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Logo Icon CALIFORNIA’S INDEPENDENT CONTRACTOR CLASSIFICATION LAW AND IT’S IMPLICATION FOR MOTOR CARRIERS

On January 13, 2020, U.S. District Judge Roger Benitez extended the temporary restraining order he issued on December 31, 2019, precluding California from enforcing Assembly Bill 5 (“AB-5”) against motor carriers. (California Trucking Association et al. v. Attorney General Xavier Becerra et al., Case No.: 3:18-cv-02458-BEN-BLM.) The temporary restraining order will remain in effect until he rules on the request by California Trucking Association (“CTA”) for a preliminary injunction.

AB-5 is a law codifying a 3-part test commonly referred to as the “ABC test” in establishing independent contract status. It is called the “ABC test” because it was supposed to be as easy as “ABC.” However, its implementation is far from simple and could have disastrous consequences for an untold number of industries. The test requires an affirmative finding for all of the following:

  1. The worker 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;
  2. The worker performs work that is outside the usual course of the hiring entity’s business;
  3. 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 implementation of AB-5 was anticipated to have a major, negative impact on motor carriers as the 3-part test would have made it next to impossible for truck drivers from being considered independent contractors under California law. Motor carriers and owner-operators expressed concerns that AB-5 would impact the trucking industry, as motor carriers would be forced to reclassify independent contractor truck drivers as employees or find ways to satisfy the business-to-business exception.

Stated simply, while independent contracts are not subject to the Labor Code provisions for overtime compensation, rest breaks and/or meal period penalties, requiring these drivers to be classified as employees would subject trucking companies to a panoply of enforcement obligations incurring significant fees, employee time, and likely costly litigation, including Private Attorney General Act (“PAGA”) claims, should they not comply with these mandatory provisions.

However, there is a glimmer of hope even in California State Courts where in an enforcement action brought by the Los Angeles City Attorney’s office against various motor carriers for the misclassification of truck drivers as independent contractors, a state court judge recently ruled on January 8, 2020, that the ABC test was preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”). In People ex rel. vs. Cal Cartage Transportation Express LLC, et al. (LASC Superior Ct. Case No. BC689320, and related cases), Judge William F. Highberger granted a motion in limine brought by the motor carriers to preclude the application of the ABC test at trial.

Significantly, under the FAAAA, states are prohibited 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.” 49 U.S.C. § 14501(c)(1).

In his ruling, Judge Highberger reasoned that the “common-sense conclusion [is] that AB-5 would have a substantial impact on trucking prices, routes, and services … As the evidence shows, in those circumstances where Defendants have contracted with licensed motor-carriers to transport loads, the cost of such transport was nearly triple the cost of using independent owner-operators for the same route.” The Court in particular focused on the “B” prong of the ABC which requires that “the person performs work that is outside the usual course of the hiring entity’s business.” The Court found this prong essentially “prohibits motor carriers from using independent owner-operator truck drivers.”

In further support of his ruling, Judge Highberger noted, in part, how various other jurisdictions with similar “ABC tests” were held to be preempted by the FAAAA including Massachusetts, the Ninth Circuit federal court in California, and the Third Circuit court in New Jersey. While other courts, in other states, may provide some persuasive authority to our courts here in California, we won’t know where things will stand until Judge Benitez issues his final order. However, that won’t be the end to this saga as California’s attorney general and the Teamster’s union has already announced plans to appear to the Ninth Circuit should the ruling be averse to their interests.

The current challenges to AB5 and its implications for all California business help reinforce the oft-repeated advice to retain skilled counsel to guide you through the legal maze that is California employment law. The attorneys at Poole, Shaffery & Koegle are here to help.