Motor carriers in California say they have dodged a bullet for the time being, after a federal judge in the state issued a temporary stay on proposed legislation that would have compelled them to classify their drivers as full employees, not independent contractors.
Known as AB5, the legislation stems from California's Assembly Bill 5, signed into law in September 2019 with the intention of making it harder for employers to qualify their employees as independent contractors. The focus of that law was originally centered on ride-sharing models like Uber and Lyft and on the broader "gig" economy, but it could also impact broader freight transportation models that currently use independent contractors, according to a report from the investment firm Baird Equity Research.
Supporters of the law—including the International Brotherhood of Teamsters—say that applying a stricter definition of an independent contractor limits companies from erroneously using that label to avoid payment of certain benefits to employees, such as labor laws and minimum wage guarantees.
However, opponents of the law—including the California Trucking Association—have filed suit to block the legislation, saying it would raise their operating costs and trigger tighter capacity in the freight sector, particularly at ports that have traditionally relied on independent contractors for drayage.
Groups on both sides of the debate are closely watching the court battles, since the outcome of the decision in California could create a legal precedent for enacting similar legislation in other states, including efforts already underway in New Jersey and Illinois, Baird said.
In the most recent move, California Federal District Judge Roger Benitez on Thursday granted a preliminary injunction in the case "California Trucking Association, et al., v. Attorney General Xavier Becerra, et al.," thus stopping the state from enforcing AB 5 as to any motor carrier operating in California, pending a final judgment from the state's District Court, according to a newsletter from the Indianpolis-based law firm Scopelitis, Garvin, Light, Hanson & Feary, P.C.
According to Scopelitis, that decision essentially affirmed the court's own Dec. 31 finding that the California Trucking Association is likely to win on its argument that the Federal Aviation and Administration Authorization Act of 1994 (FAAAA) preempts the application of AB 5 to motor carriers, and also that motor carriers are likely to suffer irreparable harm if the legislation is enforced, the law firm said.
The federal law is relevant because Judge Benitez found that California's effort to adopt a law affecting trucking within its own borders would create a patchwork of state regulations, and disregard Congress' intent to deregulate interstate trucking, according to an analysis by Cleveland, Ohio-based law firm Benesch, Friedlander, Coplan & Aronoff LLP.
Despite the judge's decision to temporarily stop the law from being applied, the Teamsters say they will continue to fight for it. "We are not surprised by the Court's decision to issue a preliminary injunction blocking application of [AB5] to California truck drivers; however, the decision does not impact port and rail drivers' fight for their employee rights and an end to systemic wage theft," Julie Gutman Dickinson, local counsel to the Teamsters Port Division, said in a release.
According to Dickinson, California port truck drivers have been found to be employees—not independent contractors—in every port trucker misclassification/wage theft case to date. "The Court's preliminary injunction has no practical effect on the employee status of these drivers—they are clearly employees," she said.
