Two recent court decisions are helping to quell the effects of the recently-passed Assembly Bill AB 5 (Gonzales, Chaptered September 18, 2019) in regard to California trucking companies, by determining that federal law preempts the most problematic part of both AB 5 and the 2018 California Supreme Court decision Dynamex West Operation v. California Superior Court. Both Dynamex and AB 5 worked to institute the new California worker classification test, the ABC Test, which provides for the following:
For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
It is this B prong which is most problematic. Essentially, under both Dynamex and AB 5, a California trucking company using independent contractor truck drivers would be prohibited from using independent contractors, as the work is not “outside the usual course of the” business of the trucking company.
However, on December 31, 2019, U.S. District Judge Roger Benitez of San Diego has granted a temporary restraining order (TRO) sought by the California Trucking Association (CTA) preempted by the Federal Aviation Administration Authorization Act (FAAAA), finding that the B prong “effectively mandates that motor carriers treat owner-operators as employees rather than the independent contractors that they are.” (California Trucking Association et al. v. Attorney General Xavier Becerra et al., Case No.: 3:18-cv-02458-BEN-BLM, Dkt. No. 77.) The claim by the CTA is that the Federal Aviation Administration Authorization Act (FAAAA) preempts the AB 5B prong, in regard to state laws that relate “to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” This is certainly a move in the right direction, and we will await the decision on the Preliminary Injunction.
In addition, in a January 8, 2020 Order Granting in Part Defendants’ Motion In Limine, Los Angeles County Superior Court Judge William Highberger determined that the B prong is preempted by the FAAAA. (The People of the State of California v. Cal Cartage Transportation Express LLC, CASE NO. BC689320, Related Cases: BC689321, BC689322, 19STCV19291, 19STCV0377.)
While the trucking industry should be encouraged by these two recent developments, the issue is not yet settled in California. We are advising all of our trucking company clients to be aware of any specific exposure they might have under Dynamex and AB 5, and on these new developments in California law.
Please contact us with any questions you might have regarding the use of independent contractors in the trucking or other industries.