The Trucking Industry is on the Road to Clarity for Driver Classification Issues

The trucking industry has commonly used the owner-operator model for interstate commerce.  Whether individual state labor laws, which typically require labor protections such as minimum wage, sick leave, and unemployment and workers’ compensation benefits, apply to truck drivers generally depends on their status as employees or independent contractors.  California attempted to provide a mandatory test for determining whether a driver is an employee or independent contract in its Assembly-Bill 5 (“AB-5”).

For three decades prior to the enactment of AB-5, California courts relied on a test based on the decision in S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations that considered the following factors when determining whether a worker was an employee or independent contractor: (a) the right to control work; (b) whether the worker is engaged in a distinct occupation or business; (c) the amount of supervision required; (d) the skill required; (e) whether the worker supplies the tools required; (f) the length of time for which services are to be performed; (g) the method of payment; (h) whether the work is part of the regular business of the principal; and (i) whether the parties believe they are creating an employer-employee relationship.^[1] In April of 2018, the California Supreme Court replaced the Borello classification test with the “ABC test,” by its decision in Dynamex Operations West v. Superior Court.^[2]  The AB-5 test essentially codified the “ABC test” established by Dynamex.

However, on December 31, 2019, the day before AB-5 was set to take effect, the Southern District of California granted a temporary restraining order in California Trucking Association, et al v. Attorney General Xavier Becerra, et al., temporarily enjoining the State of California from enforcing AB-5 as to any motor carrier operating in California. ^[3]  The Plaintiffs in the Becerra case were the California Trucking Association (“CTA”), an association of licensed motor-carrier companies that manage, coordinate, and schedule the movement of property throughout California, and Ravinder Singh and Thomas Odom, owner operators who regularly contracted as independent contractors to perform various trucking services.^[4]  The Defendants were Attorney General Xavier Becerra and the International Brotherhood of Teamsters, who intervened in the lawsuit.^[5]

Under AB-5, a driver is presumed to be an employee unless the motor carrier establishes each of three requirements:

(A) The person 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.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.^[6]

Specifically, the court took issue with “B-prong” of the AB-5 test because it effectively mandated motor carriers to treat owner-operators as employees, rather than as the independent contractors.^[7] Contrary to the B-prong, drivers always perform work within “the usual course of the [motor carrier]’s business,” so they would never be considered independent contractors under California law.^[8]  Therefore, the court found that AB-5 was likely to be preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”), which prohibits any state from “enact[ing] or enforc[ing] a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier … with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).^[9]

Further, the court held that Plaintiffs established the likelihood of imminent, irreparable harm “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.”^[10]

On January 16, 2020, the Becerra court granted a preliminary injunction, barring the enforcement of AB-5 against motor carriers operating in California.^[11]  The court acknowledged that the FAAAA’s preemption provision is broad and Congress had “dual objectives” for adopting the FAAAA’s preemption clause: (1) “to ensure that the States would not undo federal deregulation with regulation of their own” and (2) “to avoid a patchwork of state service-determining laws, rules, and regulations.”^[12]

Because this issue was a matter of first impression for the court, it turned to Ninth Circuit jurisprudence.  First, the court discussed American Trucking Associations, Inc. v. City of Los Angeles, in which the Ninth Circuit reversed the district court’s denial of American Trucking Association’s (“ATA”) motion for a preliminary injunction and remanded with instructions to the district court to issue a preliminary injunction.^[13]  ATA argued that the FAAAA preempted various provisions in the Port of Los Angeles’ mandatory concession agreements for drayage trucking services at ports.^[14]  One of the provisions required motor carriers to use employee drivers rather than independent-contractor drivers.^[15]  The Ninth Circuit concluded it could “hardly be doubted” that the FAAAA preempted the provision and that, unless the Port could demonstrate an exception to the FAAAA’s preemption provision applied, the motor carriers would likely prevail on their challenge.^[16]

Second, the court discussed California Trucking Association v. Su, in which the Ninth Circuit considered whether the FAAAA preempted the Borello multi-factor test for distinguishing between employees and independent contractors.^[17]  In that case, the Ninth Circuit distinguished the Borello test as “wholly different” from the provision at issue in American Trucking Associations, Inc. v. City of Los Angeles because the Borello test did not compel the use of employees to provide certain services.”^[18] Ultimately, the Su court held that FAAAA did not preempt use of Borello test to assess whether owner-operators were misclassified as independent contractors.^[19]

Taking these cases into consideration, the Becerra court took the position that the FAAAA likely preempts “an all or nothing” state law like AB-5, which categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.  The court also noted that the Los Angeles Superior Court agreed in its recent holding in State of California v. Cal Cartage Transportation Express, LLC, that because the AB-5 test effectively prohibits motor carriers from using independent contractors, it has a significant, impermissible effect on motor carriers’ “prices, routes, and services,” and thus, is preempted by the FAAAA.^[20]

As for the irreparable harm factor, the court echoed its holding in the temporary restraining order, holding that irreparable harm is likely because without significantly transforming their business operations to treat independent-contractor 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.^[21]

With regard to the balance of equities factor, while recognizing that the Defendants had legitimate concerns about preventing the misclassification of workers as independent contractors, the court noted that California still maintains numerous laws and regulations designed to protect against this issue, including the Borello test which is to continue as the applicable classification standard.^[22]  Ultimately, the court held that the hardships faced by Plaintiffs significantly outweighed those faced by Defendants.

On January 30, 2020, the Becerra decision was appealed to the U.S. Court of Appeals for the Ninth Circuit.^[23] On March 30, 2020, the Court denied the International Brotherhood of Teamsters’ request to stay the preliminary injunction pending a final order on the appeal, ruling that the Teamsters had not made an adequate showing that it will be irreparably injured absent a stay, that a stay will not substantially injure the other parties, and that a stay would be in the public interest.^[24]  It is expected that this issue will eventually make its way to the United States Supreme Court.

Posted by Attorney Katherine M. Flett. Flett is a member of the litigation team whose primary focus is on assisting clients in insurance defense, business litigation, employment law, and bankruptcy matters.

Originally published in The Transportation Lawyer Journal, July 2020 

^[1] S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341, 355, 256 Cal.Rptr. 543, 769 P.2d 399 (1989).

^[2] Dynamex Operations West v. Superior Court, 4 Cal. 5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 (2018).

^[3] California Trucking Ass’n v. Becerra, No. 318CV02458BENBLM, 2019 WL 7372056, at *1 (S.D. Cal. Dec. 31, 2019).

^[4] Id.

^[5] Id.

^[6] Cal. Lab. Code § 2750.3(a)(1).

^[7] California Trucking Ass’n v. Becerra, No. 318CV02458BENBLM, 2019 WL 7372056, at *1 (S.D. Cal. Dec. 31, 2019).

^[8] California Trucking Ass’n v. Becerra, 2019 WL 7372056, at *2.

^[9] Id.

^[10] Id.

^[11] California Trucking Ass’n v. Becerra, No. 318CV02458BENBLM, 2020 WL 248993, at *11 (S.D. Cal. Jan. 16, 2020).

^[12] Id. at *6 (citing Schwann v. FedEx Ground Pkg. System, Inc., 813 F.3d 429, 436 (1st Cir. 2016)).

^[13] Id. at *6 (citing Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1060-61 (9th Cir. 2009)).

^[14] Id.

^[15] Id.

^[16] Id. at *6 (citing Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1053 (9th Cir. 2009)).

^[17] Id. at *6 (citing California Trucking Association v. Su, 903 F.3d 953 (9th Cir. 2018)).

^[18] Id. at *6 (citing California Trucking Association v. Su, 903 F.3d 953, 964 (9th Cir. 2018)).

^[19] Id. at *6 (citing California Trucking Association v. Su, 903 F.3d 953, 967 (9th Cir. 2018)).

^[20]Id. at *8 (citing The People of the State of California v. Cal Cartage Transportation Express, LLC, Case No. BC689320, 2020 WL 497132 (Los Angeles Superior Court January 8, 2020).

^[21] Id. at *10.

^[22] Id. at *11.

^[23] California Trucking Ass’n v. Becerra, No. 20-55107, 2020 WL 248993 (9^th Cir. 2020).

^[24] California Trucking Ass’n v. Becerra, 3:18-cv-02458-BEN-BLM, Order, Doc 35, March 30, 2020 (9^th Cir. 2020).