Prime takes wait-and-see approach to California’s AB5
January 23, 2020
One of the nation’s largest trucking companies said it will wait for a final court decision regarding California’s controversial worker classification law before returning to its original business model in the state. This is in spite of a federal judge’s recent decision to block California’s enforcement of Assembly Bill 5 against motor carriers.
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.
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:
- A. 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.
- B. That the worker performs work that is outside the usual course of the hiring entity’s business.
- C. 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.
Opponents of AB5 contend that the B factor of the test would kill trucking’s leased-on owner-operator model in the state.
As the days approached the enactment of AB5, there were reports that numerous trucking companies that operate in California – including Prime – notified its leased-on owner-operators that is 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.
“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.”
Judge Robert Benitez for the U.S. District Court Southern District of California granted on Thursday, Jan. 16, the California Trucking Association’s request for a preliminary injunction against AB5. 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 California Trucking Association contends that the law is unconstitutional and is preempted by the Federal Aviation Administration Authorization Act of 1994 (F4A), 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.”
Prime said the recent decision is encouraging, but the trucking company will wait for a final decision before it starts using independent contractors in the state again.
“We are pleased with the two recent cases, specifically the CTA’s case in federal court where the injunction was granted for trucking,” Crawford wrote. “We are cautiously optimistic that this will turn into permanent protection for California independent contractors.
“At this juncture, we are in hopes of returning to our original business model once a final decision has been made.”
Attempts to reach other trucking companies affected by AB5 were unsuccessful.
OOIDA says AB5 goes too far
The Owner-Operator Independent Drivers Association agrees that there has been a problem with misclassified truckers in the state but said AB5 went too far.
“We’ve always maintained that misclassification in trucking is a very real issue, but California’s legislative approach was overly broad and unnecessarily chaotic. Simply outlawing independent contractors in trucking is unacceptable,” OOIDA wrote to its members on Jan. 10.