AB5: Another Battle For Taxicab Owners

As if it isn’t hard enough for taxicab, limo and paratransit drivers competing against the’s of transportation – Uber & Lyft – those in California are about to potentially fight the greatest battle of them yet against AB5.

Recently, CA legislature passed and signed into law AB5 (Assembly Bill 5) which goes into effect on January 1, 2020. This bill will implement the ABC test when determining whether companies need to classify drivers as independent contractors or employees.

With taxicab and limo drivers already struggling, it seems unfathomable that CA government would make it  more difficult for professionals to operate. But many people in the taxi and limo industry are worried about potential changes they will need to make within their business.

As a commercial insurance broker, specializing in Livery, For-Hire Insurance for those in the taxicab, limo, paratransit, shared economy and on demand delivery spaces – I hear it first hand on a day to day basis how they are affected by Uber and Lyft. They are upset that those companies don’t have to adhere to the same licensing, permitting and insurance requirements that they do. And now, they might be forced to provide Workers Compensation insurance for all “gig-economy” workers – which many taxi drivers claim to be.

This potential added expense could do more harm than good, in an already difficult marketplace.

How AB5 will work

In California, AB5 will implement a three-part “ABC” test. This test will be used to established if a worker is an employee or independent contractor. If a worker is an employee, they need to have Workers Compensation insurance along with medical benefits and paid sick days. The law also states that all workers will be considered an employee of the company unless they can prove:

  • (A) the worker is free from the employer’s control and direction;
  • (B) the worker performs work that is outside the usual course of the company’s primary business; and
  • (C) the worker is not customarily engaged in the same trade, occupation, or business as the work they are hired to perform

If the company cannot prove all of these items, then the worker needs to be classified as an employee.

Will your taxicab company be affected by AB5?

For Chris Sweis, SF Yellow Cab has been a family business since 1983. Like many others in this industry, he is one of many across the country who grew up in the business.  It is often traditional for the business to be passed down from generation to generation.

Sweis, who is also President of the  Taxicab Paratransit Association of California, wants to work with CA Legislature to make sure taxicab drivers are exempt from AB5. Sweis said, “We don’t know if they are going to have to make any changes because taxi drivers still needs to be tested under the ABC test and a lot depends on how they are operating. If they are operating as a co-op, that makes a big difference. In SF, they have the medallions system. So, it really depends on how they are operating.”

Many taxi companies are structured as co-ops. This means each taxi driver is part owner of the company. Most are also made up of individual owner-operators who owns their own vehicle.

Under this structure, it could be considered that owners are able to exempt themselves from Work Comp insurance. In California, owners can exclude themselves from coverage under a work -comp policy. Since these co-op owners are not technically employees – they may not be affected by the AB5 bill.

Companies like SF Yellow Cab that operate under the medallion system, feel the same could be said for them as well. The taxicab company owns the medallion but leases it to the owner of the vehicle. They are basically renting out their operating authority. With a lease agreement in place – it might be enough to say the owner/operator of the vehicle is employing themselves.

Should AB5 apply to taxicab drivers?

Matthew Daus, Esq. who is the Partner and Chairman for Windels Marx Transportation Group in NYC and also President of the International Association of Transportation Regulators explains in more detail. He talked about identifying whether or not your taxi or limo company can continue to classify drivers as independent contractors.

He said, “Let’s say you operate a factory and you manufacture dolls and you have a broken door. You call a contractor to fix the door. The contractor is a handyman to fix facilities, not in the business of selling dolls. That situation would likely involve that worker being an independent contractor – not an employee.”

Some transportation companies are worried that their current business structure might be tested and disrupted. Currently, it is common for taxicab companies to classify their drivers as “independent contractors.”

“I think the taxi and limo industry needs to mobilize like they’ve never had to before in order to be exempt from AB5. They should be making the argument that they’ve been decimated by Uber and Lyft for years and they need an exemption,” Daus said.

“And with the entire taxi industry struggling – I don’t think that is what the legislature wanted. Most people feel bad about what happened to those in the taxi industry. It’s time for the legislature to level the playing field,” Daus also said.

What can you do?

TPAC is trying to get in front of CA legislature to help determine how the state of California can still implement this bill but not negatively impact the already struggling taxi industry.

It is important to do what you can to voice your opinion in protecting the transportation industry.

Sweis said TPAC could use help from fellow taxicab owners throughout the country. “If they operate in a state that has an ABC test and there is some kind of law or legislature or court cases that exempts their drivers from an ABC test being independent contractors, whether on state or local level – that would be extremely helpful.”

Sweis asked that if you have anything to provide that might be helpful, to email directly at .

A New Kind of Work Comp Insurance

With AB5 passing in California, those in taxi and limo business may need to start purchasing Work Comp insurance for their drivers come January 2020. Dave Haley, CEO of American Business Insurance is working on a cost-effective solution.

“Everyone is really worried about AB5 and they don’t know what to do,” Haley said.

As of today, the standard markets for Work Comp are not cheap. With the future of taxi and limo drivers at the forefront, Haley is working on a technology-based Work Comp product. His goal is to offer a product that is cost effective and easy to use.

“This new work comp product will offer a large savings for taxi and limo drivers. Compared to the work comp products currently available, our InsureTech solution will turn the traditional work comp system on its head.”

If  you need Work Comp for your transportation business, give us a call or email us.