 408-866-1810 to get help with these and other tax concerns.

Sources:

https://www.reuters.com/legal/government/us-supreme-court-wont-hear-trucking-industry-challenge-calif-employment-law-2022-06-30/

https://www.investopedia.com/california-assembly-bill-5-ab5-4773201

https://www.cbsnews.com/sanfrancisco/news/ab5-independent-california-truckers-scramble-scotus-refuses-to-hear-challenge/