Fight over California’s worker classification law could eventually make it all the way to the U.S. Supreme Court.

March-April 2020

Mark Schremmer

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The fight over California’s Assembly Bill 5 is likely just beginning.

While a federal judge’s decision to grant a preliminary injunction to the California Trucking Association gives motor carriers an extended reprieve from the state’s new worker classification law, more court cases are expected. Some experts even suggest that the battle may not be finished until it eventually reaches the U.S. Supreme Court.

Judge Robert Benitez for the U.S. District Court Southern District of California on Jan. 16 ordered California to stop forcing motor carriers to comply with Assembly Bill 5, which makes it more difficult for a worker to be considered an independent contractor. The decision to grant the preliminary injunction means California can’t apply the law to the trucking industry until the trucking group’s full case is decided.

The lawsuit

The California Trucking Association contends that the law is unconstitutional and is preempted by the Federal Aviation Administration Authorization Act of 1994, which prevents states from enforcing a law or regulation related to a price, route, or service of motor carriers.

“To prevail on their motion for a preliminary injunction, plaintiffs must establish, at a minimum, that there are ‘serious questions’ on the merits of at least one of their challenges to AB5’s ABC test,” Benitez wrote. “Plaintiffs have done so with their (F4A) preemption challenge.

“The court finds AB5’s ABC test has more than a ‘tenuous, remote or peripheral’ impact on motor carriers’ prices, routes or services, particularly in light of our Ninth Circuit jurisprudence casting serious doubt on the type of ‘all or nothing rule’ that AB5 implements.”

Shawn Yadon, CEO of the California Trucking Association, touted the court decision as a win for the state’s owner-operators.

“This ruling is a significant win for California’s more than 70,000 independent owner-operators and California Trucking Association members who have worked as independent truckers for decades and who have invested hundreds of thousands of dollars to own their own vehicle and comply with California’s strict environmental guidelines and regulations over the years,” Yadon said in a news release.

ABC test

California’s AB5, which was signed into law in September, codifies the California Supreme Court’s establishment of the ABC test, which considers all workers to be employees unless the hiring business demonstrates that all of the factors are established:

  1. That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. That the worker performs work that is outside the usual course of the hiring entity’s business.
  3. That 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 law, which went into effect on Jan. 1, was intended to apply to a variety of industries, including trucking.

However, the California Trucking Association filed a lawsuit against California Attorney General Xavier Becerra, saying that the B factor of the test would effectively end the owner-operator model in the state. Benitez granted a temporary restraining order on Dec. 31 to block enforcement until the motion for preliminary injunction was decided.

Opposition to CTA

Contending that the California Trucking Association’s preemption claim falls short, Becerra and the Teamsters asked the U.S. Court of Appeals on Jan. 29 for the Ninth Circuit to review the preliminary injunction.

“Plaintiffs’ preemption claim under the (F4A) fails under Ninth Circuit case law, which holds that generally applicable state labor regulations are not preempted because they do not have the requisite forbidden effect on the price, routes, and services of motor carriers,” Becerra wrote in a motion. “Plaintiffs’ opposition relies on its contention that the ABC test under AB5 ‘effectively prohibits’ the use of independent contractors. As the case law and the statutory language demonstrate, this assertion is incorrect.”

In addition, the Teamsters, which is serving as an intervenor in the case for the defendants, said that the California Trucking Association hasn’t adequately alleged associational standing.

“An organization asserting associational standing must ‘identify members who have suffered the requisite harm,’” the Teamsters wrote in its reply memorandum. “Plaintiffs’ operative complaint does not identify a single California Trucking Association member (let alone plead facts about harm to that member), and so fails to establish CTA’s standing.”

Opponents of AB5 contend that the B factor of the test would kill trucking’s leased-on owner-operator model in the state.

Drivers asked to relocate?

As the days approached the enactment of AB5, there were reports that numerous trucking companies that operate in California notified its leased-on owner-operators that its business model would have to change. In some cases, trucking companies reportedly told its owner-operators in the state that they would need to either become employees or relocate to another state.

Steve Crawford, general counsel for Springfield, Mo.-based New Prime Inc., said California’s AB5, which went into effect on Jan. 1, made it impossible for motor carriers to use independent contractors in the state.

“Obviously, like most in the industry, when AB5 was passed we had to take measures to protect our company and our fleet,” Crawford wrote in an email to Land Line. “Like any other company, it became impossible to meet the second prong of the test for an independent contractor to be recognized as such where the state of California had jurisdiction.

“Accordingly, we had already stopped associating with new independent contractors from California and were in the process of offering other opportunities to existing independent contractors. One option we offered was relocation.”

OOIDA’s stance

The Association has long been an opponent of predatory lease-purchase agreements and wants to protect such drivers from being misclassified.

However, OOIDA said that California lawmakers created more problems by introducing a broad and vague law.

“Unfortunately, ill-conceived legislation involving misclassification has the potential to disrupt the livelihood of small-business truckers,” OOIDA wrote in testimony submitted to the U.S. Senate in February. “Our members have already experienced this disruption in California with the enactment of AB5. This policy has pushed many motor carriers to sever ties with independent owner-operators from the state. Given the unique nature of the trucking industry, we urge Congress to consult with independent owner-operators before considering any legislation that could negatively impact their businesses and compensation.”

State ruling

In a separate but related case, a state court judge determined that AB5 doesn’t apply to trucking. Los Angeles Superior Court Judge William Highberger ruled on Jan. 8 that AB5 is preempted by the F4A.

“Here the requirements of the ABC test … clearly run afoul of Congress’ 1994 determination that a uniform rule endorsing use of nonemployee independent contractors should apply in all 50 states to increase competition and reduce the cost of trucking services,” Highberger wrote.

Developments in both cases are positives for opponents of AB5, but the legal battles are likely far from over. LL

Mark Schremmer

Mark Schremmer, senior editor, joined Land Line in 2015. An award-winning journalist and former assistant news editor at The Topeka Capital-Journal, he brings fresh ideas, solid reporting skills, and nearly two decades of journalism experience to our staff.