“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.”