Nearly four weeks after Supreme Court inaction led to the realization that California’s AB5 was going to work its way into the state’s trucking business, one significant labor supplier is rolling out a proposed solution.
TransForce Group has long been a major source of drivers to trucking companies. As its president, Dennis Cooke, told FreightWaves, TransForce formerly described itself as a driver staffing company; now it calls itself a driver solutions company.
The heart of its plan to allow compliance with AB5, while still permitting a driver who owns a truck to be independent, is what TransForce calls its “two-check solution.”
The two-check system is not new. Versions have been used over the years. But it is now being promoted as a pathway for retaining independence, albeit slightly less than before the law requiring trucking companies to operate as full-fledged businesses survived a Supreme Court challenge.
Under the TransForce proposal, a driver would become an employee of TransForce and be paid by that company as a full-time employee. He or she would receive a W-2 tax document. That would be a change from the current situation, in which an independent owner-operator receives an IRS form 1099-R for tax purposes from a carrier, used for contract workers.
The driver would have a normal range of benefits, such as a 401(k) program.
According to Cooke, the flexibility of independent contractor status would remain. The driver, as a TransForce employee, could work for other companies serviced by TransForce, which has approximately 3,500 W-2 drivers.
The TransForce program “helps get them to the employee model,” Cooke said.
Turning independent contractors into employees was always going to be the most direct way to comply with AB5, a goal of the legislation backers. It also was sure to bring resistance by both employers and drivers seeking to remain independent.
A portion of that latter group has made that view clear in its protests that have greatly restricted operations at the Port of Oakland.
AB5 is a state law that went into effect at the start of 2020. It seeks to more tightly define when a worker can be considered an independent contractor or an employee. It partly relies on an ABC test, three-part guideline with the B prong saying an independent contractor must perform “work that is outside the usual course of the hiring entity’s business.”
A trucking company hiring an independent owner-operator risks being out of compliance with the B prong.
A series of court actions kept AB5 from being implemented in California’s trucking sector since the law went into effect. But a Supreme Court decision late last month to let stand an appellate court decision that ordered AB5 to become law in trucking ended the sector’s protection.
Companies and independent contractors are now figuring out what to do next.
“The difference is the carrier doesn’t have responsibility for recruiting, hiring, payroll and benefits,” Cooke said of the TransForce proposal. “That comes from us. Fundamentally, an independent contractor continues to lease their equipment to the carrier but works for us. We provide the carrier with a dedicated driver.”
Under the two-check system, the driver continues to operate under the motor carrier authority of the trucking company. That is a continuation of the current independent contractor (IC) model.
The first check in the two-check system is paid by TransForce to the employee driver. The second check is paid by the carrier to the driver for leasing the driver-owned truck.
Leasing in California differs from the traditional lease in which a carrier supplies an independent driver with a truck and the driver makes payments on it either toward ownership or in exchange for having new equipment.
Lisa Mitchell, who is an AB5 dedicated solutions specialist for TransForce, explained the two-check system: leasing equipment from a truck leasing company.
“It’s the same as leasing equipment from a truck leasing company and utilizing the driver through TransForce,” she said. “It’s not to be confused with the lease-to-purchase program in which the [carrier] owns the equipment and the driver is on a payment plan in order to eventually own the truck, which is scrutinized in California.”
Whether the TransForce system would pass legal muster will need the test of time. Would California’s Division of Labor Standards Enforcement, which is expected to be the primary enforcement arm for alleged AB5 violations, view the TransForce program as legally defining that driver as an employee and not in violation of the B prong, even as the driver continues to operate with much of the freedom of an independent contractor?
TransForce has been targeting an AB5 solution “since the beginning” of the AB5/trucking saga, Cooke said. Its two-check plan was ready before the Supreme Court’s nonaction. “We’ve obviously consulted with outside and internal counsel,” he said.
Osterkamp Transportation Group, based in Plaster City, California, used a similar program long before the end of June. Osterkamp retains about 99% of its drivers under the two-check system, Cooke said, explaining that Osterkamp authorized TransForce to speak publicly about the arrangement.
A recent webinar about the TransForce program and its relationship with Osterkamp drew about 150 participants, Cooke said. “People are concerned and in a panic,” he said. “They need help.” A similar webinar is planned for Friday.
The TransForce announcement comes as the debate over the future of independent contractor status in California receives national attention because of the actions in Oakland. Major media outlets, including The New York Times, have reported on it in recent days.
The TransForce plan comes as companies already are taking action.
Kristen M.J. Johnson, a partner with the transportation-focused law firm of Taylor Johnson, said in an email to FreightWaves that her firm represents clients that already have exited California because of the potential impact from AB5.
The employee model is being tested by other clients.
“We have had others decide to convert to an employee model, which has caused fallout with a number of independent contractors who do not want to be employees,” Johnson said in an email to FreightWaves.
Confusion and misinformation over what is and is not allowed under AB5 is rampant.
“We have also seen a lot of fears from independent contractors, who operate under the misconception that AB5 made it ‘illegal’ to be an independent contractor in California,” which is not true, she said.
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