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Driver issuesNewsTruckingTrucking Regulation

Second court puts big hit on imposing AB5 against California trucking sector

“California cannot simply eliminate that business model and force truck drivers to be employees.  This is a win for trucking companies and independent truckers nationwide.”

Applying the restrictions of AB5 in California to the trucking industry runs afoul of federal law, according to a court case just handed down.

That may read exactly like a story from last week. But it’s a new development. 

On a day that saw New York Gov. Andrew Cuomo call for AB5-like legislation in New York and New Jersey punt the issue on legislation in that state, on Wednesday a California state court, rather than a federal jurisdiction, said California’s attempt to have AB5 apply to trucking violates federal law.

Last week, Federal District Court Judge Roger Benitez handed down a temporary injunction blocking enforcement of AB5 in the trucking industry, saying it was likely that AB5 conflicted with federal regulations found in the Federal Aviation Administration Authorization Act (FAAAA) from the early ’90s. That ruling came in a lawsuit filed by the California Trucking Association. Its next day in court is Monday. 

On Wednesday, in a ruling handed down two years to the day when the original lawsuit was first filed, Judge William Highberger of the Superior Court in Los Angeles said much the same thing: The FAAAA preempts California imposing AB5 on the trucking sector. 

Whereas it was a trucking organization that was the plaintiff in the federal case, filing suit against the state, the decision handed down Wednesday came in an action filed by California on Jan. 8, 2018, against Cal Cartage Transportation Express LLC, a drayage operator in the Los Angeles/Long Beach port area and a subsidiary of NFI Industries. The suit was filed by California over what it said was the misclassification of drivers by Cal Cartage.

Since the suit was first filed, the California Supreme Court handed down the Dynamex decision, creating the ABC test on the distinction between an independent contractor and an employee, and AB5 was passed and signed into law, codifying much of the heart of Dynamex.

Once again, as it was in the CTA case, it was the B prong of the ABC test that was the biggest issue. The B prong, to describe it simply, defines an employee as a person hired by a company to perform a task that is at the heart of the company’s activity. A clothing manufacturer hiring stay-at-home seamstresses to put together clothes, getting paid by the piece, would probably run afoul of the B prong in both Dynamex and AB5; a clothing manufacturer hiring an accounting firm to handle the company’s books would not.

“Under this test, it is plain that a motor carrier’s core transportation-related services cannot be performed by independent contractors,” Judge Highberger wrote in his decision. “Thus, absent some applicable exception, the ABC Test prohibits motor carriers from using independent owner-operator truck drivers.”

But what both the CTA and Cal Cartage’s lawyers argued was that FAAAA preempted the state regulation of the trucking company’s activities. In spelling out what the FAAAA mandates, Judge Highberger cited an earlier precedent that said the act prevents “a state’s direct substitution of its own governmental commands for competitive market forces in determining (to a significant degree) the services that motor carriers will provide.” 

“The question remains whether such a prohibition (the ABC test) has sufficient direct or indirect effects on motor carrier prices, routes and services and is therefore preempted by the FAAAA,” Highberger wrote. “This court, like many others before it, concludes that it does.”

After reviewing several precedents to back up his conclusion that FAAAA puts significant restrictions on California from enforcing a law or regulation like AB5 in the trucking sector, Highberger said “the record … confirms the common-sense conclusion that AB5 would have a substantial impact on trucking prices, routes and services, as motor carriers in California revamp their business models either to utilize only employee drivers or attempt to satisfy the business-to-business exception.” The latter is an exemption from AB5 for certain forms of contractual relationships.

NFI and Cal Cartage were represented by the law firm of Gibson Dunn. In a release heralding the decision, the firm called it “the first ruling to reach a final decision on the validity of AB5.”

The statement quoted Gibson Dunn partner Joshua Lipshutz as saying the ruling “confirms that California cannot simply eliminate that business model and force truck drivers to be employees.  This is a win for trucking companies and independent truckers nationwide.”

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.

48 Comments

  1. Here’s the problem I have with AB5 and similar legislation. We are a small 25 truck California fleet, 3rd generation started by my father in 1959. Mostly company drivers with 3-4 OO’s who have been with us a long time. Company drivers paid by hour, OT after 8 hrs in a day, full benefits, sick, vacation etc.
    When I talked to our OO’s about becoming company drivers and us leasing their tractors separately, everyone said no; most said HELL NO. They don’t see themselves as employees, never have, never will. They all do better than they would as employee, most substantially better but only because they operate smart, we treat them well, they have taken risk and have been rewarded.
    AB5’s broad brush thinks all independents are abused. Some may be but the majority are happy and rewarded properly and they control their own destiny.

    Noble One seems to think all prime carriers are shafting independents. Can you not understand “Noble One” that many prime carriers like me still work 60-70 hour weeks, sweep trailers out at 6 PM, change tires at 5 AM, act as salesman, safety director, salesman, dispatcher, yard jockey and dispatcher?
    Have you ever considered that independents working for a company like mine help both of us at the same time achieve more than we can without each other.
    Unfortunately many California legislators think like you do.

  2. It’s past time for the government to get out of trying to control the trucking industry by people who have no actual information about how the industry even operates. Instead of listening to overeducated idiots, try talking to experienced truck drivers.

  3. .
    To clarify .

    We are discussing the pros and cons of AB5 .

    Clearly the true O/O’s don’t want dictatorship , they want to remain free and they have a right to be .

    On the other hand,  we have unscrupulous employers abusing of their freedom/liberty through the “independent contractor” misclassification which enables them to unfairly takes advantage ,shortchange , and exploit drivers/and other misclassified labourers at an unscrupulous employer’s monetary advantage, looking to cut costs and diminish responsibility at an employee’s expense  .

    The FAAAA was not created as a carte blanche to be misused in an attempt too remove workers rights .

    Legislators attempted to come up with a strict “Test” to define if you are truly an independent contractor or an employee . They embedded that test into law within labour codes which is recognized as the ABC Test .

    If we take a close look at AB5 we will notice some exemptions .

    Furthermore, I have been expressing my perspective through my written  comments . My perspective is being debated due to my agreement with AB5 . The sticky point in AB5 and my agreement with it is within the ABC Test in regards to “the B prong” .

    Due to my agreement with” the B prong”,  I’m being accused of being unfair due to its supposed removal of the” freedom to choose” and or it’s limitation to do so  .

    I have also stated within comments of mine that I felt  AB5 was a little harsh(unfair) .

    Is my perspective flawed ? Perhaps , and perhaps not . Let’s see .

    In regards to AB5 exemptions , I find this to be unfair . A law created is a law that should be imposed and or applied on all and followed by all ,not simply imposed and or applied on a select few . Otherwise it’s discriminatory .

    The “B” prong” was designed in a way to prevent workers rights from being abused through misclassification .

    Granted some employers are ethical . Some employers are unscrupulous as well .

    If we were to take the ELD mandate as an example which is being enforced in an attempt to catch HOS violations and much more “violations” than HOS  , it is also being imposed on those who have not violated HOS regulations . Is this “fair” ?

    Absolutely not .

    Is it being imposed on every motorist ? Absolutely not . Is it being imposed on a select few ? Absolutely . Is it discriminatory ? Absolutely .

    Does imposing HOS limitations on an industry that largely compensates by piece work limit production ? Absolutely .

    If you “allow” an industry to compensate by piece work ,you should not limit production . Herein is a huge conflict . HOS & a log book attempts to ensure “production is “limited” and that the limitation is not violated . By limiting production it effects price . You’re regulating a deregulated industry according to arguments by those currently using the FAAAA for preempting AB5 / ABC Test .

    If you want to regulate  production then you must abolish the piece work compensation model based on production . Simple enough to understand ?

    However , this is not the case in the trucking industry . Therefore labour State laws come into the picture in an attempt to ensure workers rights aren’t violated . The current piece work compensation model based on production violates workers rights due to mandates limiting production etc . You can’t have your cake and eat it too .

    In an attempt to ensure workers rights aren’t violated , the ABC Test was created . The ABC Test is embedded in labour codes as law . Nothing in that Test prevents a genuine O/O with their own authority to go and find a contract with and or through a business other than which performs the same sort of work/service that an O/O performs  .

    It gives you an opportunity to truly be independent or dependant . It also grants you the choice to remain with a business that performs the same type of work or service that you do and provide , though if that’s what “you choose” to do , then you must restructure yourself differently such as with a 2 check payment system . Nobody is “forcing” you to become an employee . “Your choice” is what will determine if you are one or not .

    Therefore , an ABC Test “grants you the right to choose” to be truly independent or dependant . It’s simply clarifying what is deemed dependant versus independent . This test should preempt nobody on any grounds what so ever . If it were to allow preemptions then it must be ratified . You cannot and or should not impose a law on a select few . This is my opposition in regards to  AB5’s “broadness” .

    The trucking industry is in great need of restructuring since yesteryear due to extreme conflicts in its current protocol . The ABC Test  demonstrates this fact to a certain extent , and AB5 is obligating you to do so . Apparently this is what is being contested .

    Speed limiters :

    If we use Nascar as an example . Nascar owns their race tracks . They determine acceptable speed on their tracks . On some tracks they impose restrictor plates on race cars . Not on a few , but on all race cars racing on certain race tracks . This is fair and not discriminatory .

    On public highways . Who owns these highways ? The people , but for simplicity sake we will suggest that they are owned by the government which “the people” selected to grant the public the privilege to use them and regulate them . Therefore the government has a right to regulate highway usage .

    They regulate speed limits on their highways . This law is not imposed on a select few . It is imposed and applied on all motorists that use the highway . This is “fair” . However, when we restrict some from going a certain speed rather than all , it becomes discriminatory , it’s unfair . If you are to impose a speed limiter on a vehicle it must then be applied to all vehicles in order to be fair and reasonable .

    Lobbying :

    Lobbying should not grant favoritism to a select few . Laws should be created based on fairness and reason . The ABC Test is based on fairness and reason . 

     The FAAAA is not currently being used based on fairness and reason through its opposition of the ABC Test . The way some are currently using it is to allow them to violate workers rights etc .

    Compensation based on piece work based on production while limiting production is not fair nor reasonable . Therefore ELD’s and or log books are not based on fairness nor reason in that regard .

    Accepting a select few to be classified as independent contractors while under the same circumstances opposing others from the same right is not fair nor reasonable .

    In my humble opinion ………………

    1. Furthermore ,

      If I own my own business and work for myself , there is no law that determines how many hours I’m “allowed” to work nor when or if I should and or must take a break .

      Here is an example . If I trade for myself as a “business owner” through exchanges , I can work 48 hours straight or more without taking a break nor sleeping if I choose . However, if I have what is deemed to be an employee , then I must abide by “labour laws” and treat them accordingly if not better . As an owner ” I ” can trade North American market hours and then trade Asian market hours etc. The only limitation I would have are market hours(weekends) .

      Steve Jobs wasn’t limited in his business in his garage neither . He was in business for himself . Though he had to treat “employees” differently , not himself .

      It should be no different in regards to a genuine O/O working for themselves through their own business . Now how is that for FREEDOM ? No log book and no HOS limits ! NONE , ZERO !

      Then you’ll complain due to some having more stamina than others and it rendering the competitive playing field unfair , LOL !

      That being said , one should be reasonable and take care of themselves without exerting themselves beyond reason . Due to unreasonable lack of limitations , limits have been imposed on business owners such as O/O’s who work for themselves . This I deem to be wrong . Business owners who work for themselves should not have production limitations imposed upon them no matter how many “owners” are “unreasonable” . There are other ways to deal with their negligence .

      On another note :

      Something to ponder .
      No law imposes a limit on how many hours or even days an individual may drive their person vehicle no matter how unsafe this may be deemed to be . We largely depend on them being reasonable .

      In my humble opinion ………

  4. Quote:

    “Newsom’s CA budget includes $20 million for AB 5 enforcement
    Funding will support investigations of labor law violations, increase in workers’ compensation claims ”

    Google it !

  5. Without wanting to elaborate too much in regards to my concept about a Truck Driver Alliance , laws like the one’s such as the ABC Test & AB5 are going to eventually push you in my direction towards my concept .

    When I began trucking and noticing the lack of coordination , mismanagement , its structure , rates being all over the place , cut throat competition , low driver pay , regulations etc etc etc . I came up with an idea to fix the broken structure . I’m not pro union per se , but I’m pro uniting . I’m not for “strikes” neither . This Alliance concept of mine began and was created before I ever had notion in regards to an ABC Test , or such laws as AB5 . It just so happens that these laws will push you to eventually come to the same conclusion as I have , in my opinion .

    To requote a couple comments I posted under the article titled :

    What is Precision Scheduled Railroading (PSR)? , on freightwaves .

    Noble1
    says:
    01/12/2020 at 7:10 pm
    Quote:
    “If BNSF was publicly traded, it is likely that management would be pressured by activist shareholders to adopt a more PSR-like approach to cost management. There might even be an attempt by shareholders to replace the management by proxy with managers with “PSR experience.” That was the case referenced above with Canadian Pacific Railway in 2011-2012 as a proxy battle led by Pershing Square Capital Management replaced CEO Fred Green with Hunter Harrison. But, we’ll likely never know, assuming that Berkshire Hathaway holds on to BNSF for an extended period of time. ”
    End quote.

    Replace the meaning of PSR so it relates to the trucking industry with (P)roperly (S)haring (R)evenues , with their DRIVERS !
    If Truck Drivers were to unite through a Truck Driver Alliance and create a subsidiary within which a division was created that concentrated on trading public listed carriers , and accumulated large positions while in the process rendering those shares into “free” shares , they too could be positioned as “activist shareholders” and be at the helm of the carriers .

    Divers become shareholders of major carriers and pressure large carriers to act in favor of shareholders through proxy battles , LOL !
    Now that’s “Precision Scheduled Railroading(press (someone) into doing something by rushing or coercing them.) MANAGEMENT” in the trucking industry ! LOL ! (wink)

    In my humble opinion ……………

    Noble1
    says:
    01/12/2020 at 7:33 pm
    Now here is the X Million dollar question :
    If Truck Drivers were to succeed in doing such , would they still object to being labeled as an employee of a carrier(s) they partially collectively own and control ?

    AB5 laws are not the enemy . They can be interpreted as an oomph factor to make you think and innovate to be even more prosperous . If you want to depend on and ride a carrier’s coattail without being subject to misclassification , control and own the carrier . Now that’s “independence ” , not dependence !

    In my humble opinion ……….

    In a sense this would abide by such laws as the ABC Test & laws such as AB5 . In doing so you still have your “freedom” plus more power and become even more competitive .

    You will own your business(s) , you will be “employed” by your business , and you will have simultaneously formed your own organized labour union by uniting . You will still call the shots .

    In this way you win on all levels .

    IMHO

  6. The people supporting this law on truckers could not survive in a meritocracy and have no idea how the trucking industry works.

    These arrogant know nothing government workers couldn’t make it in the private sector, have no business sticking their uninformed and misinformed noses where it doesn’t belong, and disrupting families and putting people out of business in the process.

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