California Supreme Court Disrupts the Economics of Trucking

Challenges Facing the Future of the Independent Contractor Model in Trucking

There is no question that the owner-operator model is under attack. The determination of who is an independent contractor is as elusive as ever. We have long advocated for a single test that would offer uniformity and consistency throughout the U.S. However, the California Supreme Court has recently confirmed that the viability of the independent contractor model is in doubt.

A couple of examples from California illustrate the point. In the context of a worker’s compensation claim, California utilizes the common law “control test” to determine whether the person is an employee or an independent contractor. The right to control test looks not only at the right of the motor carrier to control the methods and means of how the driver is to perform his work, but also whether the driver has an investment in his equipment or materials, whether his services require a special skill, whether the driver has the opportunity for profit and loss, the degree of permanence of the working relationship and whether the services of the driver are an integral part of the motor carrier’s business. In short, under this “test” the motor carrier has a fighting chance to prevail.

However, on claims under California law relating to minimum wages, maximum hours, and basic working conditions, such as meal and rest breaks, the California Supreme Court adopted the “ABC test” last month in a decision known as Dynamex Operations West, Inc. v. Superior Courts (Cal. April 30, 2018).

The “ABC” test presumptively considers all truck drivers to be employees, and a driver can only be classified as an independent contractor if the motor carrier can demonstrate that the driver satisfies each of these three conditions: (A) that the driver is free from the control and direction of the trucking company in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the driver performs work that is outside the usual course of the trucking company’s business; and (C) that the driver is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the trucking company.

The typical owner-operator model or ICOA agreement has difficulty satisfying the ABC test. Under Part A, a trucking company must show that the driver is free from the control of the motor carrier in the performance of his work. While the typical owner operator agreement makes it clear there is an independent contractor relationship and the driver has the right to control the means and methods of performing the work, we are often challenged on this element based on the actual operation of the motor carrier. With proper planning and work, this challenge can be met.

However, it is next to impossible for a motor carrier to satisfy Part B. Under this test, if a trucking company has IC’s and employee drivers and both perform the service of driving a truck, the independent contractor will be considered an employee. This part of the ABC test presents the largest stumbling block and courts routinely find independent drivers fail this test because they perform the same duties as employee drivers.

To satisfy Part C, the hiring entity must prove that the driver is customarily engaged in an independently established trade, occupation or business. The courts will look to see if the independent contractor is an independently established business, advertises his services, has an independent business address, and routinely provides his services to the public. In most cases, the motor carrier and driver can meet this test with proper planning and operation.

Instead of having a uniform test to determine when a driver is an employee versus an independent contractor, California has created different tests depending on the nature of the claim. As a result, an owner operator may be an independent contractor for purposes of a worker’s compensation claim, but at the same time is an employee subject to a California wage and hour law claim including meal and rest breaks.

The good news is that in most jurisdictions the ABC test is not used. But, if you’re dreaming about California, “it is a brand new game.”

Let us know if you have owner-operator problems or issues with misclassification. We can assist in developing a program that will minimize the risk.

Ted is perhaps best known for his role as a leading advocate and defense attorney for the trucking industry. Ted was named The Best Lawyers in America 2017 "Lawyer of the Year" for Insurance Litigation in St. Louis, Missouri.