OnTrac Updates to Master Contractor Model in Wake of AB5 in California

The effects of California’s AB5 law are widespread, requiring thousands of gig workers and independent contractor to be reclassified as employees across a range of industries. One consequence is delivery firms doing business in California updating their operating models to adhere to the law.

One such firm is regional parcel carrier OnTrac, which has been in the process of overhauling its model over the past few months. OnTrac is now requiring any company that does deliveries on its behalf to become a master contractor, with each driver as an employee. Previously OnTrac had used 100% independent contractors.

“Right now, (AB5) is only in California but that’s where the majority of the population we deliver to is,” said Mark Magill, vice president of business development for OnTrac. “Whatever law is we have to adhere to strictly. So, we’re converting to the FedEx Ground model where all drivers are employees of a master contractor.”

While OnTrac operates in eight states – California, Arizona, Nevada, Oregon, Washington, Utah and Colorado – Magill said it made no sense to have a two-tiered business, with different rules governing operations in different states. About half its business comes from California.

Other states considering similar legislation to AB5 include New Jersey, New York, Massachusetts, Illinois and Washington, with litigation sure to follow from freelancer groups including truckers fearing for their livelihoods.

On Jan. 8, 2020, a state court judge in California ruled in favor of truckers seeking a legal exemption from AB5. A week prior, a federal court judge issued a restraining order temporarily exempting 70,000 truck drivers from the Jan. 1 implementation of AB5, after a legal challenge from the California Trucking Association. On Jan. 13 the judge extended the temporary injunction, which remains in effect.

OnTrac is primarily involved in ecommerce delivery, making up about 70% of its business, vs. 30% for B2B. It handles parcels to home or business from 1 to 150 lbs. Many of its employees were formerly with either FedEx or UPS.

Mark Magill will be part of a panel discussion at Ecommerce Operations Summit 2020, “Taking a Closer Look at Regional Parcel Carriers.” Held on April 15 and moderated by Rob Martinez, founder and  of Shipware, it will also include representatives of regional carriers LSO and LaserShip talking about trends and market drivers.

In light of AB5 and other developments, there will also be a discussion, “Using Independent Contractors for Ecommerce Delivery: Understanding the Issues,” on April 16, with an expert panel led by Henry Seaton, Partner, Seaton & Husk, LP.

You can register for Ecommerce Operations Summit here and check out the agenda here.