What Is AB5 and Why Does It Matter for Trucking?
California Assembly Bill 5 (AB5), signed into law in September 2019, fundamentally changed how workers are classified in California. The law established a strict three-part "ABC test" that most independent contractors must pass to avoid being reclassified as employees — and employees require workers' compensation coverage.
For the California trucking industry, AB5 created enormous uncertainty. The trucking industry initially received an exemption via Proposition 22 and a federal injunction, but the California Supreme Court's 2022 ruling in California Trucking Association v. Bonta upheld AB5's application to motor carriers — ending years of legal limbo.
Current status as of 2024: AB5 applies to California trucking companies. Owner-operators working for motor carriers are presumed to be employees under California law unless the carrier can satisfy the ABC test. This has direct and significant implications for your workers' compensation policy.
The ABC Test: What Your Drivers Must Satisfy
Under AB5, a worker is considered an independent contractor only if all three of the following are true:
- A — Free from ControlThe worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact.
- B — Outside Usual Course of BusinessThe worker performs work that is outside the usual course of the hiring entity's business. This is the hardest prong for trucking companies — if your business is hauling freight and your driver hauls freight, they almost certainly fail Part B.
- C — Independently Established BusinessThe worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The driver must have their own business entity, their own clients, and operate independently.
The reality for most CA trucking operators: The vast majority of owner-operators hauling exclusively or primarily for one motor carrier will fail the ABC test — particularly Part B. This means those drivers should be classified as employees for California workers' compensation purposes.
What This Means for Your WC Policy
If your owner-operators are reclassified as employees under AB5, their payroll must be included in your workers' compensation policy. This affects your premium in three critical ways:
- Increased payroll exposure: More payroll = higher base premium.
- Class code assignment: Truck drivers carry high-risk class codes that carry premium rates of $8–$15 per $100 of payroll in California. Misclassifying them as subcontractors and excluding their payroll is audit bait.
- Audit liability: California WC policies are auditable. If your year-end audit reveals undisclosed driver payroll, you'll owe retroactive premium — plus penalties.
The audit trap: A trucking company with 10 owner-operators earning $80,000 each that excludes their payroll from WC is sitting on $800,000 of unreported exposure. At a class code rate of $10 per $100, that's $80,000 in missed premium — plus penalties. Carriers find this at audit. Every time.
How to Handle Owner-Operators Under AB5
You have three defensible options. Which one is right for you depends on how your relationship with your owner-operators is structured:
| Option | Requirements | WC Impact |
|---|---|---|
| Reclassify as Employees | Treat drivers as W-2 employees with full benefits and withholding | Include payroll in your WC policy. Clean, defensible. |
| True Independent Contractor | Driver must satisfy all three ABC prongs, have their own CA motor carrier authority, haul for multiple companies | Driver carries their own WC policy or occupational accident coverage |
| Occupational Accident Insurance | Driver is structured as a true IC with their own business entity | Not a substitute for WC — but can reduce carrier exposure for properly structured IC relationships |
Important: Occupational Accident insurance is not workers' compensation. It does not provide the same statutory benefits and does not shield you from WC liability if a driver is later determined to be an employee.
What Wellington Partners Does for CA Trucking Companies
We've been placing WC for California trucking companies since 2009. We understand the AB5 landscape and help our trucking clients structure their policies correctly — classifying drivers accurately, ensuring payroll reporting matches operations, and selecting carriers who understand the CA trucking market.
The wrong broker will either ignore AB5 entirely (leaving you exposed at audit) or classify everyone as employees without exploring whether your IC relationships are defensible. We do neither. We review your operations, your contracts, and your driver relationships before we write a single submission.
AB5 and the FAAAA Preemption Argument
It's worth noting that legal challenges to AB5 as applied to trucking continue. The Federal Aviation Administration Authorization Act (FAAAA) preempts state laws "related to" prices, routes, or services of motor carriers. Some courts have found AB5 preempted by the FAAAA for interstate carriers. This is an evolving area of law.
However, from a workers' compensation standpoint, the safest position remains to treat drivers who don't clearly satisfy the ABC test as employees and include their payroll in your WC policy. The cost of getting this wrong at audit far exceeds the cost of doing it right upfront.