A U.S. Southern District Court on Jan. 16 granted a preliminary injunction prohibiting California state officials from enforcing a controversial new law against motor carriers that makes it virtually impossible to contract with owner-operators in the state. That prohibition will remain in place while the California Trucking Association's lawsuit challenging the law goes to trial.

Assembly Bill 5 was passed last fall and went into effect Jan. 1. It set up an "ABC" test for determining whether workers are employees or independent contractors, requiring that workers be regarded as employees unless they met all three “prongs” of the test. One of the requirements, the “B prong,” prohibited companies from using independent contractors unless the worker was performing work “outside the usual course of the hiring entity’s business.”

The California Trucking Association in November filed a lawsuit challenging Assembly Bill 5, contending that AB5 is preempted by the supremacy and commerce clauses ofthe U.S. Constitution and is in direct conflict with the Federal Motor Carrier Safety Act and the Federal Aviation Administration Authorization Act of 1994. (Part of the FAAAA bans states from enacting laws that affect a motor carrier's prices, routes, and services.)

On Dec. 31, Judge Roger Benitez granted a temporary restraining order prohibiting the state from enforcing AB5 against motor carriers pending the resolution of CTA’s motion for a preliminary injunction. He extended that restraining order after a Jan. 13 hearing that one attendee described as “spirited.”

In his Jan. 16 decision granting the preliminary injunction, Judge Benitez wrote: “There is little question that the state of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking. In so doing, California disregards Congress’ intent to deregulate interstate trucking, instead adopting a law that produces the patchwork of state regulations Congress sought to prevent. With AB-5, California runs off the road and into the preemption ditch of the FAAAA.”

“This ruling is a significant win for California’s more than 70,000 independent owner-operators and CTA members who have worked as independent truckers for decades, and who have invested hundreds of thousands of dollars to own their own vehicle and comply with California’s strict environmental guidelines and regulations over the years,” said Shawn Yadon, chief executive officer for the California Trucking Association.

The Borello Test

With the preliminary injunction, the legal basis in the state for whether workers are employees or independent contractors reverts to the longstanding “Borello” test.

The Borello standard, based on a 1989 case, S.G. Borello & Sons Inc. v. Dep’t of Indus. Relations, considers the “right to control work,” as well as many other factors, including:

• whether the worker is engaged in a distinct occupation or business

• the amount of supervision required

• the skill required

• whether the worker supplies the tools required

• the length of time for which services are to be performed

• the method of payment

• whether the work is part of the regular business of the principal, and

• whether the parties believe they are creating an employer-employee relationship.

What Next?

Transportation attorneys for the law firm of Scopelitis, Garvin, Light, Hanson & Feary said they expect the state to ask the District Court and then the Ninth Circuit for a stay of the injunction pending an appeal of the injunction — in essence, asking permission to enforce AB5 while the appeal is pending.

"For that relief, the state would have to show, among other things, that it has a 'strong' likelihood of success on the merits and that it is likely to be irreparably injured absent a stay," Scopelitis said in an email. "Given the state has an alternative misclassification test it can use [Borello], as recognized by the District Court, it seems unlikely the state could demonstrate it will be irreparably injured. However, the Ninth Circuit has discretion to affirm the order, reverse the order, or remand for further findings."

In granting the preliminary injunction, Judge Benitez found that CTA had shown they are “likely to succeed on the merits” of the case, or at a minimum, that there are “serious questions” on the merits of at least one of their challenges.

Benitez wrote in the decision that the FAAAA "preemption provision is a broad one,” citing previous court cases brought by CTA and by the American Trucking Associations finding that the phrase "related to" in that pre-emption clause applies to state laws “‘having a connection with or reference to’ … whether directly or indirectly.”

He added that “Ninth Circuit jurisprudence touching on the issue strongly suggests preemption,” citing, among other cases, a previous case where the ATA challenged the Port of Los Angeles’ attempt to ban independent contractors.

This and other cases cited, he wrote, “show that the FAAAA likely preempts ‘an all or nothing’ state law like AB-5 that categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.”

The judge said in his ruling that the defendants offered “a variety of arguments against FAAAA preemption, but none are persuasive.”

In fact, a footnote explains that during the Jan. 13 hearing, the court repeatedly invited the defendants to explain how the ABC test was not an “all or nothing” test, but neither the state nor the Teamsters Union, an intervenor on the side of the state, could provide an example. “Instead, defendants repeatedly asserted that a broker company that did not perform trucking work could plausibly contract with an independent owner-operator. Brokers, however, are not motor carriers. Accordingly, the court observes that the ABC test appears to be rigged in such a way that a motor carrier cannot contract with independent contractor owner-operators without classifying them as employees.”

The defendants also tried to argue that there’s nothing in the ABC test that prohibits motor carriers from contracting with independent contractors, but that it “merely provides the applicable test to assess whether a worker is an independent contractor or an employee.”

The judge did not agree.

“It is true that the statute does not expressly state that motor carriers cannot contract with independent contractors, but Prong B permits motor carriers to contract with independent contractors only if they classify and treat those independent contractors as employees under California law,” the judge wrote.

Port Trucker Battle Continues

Port truck drivers have been one of the most visible faces of the debate over independent contractors vs. employees, with the Teamsters union alleging in numerous actions that many drivers at the ports are misclassified as contractors.

As we previously reported, in the drayage business, where owner-operators are used extensively to move intermodal containers in and out of California’s ports and railheads, many companies had opted to take a wait-and-see attitude about AB5.

Weston LaBar, executive director of the Harbor Trucking Association, told HDT in an interview that many of HTA’s members area were holding off making any major changes to comply with the new law, because of both the litigation challenging AB5 in court and the potential for changes in the law in the state legislature.

Meanwhile, the Teamsters union said the preliminary injunction doesn’t matter, because it has had success attacking the independent contractor status of port drivers under the previous Borello test.

In a statement responding to Benitez’ ruling, Julie Gutman Dickinson, local counsel to the Teamsters Port Division, said, “In every port trucker misclassification/wage theft case to date, misclassified California port truck drivers have been found to be employees, NOT independent contractors, under the California Borello test. It simply does not matter whether you apply the ABC test under Dynamex, AB-5, or the Borello test, they are employees under all tests. The court's preliminary injunction has no practical effect on the employee status of these drivers -- they are clearly employees.”

A copy of the decision can be found here.