The next step in sorting out the legal impact of a New Year’s Eve surprise takes place Jan. 13 in a San Diego courtroom.
It is on that day when Federal District Court Judge Roger Benitez will hear arguments whether to turn his temporary injunction blocking trucking industry enforcement of California’s AB5 independent contractor legislation into a preliminary injunction.
The case that led to the New Year’s Eve temporary injunction was brought by the California Trucking Association (CTA). But there are plenty of other interested parties looking to ride on CTA’s coattails.
In discussions with various attorneys connected to the case who asked not to be identified, the sentiment among the trucking industry is optimistic that the temporary injunction will be turned into a preliminary injunction that will hold through the legal proceedings to determine if California’s AB5 can apply against the trucking industry or whether it is preempted by a federal law, the Federal Aviation Administration Authorization Act (FAAAA) of 1994. There is language in that legislation, known as F4A, that the CTA argues would prohibit applying a state law like AB5 to the transportation industry.
The trucking industry is heartened by some of the language Judge Benitez used in handing down the temporary injunction. “At this early stage of the proceedings and within the brief amount of time available, plaintiffs have carried their burden for purposes of emergency relief to show … that they are likely to succeed on the merits,” he wrote in the order for the temporary injunction.
Separately, in a footnote that actually denied considering a separate CTA argument on the so-called “dormant commerce clause,” Benitez wrote that “because the court is persuaded by the likelihood of plaintiffs’ success on the FAAAA preemption ground, it declines to address plaintiffs’ alternative challenges to AB5.” In other words, probable victory on the FAAAA preemption argument makes it unnecessary to pursue other legal arguments.
The argument and fear of the trucking industry all along has been the so-called “B prong,” used in the Dynamex civil case that was the precursor of AB5. In the Dynamex decision, to show that an employee is a truly independent contractor and not an employee, an employer needed to show that the worker is engaged in an activity that is not the business’ usual pursuit. A trucking company hiring an accounting firm to do financial work would pass the B prong test but a trucking company hiring an independent trucker to haul freight presumably would not.
“Because contrary to Prong B, drivers perform work within ‘the usual course of the [motor carrier] hiring entity’s business,’ drivers will never be considered independent contractors under California law,” Benitez wrote in summing up the argument.
The wording in the Dynamex decision, handed down early in 2018, was copied almost verbatim by the authors of AB5. The bill sailed through both houses of the California legislature — the Assembly first, which is why it is called AB — and signed by Gov. Gavin Newsom.
The CTA case is not litigating the specifics of AB5. It is focused solely on what the plaintiffs see as a conflict with the FAAAA. The wording in the FAAAA is fairly clear: “A state, political subdivision of a state or political authority of two or more states may not enact or enforce a law, regulation or other provision having the force and effect of law related to a price, route or service of any motor carrier.” It is that provision that the CTA says makes AB5 an illegal reach by the California government.
As one attorney said of the temporary injunction, “we are likely to win the lawsuit and so the court stopped the law from going into effect.”
AB5 remains an enormous issue in California. An entire swath of employees are protesting that their livelihoods have been upended, from freelance writers to Uber and Lyft drivers. When word started getting out New Year’s Eve that there had been an injunction against AB5, the Twitterverse exploded under the #AB5 hashtag, only to be hit with disappointment when people learned it applied solely to the trucking industry.
Joe Rajkovacz, the director of governmental affairs and communications for the Western States Trucking Association, said people in the trucking industry “were expending great sums of money to kind of reconfigure their operations.” But the New Year’s Eve injunction “got people pausing, wondering now what do we do?”
One strategy several companies had pursued is that they were requiring owner-operators to change from being sole proprietors to becoming S corporations. An S corporation, according to the Internal Revenue Service description, is one with less than 100 shareholders “that elect(s) to pass corporate income, losses, deductions and credits through to their shareholders for federal tax purposes.”
An S corporation allows a driver to be paid via a process that does not generate a 1099 IRS form. It is that form, Rajkovacz said, that can be interpreted by regulators as a possible sign of misclassification of an employee as an independent contractor.
One point that has been made by several people is that even if AB5 is pushed out of the trucking industry, the precedents set by the Dynamex decision remain. But there is also a feeling that Dynamex, which now operates as TForce Final Mile, simply went too far in 2004 in reclassifying its workers as independent contractors, the action that set off the legal process that ended with the 2018 decision.
Secondly, a finding by Benitez in favor of the CTA may make judges hearing trucking-related cases brought under the Dynamex decision consider whether they have jurisdiction. Such a decision by Benitez — and possibly some judges along the appeals process — might impact litigation brought under the precedents set in the Dynamex case.
Another possibility for the dispute is that the legislation could be amended to create a carve-out for trucking. Assemblywoman Lorena Gonzalez, who wrote the legislation (with a great deal of verbatim lifting of wording from the Dynamex decision), has hinted that there may be more carve-outs for particular industries, as there are in the original legislation. But she also has not sounded particularly conciliatory while engaging in some nasty Twitter battles with her critics.
Additionally, one of the defendants in the CTA case, along with California Attorney General Xavier Becerra, is the Teamsters, who might be unwilling to end this fight to keep AB5 from impacting the trucking industry.