Understanding AB 5’s Impact on Logistics Providers in Orange County

California Assembly Bill 5 (AB 5) has significantly reshaped the way transportation and logistics providers operate in California. Initially designed to address the gig economy and worker classification, AB 5 has created complex challenges for transportation and logistics companies, forcing them to reconsider their staffing models and business operations. The law’s primary goal is to ensure gig workers are classified as employees rather than independent contractors. This reclassification requires companies to provide benefits such as minimum wage, health insurance, and workers’ compensation, which were previously reserved for employees only. 

For transportation and logistics providers in California, AB 5 brings a new set of legal and operational hurdles. As companies strive to remain competitive in a fast-paced market, understanding the far-reaching effects of this legislation is critical to avoiding penalties and ensuring compliance. In this article, we’ll explore the fundamental aspects of AB 5, its impact on transportation and logistics providers, and how companies can navigate these changes effectively to safeguard their operations. 

The Core of AB 5: What Transportation and Logistics Providers Need to Know 

AB 5, passed in 2019, redefines the way workers are classified in California, making it more challenging for businesses to categorize workers as independent contractors. The law uses the “ABC Test,” a stricter standard that must be met for workers to qualify as independent contractors, rather than employees. Here’s a breakdown of the test: 

1. A: The worker must be free from the control and direction of the hiring company in performing their work. This means that the worker must have independence in how they complete their tasks. 

2. B: The worker must perform tasks outside the usual course of the hiring company’s business. For example, a delivery driver for a transportation and logistics company would not meet this requirement if the company itself is primarily in the transportation and logistics business. 

3. C: The worker must be engaged in an independently established trade, occupation, or business. This means that the worker should be able to offer services to other clients, not just the transportation and logistics company in question. 

Moreover, from an evidentiary standpoint, AB 5 imposes what is known as a rebuttable presumption in favor of classifying the worker as an employee.  This shifts the burden on the defendant hiring company to prove each of the three prongs are satisfied. 

For transportation and logistics providers in California, AB 5’s implications are profound. Throughout the continental US, many transportation and logistics providers rely heavily on the use of “owner-operators,” which are essentially subcontracted drivers, in their business operations.  Now, in California such owner-operator drivers may no longer qualify as independent contractors under the law. Instead, they may need to be classified as employees, entitling them to benefits like paid leave, health insurance, and workers’ compensation. 

In May 2025, the Ninth Circuit Court of Appeals upheld California’s AB 5, affirming that the law does not violate the dormant Commerce Clause or the Equal Protection Clause. The court concluded that AB 5 does not discriminate against interstate commerce and that the business-to-business (B2B) exemption applies equally to both in-state and out-of-state drivers. The Owner-Operator Independent Drivers Association (OOIDA), which continued the legal challenge after the California Trucking Association withdrew, is evaluating further legal options, including a potential en banc review or a petition to the U.S. Supreme Court. 

For now, AB 5 remains in effect, requiring transportation and logistics providers in California to classify many owner-operators as employees unless they meet the stringent criteria of the B2B exemption. Businesses should consult legal counsel to navigate the evolving regulatory landscape. 

Implications for Transportation and Logistics Providers in California 

The reclassification of workers from independent contractors to employees under AB 5 carries significant operational and financial implications for transportation and logistics providers in California. Here’s a closer look at some of the major impacts: 

• Employee Benefits and Legal Protections: With workers reclassified as employees, transportation and logistics companies must provide standard employee benefits, including minimum wage, healthcare benefits, unemployment insurance, and paid sick leave. This shift could lead to higher payroll costs for transportation and logistics providers who previously relied on gig workers to keep their labor costs lower. 

• Increased Operational Costs: Apart from the direct costs of employee benefits, transportation and logistics companies will also face additional expenses related to payroll taxes, workers’ compensation, and the administration of employee benefits. These added costs could put pressure on the business, especially in a sector that relies heavily on temporary or fluctuating labor. 

• Staffing Flexibility and Workforce Management: The law reduces the staffing flexibility that transportation and logistics companies previously had. Previously, companies could hire drivers on-demand based on seasonal needs or fluctuating workloads. With AB 5 in place, many of these workers will need to be treated as permanent employees, which limits the flexibility of scaling operations up and down. 

Navigating the Challenges of AB 5 for Transportation and Logistics Providers 

Navigating AB 5’s complex provisions requires transportation and logistics providers to take proactive steps to ensure compliance and minimize operational disruptions. Here are a few key actions transportation and logistics companies should take: 

• Review Worker Classifications: Conduct a comprehensive review of your current workforce to determine whether workers should be classified as independent contractors or employees under the law. This will help you identify areas where your company may need to make adjustments to comply with AB 5. 

• Consult with Legal Professionals: AB 5 is a complex law, and its interpretation can vary depending on the specific details of your business. It’s crucial to work with an experienced attorney who can guide you through the process of worker reclassification and advise on how to implement necessary changes. 

• Adjust Business Models and Staffing Plans: Consider restructuring your workforce to accommodate the new legal requirements. This may involve transitioning more workers to full-time employees or adjusting your staffing model to ensure flexibility while staying within the bounds of AB 5. 

Did you know? AB 5 includes several exemptions, allowing certain workers in industries such as trucking and real estate to continue working as independent contractors under specific conditions. 

Partnering with Experts to Ensure Compliance 

As AB 5 continues to impact transportation and logistics providers in California, it’s essential to have the right legal team on your side to navigate the complexities of worker classification and employment law. At Putterman Law, our experienced attorneys are dedicated to helping businesses stay compliant in this area. We provide strategic advice to transportation and logistics providers, ensuring your business remains legally sound while minimizing disruptions to your operations. 

Contact Putterman Law for a Consultation 

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