There is some potential good news for California employers, especially in the motor carrier industry. On December 31, 2019, Judge Benitez of the United States District Court, Southern District of California, ruled that the California Attorney General, Secretary of the California Labor and Workforce Development Agency, CA Department of Industrial Relations, CA Labor Commissioner, and Employment Development Department are temporarily enjoined from enforcing Assembly Bill 5 (“AB-5”) against any motor carrier operating in California, pending the Court’s resolution of Plaintiffs’ motion for a preliminary injunction, which is set for hearing on January 13, 2020.
What is AB5?
California recently adopted Assembly Bill 5 (AB 5), authored by Asm. Lorena Gonzalez (D-San Diego). AB 5 places into law an independent contractor test known as the “ABC” test. In order to be considered an independent contractor, a worker must satisfy all 3 parts of the test:
A. The person is free from the control and direction of the hiring entity, both in contract and in fact;
B. The person performs work that is outside the usual course of the hiring entity’s business; and
C. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
For more information on converting independent contractors to employees, download our FREE AB5 Compliance Handout.
Certain independent contractors, such as insurance agents, physicians, attorneys, accountants, engineers, and direct sellers were placed under a different test. With few exceptions, the relationship between independent truckers and their carriers, brokers and shippers will be governed by the “ABC” test. There is also the “business to business” exemption, and the “professional services” exemption.
Impact on the Transportation Industry and Its Response
Olson v. State of California, et al.
AB5 has effected many industries throughout California, and the most vocal opponents have been those in the transportation industry, such as motor carriers and delivery drivers. In fact, Uber and Postmates filed a lawsuit on December 31, 2019 against the California Attorney General (Olson v. State of California, et al., case no 2:19-cv-10956), in which Plaintiffs have filed a complaint for declaratory, injunctive, and other relief
determining that California Assembly Bill 5 (“AB 5”)—a recently enacted statute that became effective on January 1, 2020—is unconstitutional.
California Trucking Association v. Becerra, et al.
In addition, the California Trucking Association (CTA) has been fighting to protect the industry from the “ABC test” created by the Dynamex Supreme Court Decision even before AB 5 was introduced. In 2018, California Trucking Association (CTA) and two California independent owner-operator truck drivers sued the State of California to prevent the application of the “ABC” test to the trucking industry. On November 12, CTA amended its lawsuit to add claims challenging AB 5.
On December 24, 2019, Plaintiffs filed a motion for temporary restraining order, seeking to enjoin Defendants from enforcing Assembly Bill 5 (“AB-5”) as to any motor carrier operating in California, pending this Court’s resolution of Plaintiffs’ motion for a preliminary injunction, which is set for hearing on January 13, 2020.
On December 31, 2019, the United States District Judge Robert T. Benitez granted CTA’s request for a temporary restraining order enjoining enforcement of AB 5 (Gonzalez; D-San Diego) against motor carriers pending the court’s resolution of the CTA and two owner-operator co-plaintiffs’ motion for preliminary injunction.
According to the Decision, “Plaintiffs have shown that AB-5’s Prong B is likely preempted by the Federal Aviation and Administration Authorization Act of 1994 (FAAAA) because AB-5 effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are. In other words, because contrary to Prong B [of the ABC test], 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. See also Cal. Trucking Ass’n v. Su, 903 F.3d 953, 964 (9th Cir. 2018) (recognizing that ‘American Trucking stands for the obvious proposition that an ‘all or nothing’ rule requiring services to be performed by certain types of employee drivers . . . was likely preempted.’) (citing Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1053-56 (9th Cir. 2009)).”
Further, the Court’s decision argues, “Plaintiffs have established that imminent, irreparable harm is likely because without significantly transforming their operations to treat independent contracting drivers as employees for all specified purposes under California laws and regulations, they face the risk of governmental enforcement actions, as well as criminal and civil penalties…If their interpretation of the statute is correct, Plaintiffs will have to risk criminal prosecution or take significant and costly compliance measures.”
The Court further found that, “the equities weigh in favor of granting the requested temporary restraining order and that it is in the public interest. That is particularly so given that AB-5 provides an alternative should the ABC test be struck down. See Cal. Labor Code § 2750.3(a)(3) (mandating that should the ABC test be struck down, the pre-AB-5 test will apply). The Court found that Plaintiffs lack any other adequate legal remedy to preserve the status quo over the brief period of time before the Court can address their preliminary injunction motion.” Accordingly, Plaintiffs’ ex parte motion for a temporary restraining order was granted.
We will update this article after the motion on preliminary injunction has been decided.
For an analysis of whether your worker should be classified as an independent contractor or employee, contact us, or read our article about the changes to the law in California under AB 5 (as of January 1, 2020), or how to convert independent contractors to employees. As each case is different depending on the facts and duties of the job, speak with a qualified California employment lawyer to determine the proper classification for your workers.
The Grady Firm attorneys provide the following employment law services:
- Employee v. independent contractor classification analysis;
- Act as on-site I-9 agent;
- I-9 audit preparation or defense;
- Assistance with converting independent contractors to employees;
- On-site, classroom-style Sexual Harassment training for employees and supervisors;
- “Experiential” supervisor training in which managerial employees practice processing a harassment complaint and commencing an investigation in pairs with other trainees.
- Draft and review Employee Handbooks, arbitration agreements, and Anti-Harassment policies;
- Employee personnel file audits;
- E-Verify account creation and monitoring;
- Assistance with the employee on-boarding, discipline, and termination process;
- Medical leave policies and implementation advising; and
- Litigation defense.
To learn more about ensuring your business is compliant with state and local laws, schedule a complimentary 15-minute consultation with The Grady Firm’s attorneys; call +1 (323) 450-9010; or fill out a Contact Request Form. The Grady Firm has offices in Beverly Hills, Irvine, and San Diego, California.
*Jennifer A. Grady, Esq. is licensed to practice employment law in California.
This article is for informational purposes only, and does not constitute legal advice or create an attorney-client relationship. This article does not make any guarantees as to the outcome of a particular matter, as each matter has its own set of circumstances and must be evaluated individually by a licensed attorney.