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.) AB-5 is a law codifying a 3-part test commonly referred to as the “ABC test” in establishing independent contract status. The temporary restraining order will remain in effect until he rules on the request by California Trucking Association (“CTA”) for a preliminary injunction.
At the hearing on January 13, 2020, Judge Benitez heard oral arguments presented by the CTA and the State of California and took the matter under submission. Although the Court did not indicate when a ruling will be issued, it is anticipated that a ruling can take anywhere between a few days or a few weeks.
Moreover, 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.
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.”
Judge Highberger did not agree with California’s argument that there were two exceptions – the “business-to-business” exception and the joint employment context – that would allow motor carriers to continue using independent contractors as truck drivers in California. Among other things, the Court noted that the “business-to-business” exception would require independent drivers to have a federal motor carrier operating license, which flies in the face of the recognition by both Congress and the U.S. Supreme Court that “the absence of a motor carrier license is a core attribute of an independent contractor in the trucking industry.”
In further support of his ruling, Judge Highberger noted in part how various other jurisdictions with similar “ABC tests” were held to be likely preempted by the FAAAA including Massachusetts, the Ninth Circuit, and the Third Circuit.
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.