California’s Labor Secretary’s office recently published a chart outlining the B2B (business-to-business) exemption criteria in the motor carrier industry. The chart lists the 12 criteria for an owner-operator contractor (service provider) to be considered independent instead of an employee.
The classification of truck drivers as independent contractors or employees has been a longstanding issue, further complicated by California’s AB 5 legislation and its impact on the industry. AB 5 requires applying the “ABC test” to determine if workers in California are employees or independent contractors for purposes of the Labor Code. Under the ABC test, a worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact,
- The worker performs work that is outside the usual course of the hiring entity’s business, and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
The B2B Exemption Requirements for Motor Carriers
The chart published by the Labor Secretary clarifies how a hiring entity and owner-operators can satisfy each of these criteria to ensure the Borello test, rather than the ABC test, is used to determine whether the owner-operator is an employee or an independent contractor.
To qualify as an independent contractor under the B2B exemption, all twelve of the following conditions must be met:
- Free from control & direction: Service providers operate independently, without direct supervision or control by the hiring entity.
- Services provided directly to the contracting business: Service providers (not their employees) must perform the contracted work under their own business name. The provider must regularly contract with other businesses, not just the hiring entity.
- Contract is in writing: The agreement must outline payment terms, services to be performed, rates, and pay dates.
- Business license or tax registration: Service providers need not have “a federal motor carrier operating license” to satisfy this criterion.
- Maintains separate business location: Service providers can comply even by operating the driving business from their own “residence.”
- Independently established business: Service providers run independent businesses providing the same services to others.
- Can contract with other businesses without restrictions from the hiring entity: Service providers can work with multiple motor carriers to carry out their independent driving business.
- Advertise & holds itself out to the public: Service providers communicate with customers through independent channels or advertise their services.
- Provides own tools, vehicles & equipment: Consistent with the nature of the work, service providers use their trucks and other equipment as needed.
- Can negotiate own rates: Service providers must show they negotiated their own rates or could do so.
- Can set own hours & location: Service providers can choose which loads to accept (which dictates their hours and location).
- Not performing work requiring a contractor’s license: No Contractors’ State License Board license is required to operate a driving business in California.
Ensuring appropriate classification protects businesses from potential misclassification lawsuits and preserves the independent contractor model, which many drivers value. Motor carriers must perform a complete legal evaluation of their business connections with service providers to ensure compliance. The hiring entity has the burden of proof, so it is necessary to establish compliance with all 12 B2B exemption conditions.
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