Supreme Court Denies Review of California Assembly Bill 5
At the end of June the Supreme Court denied the review of California Assembly Bill 5 (AB5) and returned the case to the 9th U.S. Circuit Court of Appeals. A ruling by the 9th Circuit had previously overturned a lower court’s injunction that had kept AB5 from applying to the transportation industry. Despite overturning the lower court’s injunction, the stay remained in effect while interested parties tried to push the issue to the Supreme Court. It is expected that the 9th Circuit will end the stay and AB5 will become law and apply retroactively back to the effective date of the legislation, January 1, 2020.
Questions remain though. Particularly concerning the scope of the legislation and who may be impacted. Particularly those owner operators (and the respective companies they haul for) that travel through but are not domiciled in California. With the denial by the Supreme Court, there is also increased risk that other states may try to pass similar laws.
At the heart of the issue is the revised three part test California put in place with AB5. For a summary of AB5, read our earlier blog post The AB5 Situation in California. The biggest hurdle that creates significant problems for independent contractors, especially owner operators working for transportation companies, is that the worker must perform tasks and services that fall outside of the usual course of the employing company’s business activities. Without some sort of exemption or clarification, this test would be failed as both an owner operator and the company they are hauling for are in the business of transportation. It is recommended that transportation companies review their California activity and operating structure and watch closely for further information.
Nathan is a CPA and has more than ten years of experience providing tax planning, consulting and compliance services to a number of privately held businesses and individuals in a variety of industries, with a special focus on the transportation and logistics industry. He actively communicates with clients and seeks ways to align their individual and business goals with available tax strategies to allow them to make well-informed decisions.
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