With a state appeals court ruling unanimously that a prevailing federal law doesn’t preclude the employee classification AB5 law from being implemented in California’s trucking sector, all eyes will now turn to the federal appeals court reviewing the injunction that has kept the law at bay this year.
In the ruling in the state Court of Appeals, a three-judge panel held that the law known as F4A — the Federal Aviation Administration Authorization Act — does not preclude an employee classification law like AB5 from being implemented in the state’s trucking sector. That decision overturned a ruling earlier this year that the law was preempted by F4A.
The ruling that was handed down by the appellate court Thursday was in a case brought in early 2018 by the state of California against Cal Cartage, a drayage provider in Southern California. At issue in that case, which pre-dated AB5, is what AB5 is all about: employee classification or, in the view of the state, misclassification.
The ruling by a lower state court that AB5 in trucking was preempted by F4A came less than two weeks after the temporary injunction handed down by a federal court New Year’s Eve put AB5 on ice for trucking in California. And with that federal case brought by the California Trucking Association still winding its way through the appeals process, the federal injunction takes precedence over the Cal Cartage decision, which will keep AB5 out of the trucking sector, at least for now.
But within the Cal Cartage decision is a perspective on the apparent conflict between AB5 and F4A that the lawyers for the CTA might find troubling as it waits for the decision by the federal appeals court. In particular, the state appeals court said the ABC test in AB5 is “a law of general application.”
Attorneys for the CTA have argued to the courts that AB5 is not a law of general applicability, having done so as recently as last week after the victory at the ballot box for a measure that exempts delivery drivers like those at Uber, Lyft and DoorDash from AB5. Rather, CTA’s attorneys have argued, it is a law targeted at trucking with a long list of exempted industries, a list that grew longer when the driver services were tossed out of it by the voters.
“The ABC test does not mandate the use of employees for any business or hiring entity,” the state appeals court said. “Instead, the ABC test is a worker-classification test that states a general and rebuttable presumption that a worker is an employee unless the hiring entity demonstrates certain conditions.”
It is possible that truck drivers may be “incorrectly classified,” the court said. But that “does not mean the ABC test prohibits motor carriers from using independent contractors.”
The general legal argument put forth by those fighting to keep AB5 out of California’s trucking sector is that the B prong of the ABC test is so restrictive that it would make it virtually impossible to hire an independent owner-operator to perform trucking services. The B prong restricts the ability of a company to hire independent contractors to perform its primary function. (For example, one of the original exemptions in AB5 applied to surgeons, since they might come into a hospital to perform a procedure but not actually be an employee of that hospital.)
But the state appeals court disagreed. “The ABC test, therefore, is not the type of law Congress intended to preempt,” the decision said.
Another issue the state court ruled on was the business-to-business exemption in California labor law. The exemption would allow an independent contractor to be hired under a legal standard known as “Borello,” which is more lenient than AB5. “[Cal Cartage] argue[s] independent owner operators can never meet several of the requirements in the business to business exemption,” the court writes, and that the exemption therefore eliminates the issue of preemption from F4A. But the court rejected that: “We are unpersuaded.”
The F4A uses specific language that states may not pass laws that impact trucking company prices, routes or services. In the arguments before the federal appeals court reviewing the injunction in the CTA case, at least two of the judges on that panel questioned whether AB5 actually does so.
The state appeals panel was clear: It doesn’t. “Defendants have not demonstrated … that application of the ABC test prohibits motor carriers from using independent contractors or otherwise directly affects motor carriers’ prices, routes or services,” the court wrote. “Nothing … suggests Congress intended to preempt a worker-classification test applicable to all employers in the state.”
Joshua Lipshutz, a partner at Gibson Dunn, which represented Cal Cartage, criticized the ruling in an email statement to FreightWaves. “The Court of Appeals failed to appreciate the many ways in which California’s worker classification law impedes the trucking industry, not only in California but nationwide,” he said. “Federal law prohibits states from enacting these types of laws and protects the independence of owner-operator truck drivers. We intend to appeal the court’s decision.”