Transportation Brief: AB 5 – Practical Solutions to a Thorny Problem

by Shannon M. Cohen, Gregory M. Feary

October 31, 2019

California Assembly Bill 5 (AB 5) has been well-publicized including a Scopelitis webinar, a Firm-authored Law360 opinion editorial, and a number of trade publication articles quoting the authors of this cover article.  Companies and owner-operator businesses both search for practical solutions to the problem. California resident and/or working owner-operators are faced with the immediate dilemma of reshaping their small businesses, losing business revenue, and possibly losing their entire businesses.  Transportation companies operating under an asset-light model face an immediate need for equipment to continue to provide the transportation services that are the backbone of their logistics businesses. 

Owner-operators may not want to tackle the maze of regulatory, safety, and insurance obligations that come with operating as a motor carrier.  However, transitioning to work as an employee while being reimbursed for expenses related to the equipment may be seen by many owner-operators as ending or limiting their entrepreneurial aspirations and may not provide a sustainable model for recovering their investment in equipment. Additionally, motor carriers operating within multi-faceted transportation enterprises are not in a position to provide a comprehensive solution. They can only make changes acceptable to their businesses, their professional drivers, and their customers. 

Two solutions appear to be developing as the best options for tackling the practical realties of equipment and professional services that these companies face. First is the settlement carrier model, where the equipment owner takes on the responsibility of operating as an authorized motor carrier. The second is the two-check system under which the professional driver becomes an employee and is paid separately for the use of the equipment in an unrelated transaction.  (The latter is not new to the industry).  The environment created by AB 5 may have ultimately created a circumstance in which the two-check system may be worthy of further discussion for owner-operator businesses. In the short term, these may be the most feasible options to meet the prickly and possibly ever-growing challenges of AB 5 and the similar laws that may precipitate in Washington, New Jersey, and other states. 

Scopelitis’ Transportation Brief® is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

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