United States: AB 5 Challenge From California Motor Carriers: TRO Granted

Seyfarth Synopsis: Effective January 1, 2020, AB 5 implements the mandatory “ABC” test for determining whether a person is an independent contractor or employee under California law. Specific to motor carriers, AB 5 presumes a driver is an employee of a motor carrier unless the motor carrier can establish each of the ABC test’s three requirements, including that the driver performs work outside the usual course of the motor carrier’s business. The California Trucking Association challenged this particular aspect of AB 5 on the ground that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) preempts enforcement. On December 31, 2019, a federal district court in California issued a temporary restraining order, in effect halting⁠—for now—the law’s enforcement against motor carriers by the State of California, pending resolution of the Association’s motion for preliminary injunction.

In November 2019, the California Trucking Association filed a lawsuit challenging AB 5 on the ground of FAAAA preemption, arguing many of the drivers the Association represents want to stay as independent contractors. Enforcing AB 5, according to the Association, would force these drivers to be treated as employees since Prong B of AB 5’s ABC test all but prohibits motor carriers from contracting with drivers. The Association’s lawsuit asserts Prong B impermissibly has the “force and effect of law related to a price, route, or service of any motor carrier,” and as a result the FAAAA preempts AB 5’s enforcement against motor carriers.

In granting the TRO, the Court agreed the FAAAA “likely preempt[s]” Prong B because AB 5 “effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are.” The Court also agreed that a TRO was appropriate because motor carriers were likely to suffer imminent, irreparable harm, since motor carriers “face the risk of governmental enforcement actions, as well as criminal and civil penalties,” unless they “significantly transform[]” their operations to reclassify independent contracting drivers to employees by January 1, 2020.

The TRO is limited in scope to temporarily enjoin the State from enforcing AB 5 “as to any motor carrier operating in California,” and does not necessarily address private enforcement. Nor does the TRO apply to the State’s ability to enforce AB 5 against entities other than motor carriers.

The preliminary injunction hearing is set for January 13, 2020, at 10:00 a.m.

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