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Truckers Lose Independent Contractor Exemption in California

California Assembly Bill 5 (AB5) went into effect on January 1, 2020. It requires companies that hire independent contractors to classify them as employees. Under AB5, companies must use the three pronged “ABC Test” to determine whether workers are considered independent contractors or employees. A worker is considered an employee and not an independent contractor unless the worker is (1) free from the control and direction of the hiring entity as to the performance of the work; (2) the work is outside the usual course of the hiring entity’s business; and (3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. Dynamex Operations W. v. Superior Ct., 4 Cal. 5th 903, 958 (2018).

Almost immediately, a California district court granted a preliminary injunction to prevent enforcement of AB5 as applied to motor carriers and truck drivers operating within California. In that case, the California Trucking Association argued that The Federal Aviation Administration Authorization Act (“FAAA”) of 1994 preempted AB5, thus allowing California Motor Carriers to continue classifying their drivers as independent contractors. Specifically, the FAAAA prevents states from enacting laws that affect a motor carrier’s prices, routes, and services. The district court held that “there is little question that the State of California has encroached on Congress’ territory [to preempt state law] by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking.”

However, this apparent victory by the California Trucking Association was short-lived. The International Brotherhood of Teamsters appealed the district court’s ruling to the 9th Circuit Court of Appeals. On April 28, 2021 the 9th Circuit reversed the district court’s ruling and held that AB5 is not preempted by the FAAAA. The 9th Circuit held that AB5 is a “generally applicable labor law that affects a motor carrier’s relationship to its workforce [emphasis added] and does not bind, compel, or otherwise freeze into place the prices, routes or services of motor carriers.”

The parties have 14 days to seek a rehearing, or up to 150 days to appeal to the United States Supreme Court. Thus, it is difficult to predict when the preliminary injunction granted by the California district court will be lifted. However, it is clear that at least at the present time, motor carriers must begin to determine whether their drivers are considered employees or independent contractors using AB5’s codification of the “ABC Test.” Please stay tuned for further developments which will be reported here in the California Tort Defender.