Judge Rules Against Trucking Industry on California Assembly Bill AB 5

Judge Rules Against Trucking Industry on California Assembly Bill AB 5

A federal judge recently ruled against the trucking industry in its attempt to stop California’s application of a state law concerning independent contractors. The judge concluded that the truckers should make their case to the legislature rather than the courts.

Background

On the books since January 2020, AB 5 has been criticized by trucking associations and their membership since its inception. The law codifies the ABC test for worker classification and prohibits the application of the traditional leased owner-operator model.

Under the ABC test, a worker must satisfy three conditions to be classified as an independent contractor.

  1. The worker is free from the control and direction of the hiring entity as to the performance of the work, both under the contract for the performance of the work and in fact;
  2. The worker performs work that’s outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The second element of the ABC test has been especially difficult for trucking. The “B” prong states that the worker’s tasks be “outside the usual course of business of the company” with whom they’re contracting to be considered an independent contractor.

As a result, trucking companies that contract with owner-operators in the state are required to treat them as employees. Truckers, thus, are able to enjoy the same rights and protections as any other employee in California. Trucking companies must give their truck drivers minimum wage, workers’ compensation, unemployment insurance, and paid sick days. In addition, trucking companies must also reimburse the drivers for expenses such as fuel and vehicle maintenance.

The District Court’s Decision

District Judge Roger Benitez, Senior Judge of the U.S. District Court for the Southern District of California, who previously granted the truckers preliminary injunction in December 2019 to block the law’s enforcement in trucking, denied the California Trucking Association’s (CTA) and Owner-Operator Independent Drivers Association’s (OOIDA) latest request to enjoin application of the law.

The Owner-Operator Independent Drivers Association said in a statement that it “disagrees with Judge Benitez's ruling and the reasoning behind it, and is exploring all options moving forward -- including an appeal."

Judge Benitez decided that the original preliminary injunction “was entered based upon the preliminary conclusion that AB 5 was preempted by the Federal Aviation Administration Authorization Act ( F4A).”

The state of California, along with the International Brotherhood of Teamsters, appealed the ruling. The Court of Appeals reversed the injunction, stating that AB 5 wasn’t preempted by the F4A. The CTA and the OOIDA subsequently filed renewed motions for a preliminary injunction. In that renewed motion, the associations again argued the following:

  • F4A preempted AB 5;
  • There’s implied preemption of AB 5;
  • AB 5 is a violation of the Dormant Commerce Clause of the U.S. Constitution; and
  • The law violates the Equal Protection Clause of the Constitution by creating irrational or animus-based classifications.

What Did the Judge Say About the Truckers’ Arguments?

On the first claim that the law was explicitly preempted by the F4A, Judge Benitez found this was settled earlier in the dispute. The courts previously held that AB 5 “is not significantly related to rates, routes, or services,” and therefore isn’t preempted by the F4A. Likewise, as to the related argument that the F4A implicitly preempts AB 5, Judge Benitez said AB5 doesn’t make it “impossible for truck drivers to comply with both federal and state law because there is simply no federal standard of classification requiring compliance. The [F4A] does not dictate that truck drivers must be classified as independent contractors or that drivers are not subject to state wage and hour laws.”

CTA and OOIDA also argued for implied preemption because AB 5 creates a “patchwork quilt of national regulations.” However, the judge disagreed, stating that the “particular regulations about which Congress is concerned are those addressing carrier prices, routes, and services. Congress does not appear to be concerned with a patchwork quilt of truck driver classifications for purposes of wage and hour protection.”

On the claim that AB 5 violates the Constitution’s Dormant Commerce Clause, the judge found that CTA and OOIDA weren’t arguing that AB 5 was designed to discriminate in favor of in-state workers and against out-of-state workers, but rather that it was the “effect of AB 5 that offends the Dormant Commerce Clause.” They argued, Benitez said, that “AB 5’s burdens on interstate commerce outweigh the local benefits.”

“AB 5 does not offend the core constitutional principle of prohibiting purposeful discrimination against interstate commerce,” the judge wrote. “And while AB 5 has economic effects, the effects do not confirm purposeful discrimination against interstate commerce in the design of AB 5.”

Finally, the associations argued that AB 5 violates the Equal Protection Clauses of the U.S. and California constitutions. They asserted that the employee classifications targeting carriers and owner-operators were motivated by animus, based on comments by AB 5 legislative sponsor Assemblywoman Lorena Gonzalez. The associations emphasized a statement she made on the Assembly floor on September 11, 2019, in which she said that one purpose of the legislation was to “get rid of an outdated broker model that allows companies to basically make money and set rates for people that they call independent contractors.” The associations also brought up a Tweet from Gonzalez from November 2019 about how AB 5 would permit a trucker to “work as an independent contractor for a construction firm,” while requiring an owner-operator to “work as an employee for a trucking company,” referencing an exemption for construction industry drivers that Judge Benitez said is set to expire at the end of 2024.

“Yet, the statements of a single legislator do not necessarily represent the reasons motivating other legislators who vote to pass a bill into law,” Judge Benitez said.

The judge found for the State and the Teamsters on all four claims made by CTA and OOIDA.

“Remedying complexities and perceived deficiencies in AB 5 are the kind of work better left to the soap box and the ballot box than to the jury box,” the judge opined. “If sufficient political or economic pressure can be brought to bear by Plaintiffs and their supporters, the more onerous provisions of the statute can be amended. The courts, on the other hand, are not the proper bodies for imposing legislative amendments.”

Bottom Line

As it stands, trucking companies should make certain they comply with AB5. In addition, they must speak with their owner-operators about the impact the law will have on their business relationship. Finally, trucking companies need to make payroll and benefit changes so truckers have these employee protections.

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