In a split 2-1 decision, the Ninth Circuit Court of Appeals reversed the district court’s order preliminarily enjoining enforcement of California’s Assembly Bill (AB) 5 in California Trucking Association et al. v. Bonta (CTA). If this ruling is not appealed, AB 5, which is chaptered in the California Labor Code under 2750.3, will no longer be enjoined from applying to companies in the trucking industry.
In 2019, the California legislature enacted AB 5 to codify the California Supreme Court’s decision in Dynamex West Operations, Inc. v. Superior Court (2018). In Dynamex, the Court judicially adopted the “ABC test” for employers to pass before classifying a worker as an independent contractor. Prior to the Dynamex ruling, courts applied the multi-factor Borello balancing test to determine the status of a worker.
Over 30 states now apply the ABC test. Subject to some statutory exemptions, in California, the law provides that a worker is presumed to be an employee unless: (a) the worker is free from control and direction of the hiring entity under both in practice and under contract; and (b) the worker performs work outside of the usual course of the hiring entity’s business; and (c) the worker is customarily engaged in an independently established trade, occupation or business of the same nature of the work performed.
In 2019, the California Trucking Association along with two independent owner-operator truck drivers filed a lawsuit and the district court granted a preliminary injunction from AB 5 applying to motor carriers. The district court concluded that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) preempted AB 5. The FAAAA preempts any state law related to prices, routes or services of any motor carrier relating to the transportation of property.
The Ninth Circuit reversed the district court and overturned the injunction. Along the lines of its prior precedent that California’s meal and rest break laws for statutory employees were not preempted by the FAAAA and applied to drivers, the Court held here that FAAAA does not preempt AB 5’s application to the trucking industry because it is “generally applicable labor law that affects a motor carrier’s relationship with its workforce and does not bind, compel, or otherwise freeze into place the prices, routes, or services of motor carriers.”
Despite AB 5’s carve outs and exemptions for certain industries, the majority reasoned that AB 5 applied to employers generally as it does not single out motor carriers and that the way motor carriers must classify their workers does not compel a certain result in the motor carrier’s relationship with consumers, which would compel preemption under the FAAAA.
The case is expected to be appealed. It is unclear at this stage when the preliminary injunction will lift and the CTA may request a stay of the lifting of the injunction pending en banc review in the Ninth Circuit and/or a petition to the U.S. Supreme Court.
Under California law, workers classified as employees are subject to wage and hour laws, including, minimum wage, overtime and paid sick leave benefits, among others. Thus, it is recommended that companies in the industry review their independent contractor arrangements carefully. If you have any questions or concerns about these developments, or how they affect your company, Reed Smith’s experienced Labor & Employment Group is available to speak with you.