The Business to Business Exemption for AB-5

With the United States Supreme Court declining to hear CTA v. Becerra, the AB-5 law is expected to apply to truckers within California imminently. Aside from passing all three sections of the ABC test, there is another, lesser known exemption to the AB-5 rule that may allow California truckers to continue operating under the Authority of larger carriers.

AB-2257

Assembly Bill 2257 was codified into law approximately nine months after AB-5. AB-2257 says that a company working for another company may apply the more lax Borello test to determine independent contractor rather than the ABC test, if the business relationship fulfills all of the applicable following twelve criteria. We will be quoting directly from AB-2257 as to reduce ambiguity:

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.
12. The business service provider is not performing the type of work for which a license from the Contractors’ State License Board is required, pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code.

Conclusion

While there is no doubt that AB-5 will change the trucking landscape within the Golden State, it is possible for owner-operators to continue working as an independent contractor of another carrier thanks to AB-2257.

There are numerous stipulations, however. Remember at the start of the article how we mentioned working under the authority of “larger carriers”, as in plural? Section 2776(a)(7) says that the independent business must be able to work for other carriers, and Section 2776(a)(8) implies it must be willing to do so as well.

While the owner-operator business model may not disappear entirely within California, it will certainly be interesting to see what happens next.

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