Federal and State Judges Rule California Cannot Enforce AB5!

by gspencermynko

Breaking News: Federal Judge Roger Benitez has gone a step further and GRANTED the CTA’s motion for an injunction that now blocks AB-5 enforcement against California trucking companies until the entry of Final Judgment. Furthermore, a State Judge also ruled that AB-5 is preempted by Federal law.

California Trucking companies got an extended reprieve from AB-5 and the ABC test, now that a Federal Judge granted a preliminary injunction restraining the state of California from enforcing AB-5 until the lawsuit is resolved. Note: The CTA may ultimately prevail in this landmark case and AB5 will be little more than a footnote in the annals of California Trucking history. U.S. District Judge Roger Benitez, who issued a temporary restraining order preventing state officials from enforcing the law against motor carriers, has now extended that ruling by granting a preliminary injunction. While not officially dead, AB5 (as far as trucking companies and their owner-operators are concerned) is the in the ICU on life support.

Let’s revel in Judge Benitez’s decision and its rationale.

Here are some noteworthy excerpts that make it clear the Judge “gets it”.

“For decades, the trucking industry has used an owner-operator model to provide the transportation of property in interstate commerce. That model generally involves a licensed motor carrier contracting with an independent contractor driver to transport the carrier-customer’s property…Motor carriers offer many types of trucking services, including conventional trucking, the transport of hazardous materials, refrigerated transportation, flatbed conveyance, intermodal container transport, long-haul shipping, movement of oversized loads, and more. Motor carriers meet the fluctuating demand for highly varied services by relying upon independent-contractor drivers”

Unlike California Democrats, Judge Benitez actually took the time to understand the industry:

“Individual owner-operators use a business model common in both California and across the country. They typically buy or lease their own trucks, a significant personal investment considering that the record reflects a single truck can cost in excess of $100,000… Then, the owner-operators typically work for themselves for some time to build up their experience and reputation in the industry. Once the owner-operator is ready to expand their business, they contract for or bid on jobs that require more than one truck, at which time, the owner-operator will subcontract with one or more other owner-operators to complete the job. Many individual owner-operators have invested in specialized equipment and have obtained the skills to operate that equipment efficiently”

He then nicely summarized the Borello test that has been relied on for decades:

“Whether certain laws and regulations in the California Labor Code apply to truck drivers, generally, depends on their status as employees or independent contractors. S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341, 350 (1989). For nearly three decades, California courts have used a test, based on the Borello decision, to determine whether workers are correctly classified as employees or independent contractors. The Borello standard considers the “right to control work,” as well as many other factors, including (a) whether the worker is engaged in a distinct occupation or business, (b) the amount of supervision required, (c) the skill required, (d) whether the worker supplies the tools required, (e) the length of time for which services are to be performed, (f) the method of payment, (g) whether the work is part of the regular business of the principal, and (h) whether the parties believe they are creating an employer-employee relationship”

Here’s some good stuff that bodes well for CA trucking’s future:

Likelihood of Success on the Merits: “.To prevail on their motion for a preliminary injunction, [CTA] must establish, at a minimum, that there are “serious questions” on the merits of at least one of their challenges to AB-5’s ABC test… For the following reasons, Plaintiffs have done so with their FAAAA preemption challenge… 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.

AB-5 goes against Congress’ intent to deregulate the industry:

“By effectively prohibiting motor carriers from contracting with independent contractor drivers, AB-5 and its ABC test would transform California into its own patch in the very “patchwork” of state-specific laws Congress intended to prevent.”

These Words should be music to your ears:

“[T]here 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. Accordingly, Plaintiffs’ motion for a preliminary injunction is GRANTED.

A State Court Judge Also Agrees That AB-5 is Preempted by Federal Law.

On January 8, 2020, Judge William Highberger of the Los Angeles Superior Court ruled that because the ABC test effectively prohibits motor carriers from using independent contractors to provide transportation services, the test has a significant, impermissible effect on motor carriers’ “prices, routes, and services,” and thus, is preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”). The People of the State of California v. Cal Cartage Transportation Express, LLC, Case No. BC689320 (Los Angeles Superior Court January 8, 2020). The court reached the same conclusion (as Judge Benitez in the CTA case), finding the FAAAA preempts AB 5 as applied to owner-operators contracting with motor carriers. The ruling makes it clear that AB-5’s ABC test is preempted by the FAAAA, and restores the multi-factor Borello test as the standard to determine whether a truck driver is an independent contractor or employee. The Court ruled that the FAAAA preempted Prong B of AB-5’s ABC test because it effectively prohibits motor carriers from utilizing independent owner-operator truck drivers.

Judge Highberger stated that the “‘ABC Test’ set forth in Dynamex Operations-West v. Superior Court and the recently enacted AB-5 clearly run afoul of Congress’s 1994 determination in the FAAAA that a uniform rule endorsing use of non-employee independent contractors (commonly known in the trucking industry as ‘owner-operators’) should apply in all 50 states to increase competition and reduce the cost of trucking services.” The judge went on to state: “After careful consideration, the court agrees with defendants that the currently operative legal requirements for determination of employee versus independent contractor status are preempted as to certain motor carriers and their drivers by an act of Congress”.

Wow – Trucking is winning in the State courts as well.

Yet Another Sweet Order Better Than The Last One.

I really love this (and I’m sure you do too):

“It is further ORDERED:… Defendant Xavier Becerra, in his official capacity as the Attorney General of the State of California, Julia A. Su, in her official capacity as the Secretary of the California Labor and Workforce Development Agency, Andre Schoorl, in his official capacity as the Acting Director of the Department of Industrial Relations of the State of California, Lilia Garcia Brower, in her official capacity as the Labor Commissioner of the State of California, and Patrick Henning, in his official capacity as Director of the California Employment Development Department are temporarily enjoined from enforcing Assembly Bill 5’s ABC test, as set out in Cal. Labor Code § 2750.3(a)(1), as to any motor carrier operating in California, pending the entry of final judgment in this action”.

Trucking Industry – 3, State of California – 0. Thanks Judges.

Will Trucking Win The War?

While I really cannot understate the huge significance of winning this battle, the war rages on. And while the State and the Teamsters have been seriously injured, they – and their bastard child AB-5 – are not dead yet. Stock up on popcorn folks – this is going to get interesting.