On November 12, 2019, the California Trucking Association (“CTA”) filed an amended complaint against the State of California, seeking to prevent the enforcement of AB 5, California’s new independent contractor test. AB 5 is set to go into effect on January 1, 2020.

The lawsuit was initially filed late last year, in response to a 2018 decision of the California Supreme Court known as Dynamex Operations West, Inc. v. Superior Court.

Now, with the amended complaint, CTA’s lawsuit also targets AB 5.

Background

On September 18, 2019 Governor Newsom signed AB 5 into law establishing a new test for deciding whether a California worker is an employee or independent contractor. The intent of AB 5 is to codify the Dynamex decision, which was the first California decision to apply a simplified “ABC” test for determining if workers were misclassified as independent contractors.

(For more information on the details of AB 5, see DDWK’s September 18 update found here.)

AB 5 and Dynamex can hit transportation companies particularly hard. In California, such companies are now faced with the difficult choice of attempting to comply with AB 5 by recreating their business model, including prices, routes, and services to their customers, or risk criminal and civil liability. The practical reality is that complying with AB 5 will have a significant impact on trucking companies’ ability to move goods into and out of California, which could in turn drive up the cost of transported goods and delay shipping times nationwide. As a result, some companies have decided to pull out of California altogether, unwilling to face a quicksand of potential liability.

Prior to the Dynamex decision, it was lawful in California for transportation companies to contract with owner-operators and treat them as independent contractors instead of employees. Now, under AB 5, any company that continues to use individual owner-operators to provide trucking or similar transportation services must treat such workers as employees, and must provide them with all protections that California law affords to employees.

The CTA lawsuit appears to be the first direct legal challenge to AB 5, which applies to potentially hundreds of thousands of workers previously classified as independent contractors. Similarly, gig-based operations like Lyft, Uber, DoorDash and Instacart have also announced that they will be pursuing a high-profile, multi-million dollar 2020 ballot initiative intended to exempt app-based drivers from the reach of AB 5.

CTA’s arguments against enforcement of AB 5

CTA argues that AB 5 is preempted by multiple aspects of federal law, meaning that enforcement of AB 5 would violate the Supremacy Clause of the United States Constitution. In particular, CTA argues that enforcing AB 5 would interfere with enforcement of the Federal Aviation Administration Authorization Act of 1994 as well as the Federal Motor Carrier Safety Administration’s ability to enforce its authority in California. CTA also contends that enforcement of AB 5 would run afoul of the Commerce Clause of the United States Constitution, which protects the right to engage in interstate commerce, including trucking. While some of CTA’s positions are tenuous constitutional arguments that are unlikely to be effective, the Commerce Clause arguments has strength and could prove to be the strongest.

CTA’s case is pending in the United States District Court for the Southern District of California, before Judge Roger Benitez, who was appointed by President George W. Bush in 2004. If past challenges to aggressive attempts by the California Legislature to regulate employer/employee and independent contractor relationships that involve interstate commerce are an indicator, there is reason to believe CTA’s lawsuit – or one like it – will lead to either the Ninth Circuit Court of Appeals or the United States Supreme Court weighing in. But when and how that will happen is unpredictable.

Now what?

In addition to the trucking industry, large companies like Uber and Lyft who are committed to the independent contractor business model face a major threat should AB 5 survive constitutional scrutiny. CTA’s case will be closely watched by lawyers, politicians, and industry leaders throughout California and across the country. This is uncharted water, and California businesses need to be tuned in to this developing story, as the January 1, 2020 effective date of AB 5 draws near. Those businesses need to perform an audit to ensure all workers are properly classified. Due to the complexities of AB 5, and the nuances of its exceptions, business owners and human resources professionals should consult with counsel prior to making changes to their hiring and labor models. Contact DDWK for advice and counsel on how to prepare for AB 5 and related strategic considerations.

Teagan Dow is an employment attorney focusing on employment consulting, HR and risk management. Teagan can be reached at tdow@ddwklaw.com.

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