California’s AB5 law is now fully enforceable against trucking, the last legal challenge failed in May 2025, and the first $868,000 penalty has already landed/ here’s what every owner-operator and carrier needs to understand right now.
Key Takeway
AB5 uses a strict ABC test to classify workers. Trucking is not exempt.
Prong B is the blocker; it requires work to fall outside the hiring company’s business. Since carriers haul freight, classifying a driver as an independent contractor under this prong is nearly impossible.
Every legal challenge has failed. The 9th Circuit rejected OOIDA’s final appeal in May 2025.
Enforcement has started. In October 2025, the California Labor Commissioner fined Costco, Ryder Last Mile, and Mega Nice Trucking $868,128 for misclassifying 58 drivers.
Penalties range from $5,000 to $25,000 per violation, plus back wages, payroll taxes, and joint employer liability for companies hiring the carrier.
This post is informational and does not constitute legal advice. Consult a California employment attorney for guidance specific to your situation.
What Is California AB5?
AB5 is a California worker classification law signed in September 2019 that replaced the flexible Borello test with a stricter ABC test. Originally aimed at gig-economy companies, the law covers most California workers, and trucking was not granted an exemption. An estimated 70,000 owner-operators and every motor carrier contracting with them are affected.
The ABC Test: Why Prong B Is the Problem
Under AB5, a worker is presumed to be an employee unless the hiring business proves all three prongs: (A) the worker is free from the company’s control, (B) the work is outside the company’s usual business, and (C) the worker is engaged in an independent trade.
Prong B is the dealbreaker. A carrier’s business is hauling freight, and a leased-on owner-operator is doing exactly that, making independent contractor classification nearly impossible regardless of autonomy or truck ownership.
The Legal Timeline: Every Challenge Has Failed
The industry fought AB5 for five years. CTA filed suit in 2019 and won a temporary injunction, but the 9th Circuit reversed it in 2021. The Supreme Court declined the case in June 2022 and AB5 took full effect. CTA dropped out in August 2024. OOIDA continued alone, but the 9th Circuit rejected OOIDA’s appeal in May 2025. As of July 2026, no judicial challenge is pending.
The First Enforcement Action: Costco, Ryder, and Mega Nice Trucking
In October 2025, the California Labor Commissioner cited Mega Nice Trucking, Ryder Last Mile, and Costco a combined $868,128, including $663,000 in back wages, for misclassifying 58 drivers. Costco and Ryder were held jointly liable because they controlled scheduling, uniforms, and performance monitoring. The investigation was triggered by driver complaints. All three have appealed, but the signal is clear.
What Are the Actual Penalties?
Misclassification triggers exposure on multiple fronts: civil fines of $5,000–$25,000 per violation, back wages and benefits (overtime, meal/rest break premiums, sick leave), EDD payroll tax liabilities, PAGA lawsuits (per employee per pay period), joint employer liability for companies hiring the carrier, and potential personal liability for owners and officers.
Does the Business-to-Business Exemption Help?
AB5 includes a B2B exemption allowing certain relationships to use the older Borello test, but it requires meeting all 12 criteria. For leased owner-operators, this is nearly impossible: federal leasing regulations require carriers to maintain exclusive control over leased equipment, directly conflicting with B2B independence requirements. The 9th Circuit’s May 2025 ruling confirmed the exemption isn’t a practical workaround.
What Options Do Owner-Operators Actually Have?
Operate under your own authority. Holding your own MC and USDOT numbers and contracting directly with shippers or brokers, rather than leasing onto a carrier, provides the strongest compliance position.
Work through a brokerage model. A broker connecting a licensed carrier with freight, without exercising control over how the work is performed, creates a different classification analysis.
Transition to employee status. Some carriers have converted owner-operators to W-2 employees, absorbing 10–15% higher costs in exchange for compliance certainty.
Exit California-origin freight. AB5 primarily applies to freight picked up in California. Drivers only delivering into the state face less exposure, but for most carriers, this is a market concession, not a strategy.
What This Means If You’re Shipping Freight in California
The Costco case proved that joint employer liability reaches shippers, not just carriers. If you hire a carrier whose drivers are misclassified and you exercise operational control, you share the penalties. Working with a compliant, established Bakersfield trucking company now carries real risk-reduction value.
How Roadies Inc Operates in a Post-AB5 California
Roadies Inc operates as a licensed motor carrier with company drivers — not through leased owner-operator arrangements. Our freight and logistics operations are structured for compliance, supported by technology and fleet management systems that keep operations efficient without the contractor model AB5 targets.
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Get a quote from a compliant California carrier — contact Roadies Inc today. Call 661-214-8880.
Frequently Asked Questions
Does AB5 ban owner-operators in California?
No, but it makes it extremely difficult for carriers to classify leased-on drivers as independent contractors. Owner-operators with their own motor carrier authority who contract independently have a stronger position.
Does AB5 apply to out-of-state drivers?
AB5 applies to work performed in California regardless of the driver’s home state, primarily to drivers picking up freight in California.
What is the ABC test under AB5?
A three-part test: (A) free from company control, (B) work outside the company’s usual business, (C) engaged in an independent trade. All three must be met, failing any one means employee status.
Has California enforced AB5 against trucking companies?
Yes. In October 2025, Costco, Ryder Last Mile, and Mega Nice Trucking were cited $868,128 for misclassifying 58 drivers, the first reported AB5 enforcement in trucking.
What are the penalties for misclassification?
$5,000–$25,000 per violation, plus back wages, payroll taxes, and PAGA exposure per employee per pay period. Companies hiring misclassifying carriers can be held jointly liable.
