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Keeping Up With California’s Battle Over the Independent Contractor

In recent articles published by this firm, we’ve highlighted ongoing litigation in California, where state legislators are seeking to make it more difficult for companies to classify their drivers as independent contractors.  The California law, Assembly Bill 5 (“A.B. 5”), seeks to provide employee status to additional workers, thus availing them to additional protections such as workers’ compensation, disability and unemployment insurance, sick leave and other benefits.  On the flip side of the coin, the law could prospectively require gig companies such as Uber, Lyft, Postmates and Grubhub to overhaul their business models.  The anticipated costs to these companies are estimated to run into the hundreds of millions of dollars and would send shockwaves through the marketplace.  The law would also have an enormous impact on the long-haul trucking industry, which relies heavily on the independent contractor.    

In November, the California Trucking Association (CTA) filed a lawsuit challenging the veracity of the law, citing federal preemption.  See, fn. 1.  Strict application and enforcement of A.B. 5 in California may well spell the end of the independent long-haul contractor in California and have a ripple effect which impacts the national transportation landscape.  In sum, the disposition of A.B. 5 is a big deal.  Here’s the latest:

California courts, both state and federal, were very active to close out 2019 and continued to grapple with A.B. 5 during the first few weeks of 2020.  

On December 30th, Uber and Postmates, together with two independent contractors, filed a lawsuit seeking an injunction to prevent the A.B. 5 from taking effect on January 1, 2020, alleging that A.B. 5 violates the equal protection and due process clauses of the U.S. Constitution by exempting certain industries while slamming gig economies.  If the companies are successful in winning a temporary injunction, they will buy months, or possibly even years, providing ample opportunity to engage in a well-funded ballot measure campaign to gain traction with voters and strike down the law.  

The following day, December 31st, U.S. District Court Judge Roger Benitez issued a temporary restraining order in favor of the CTA, blocking the state from enforcing A.B. 5 against trucking companies.  Judge Benitez opined that law was “likely preempted” and in so doing, stated that the CTA 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.  The Court further found that the equities weighed in favor of granting the requested temporary restraining order and that it is in the public interest.  Given Judge Benitez’ position as articulated in his December 31st opinion, it may be likely he makes the injunction permanent at the conclusion of the action.  A hearing on the temporary restraining order was scheduled for January 13th.  

2020 opened with a bang, but clouded the issues surrounding A.B. 5.  On January 6th, the Ninth Circuit upheld a $54.6 million dollar verdict that truckers obtained in a wage suit against Walmart.   Ridgeway v. Walmart Inc., Nos. 17-15983, 17-16142, 2020 U.S. App. LEXIS 212 (9th Cir. Jan. 6, 2020).  In Ridgeway, Walmart contended that the California law was “related to a price, route, or service of any motor carrier” and was thus preempted by Federal Aviation Administration Authorization Act of 1994 (FAAA)—just as the CTA had done before Judge Benitez in the Southern District of California.  However, the Ninth Circuit considered and rejected Wal-Mart’s preemption argument.      

The Teamsters, who are backing A.B. 5, were quick to jump on the ruling and on January 8th, filed a supplemental notice of authority, telling Judge Benitez that the Ninth Circuit’s Ridgeway decision effectively undercut the CTA’s bid for an injunction.  

That same day, a California State judge ruled that A.B. 5 doesn’t cover the trucking industry because it is preempted by federal statute.  L.A. Superior Court judge William Highberger ruled that the requirements of A.B. 5, the “ABC” test (see footnote 1), “clearly run afoul” of the FAAA.  The Judge’s order was issued as part of three related cases filed by the City of Los Angeles in January, 2018—before the landmark decision in Dynamex (see, fn. 1), which led to the enactment of A.B. 5.  

On January 13th, Judge Benitez took the bench again in connection with the CTA’s case challenging A.B. 5 to determine whether the Court would extend the above-referenced temporary restraining order.  After hearing oral argument from both the CTA and the state’s attorney, and considering the Teamsters citation to new authority, the Judge stated that the restraining order would remain in place until he decides the case. 

On January 16th, Judge Benitez granted the CTA’s request for a preliminary injunction, barring A.B. 5 from being enforced against motor carriers and owner-operators while the CTA continues its legal pursuit to invalidate the new law.  Judge Benitez opined that “FAAA preemption is broad but not so broad that the sky is the limit: states retain the ability to execute their police power with laws that do not significantly impact rates, routes or services.  Here, however, 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.”  He further indicated that California was disregarding Congress’ intent to deregulate interstate trucking, instead of adopting a law that produces a patchwork of state regulations Congress sought to prevent.  

Notwithstanding recent trends in favor of the gig economy, the temporary reprieves are by no means cast in stone.  We will continue to follow these important issues and provide updates as appropriate.  

Please contact Benjamin Dill at 804-377-1272 (bdill@setlifflaw.com) or Steve Setliff at 804-377-1261 (ssetliff@setlifflaw.com) with any questions you may have regarding A.B. 5 or conflicts between state and federal laws.  

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  1. To meet this burden, the hiring entity must establish each of the following three factors, commonly known as the “ABC test”:

(A) that the worker 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; and

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.