Labor & Employment Law Daily Trucking group gets emergency reprieve from AB 5, California’s independent contractor law
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Wednesday, January 8, 2020

Trucking group gets emergency reprieve from AB 5, California’s independent contractor law

By Marjorie Johnson, J.D.

The California Trucking Association was likely to succeed on the merits of its claim that A.B. 5 was preempted by federal law since it “effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are.”

A federal court in California issued a temporary restraining order that bars the state from enforcing, as to any motor carrier operating in California, its newly enacted law mandating when an employer can classify an individual as an independent contractor as opposed to an employee. The California Trucking Association and other plaintiffs established that the emergency relief was warranted based on the likelihood of success on their argument that the law’s three-pronged test for determining employee status was preempted by the Federal Aviation Administration Authorization Act (FAAAA) and there was no other adequate legal remedy to preserve the status quo over the brief period before the court addressed their preliminary injunction motion (California Trucking Association v. Becerra, December 31, 2019, Benitez, R.).

Assembly Bill 5. California enacted Assembly Bill 5 (A.B. 5) with the intention to address the problem of employees being wrongly classified as “independent contractors” as opposed to “employees.” The law has largely been viewed as delivering greater protections to gig workers. The legislation passed by a vote of 56-14 and was signed by California Governor Gavin Newsom on September 18, 2019. It became effective January 1, 2020—one day before this court’s order granting the plaintiffs’ bid for a temporary restraining order.

“ABC test.” A.B. 5 has been carefully tracked by interested stakeholders across the nation. The bill is complicated, but in essence it codifies the California Supreme Court’s 2018 decision in Dynamex v. Superior Court requiring employers to show that their workers meet the three-part “ABC test” to be lawfully classified as independent contractors. And, if a court finds that the ABC test cannot be applied, the determination of employee status is governed by the California Supreme Court’s earlier Borello test (see “California’s A.B. 5 poised to deliver greater gig worker protections“).

FAAAA preemption. This amended lawsuit was filed by the California Trucking Association and individual owner-operators. The plaintiffs allege that the statute’s ABC test is expressly and impliedly preempted by the FAAAA and therefore unconstitutional. On December 24, 2019, they filed the instant motion for a temporary restraining order seeking to enjoin the state from enforcing A.B. 5 as to any motor carrier operating in California, pending resolution of their motion for a preliminary injunction. That motion is set for hearing on January 13, 2020.

“Mandatory” test. As applied to the motor carrier context, A.B. 5 provides a “mandatory” test for determining whether a person driving or hauling freight for another contracting person or entity is an independent contractor or an employee for all purposes under the California Labor Code, the Industrial Welfare Commission wage orders, and the Unemployment Insurance Code. Under this three-pronged test, an owner-operator is presumed to be an employee unless the motor carrier establishes that the individual: (A) 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; (B) performs work that is outside the usual course of the hiring entity’s business; and (C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Likely to succeed on merits. Finding that a preliminary restraining order was warranted, the court first determined that the plaintiffs were likely to succeed on the merits since they showed that A.B. 5’s Prong B was likely preempted by the FAAAA, which prohibits any state from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.. . . with respect to the transportation of property.” Significantly, Prong B “effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are.” This meant that “because contrary to Prong B, drivers perform work within ‘the usual course of the [motor carrier] hiring entity’s business,’” drivers could never be deemed independent contractors under California law.

Imminent risk of enforcement actions. The plaintiffs also established that imminent, irreparable harm was likely because “without significantly transforming their operations to treat independent contracting drivers as employees for all specified purposes under California laws and regulations,” they faced the risk of governmental enforcement actions and criminal and civil penalties. They also had standing since, if their interpretation of the statute was correct, they would have to either risk criminal prosecution or take “significant and costly compliance measures.”

Finally, the equities weighed in favor of granting the requested temporary restraining order and it was in the public interest. In particular, A.B. 5 provides an alternative should the ABC test be struck down; namely, the pre-A.B. 5 test would apply. Accordingly, because the plaintiffs lacked any other adequate legal remedy to preserve the status quo over the brief period of time before the court could address their preliminary injunction motion, the state’s attorney general and other state officials were temporarily enjoined from enforcing A.B. 5 as to any motor carrier operating in California.

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