The basics of AB5 & Broker Liability

March 29, 2023
Cassandra Gaines

How does California's AB5 rule affect your business? Even though some consider this law doesn't affect their business, it's vital to understand why it's in motion and what could happen if you're unaware of its implications.

The CH Robinson Case

For context, let’s discuss the CH Robinson Case. This was a case where liability was imposed on a broker for the negligent selection of a motor carrier for a personal injury claim. Some courts say brokers can be responsible for an accident if they don’t take specific steps to ensure the motor carriers they select are safe.  

The AB5 Law

The AB5 law requires companies that hire independent contractors to reclassify them as employees. All company employees are considered workers eligible to receive W-2s. That is unless a company can prove that certain individuals can be classified as independent contractors, according to the ABC test in the state.

This makes it very difficult to hire independent contractor drivers. The issue is that, in the trucking industry, it’s vital to build your driver fleet using independent drivers, and this law becomes a considerable challenge for companies to try to do so.  

How to avoid broker liability?

Considering the AB5 law, it’s critical for brokers to ensure they have processes in place to know exactly who they’re working with.  

  • Check what processes you have in place to vet carriers.  
  • Be sure to have carrier selection standards.  
  • Have these standards written down and comply with them.  
  • Select a carrier that historically has a low frequency of violations.  
  • Be sure to review contracts. Especially for the shippers.  
  • Ensure you have indemnity shifting provisions and insurance in those contracts.

Can shippers hire brokers and push the liability to them?

They could, but they can still be dragged into a lawsuit. Therefore, they should know the entity they’re hiring, whether they are carriers or brokers. There are many contracts that incorrectly name the parties involved in the transportation process.  

Will there be more double brokering due to the AB5?

It’s essential to understand that there will probably be double brokering. This law has put an enormous burden on all carriers who have independent contractors.  

Shippers need to be aware of this situation and understand that there are carriers who are not asset-based and have other business models that may allow for double brokering. There must be certain flexibility in the industry, and companies must find ways to avoid issues by checking and vetting the companies they are working with.  

Relying on Carrier Assure

A platform like Carrier Assure will ensure you have the data you need to hire the right partners for your transportation services. It’s an additional step in your vetting process that will help you reduce risks and avoid hiring a carrier with a bad safety record or a low-performance score, according to real data points.  

Want to know more about Carrier Assure and how it can help you hire the unicorns of the industry?