Supporters of a new worker classification law in California that would make it harder for trucking companies to contract with independent drivers face a narrow path to victory, if legal precedent is any indication.
When US District Court Judge Roger Benitez issued a preliminary injunction Jan. 13 against enforcement of AB5 as it applies to trucking, he did so citing federal preemption of the new state law in regard to interstate commerce. The court that will hear the expected appeal of Benitez's injunction ruled in favor of such a preemption a decade ago in a landmark case.
A precedent of federal preemption over rates, routes, and services in interstate commerce was set when the US Ninth Circuit Court of Appeals ruled in 2010 against an attempt by the Port of Los Angeles to ban independent contractor drivers in its 2008 clean-truck program, two attorneys familiar with the two current AB5 court cases noted. That's not to say the court might rule differently regarding the current cases, but the likelihood is diminished by how the courts have ruled in the past.
The state of California by mid-February is expected to ask the Ninth Circuit Court of Appeals to overturn the preliminary injunction issued by Benitez.
When the Port of Los Angeles in its clean truck program attempted to compel trucking companies to hire employee drivers when calling at marine terminals, the Ninth Circuit later ruled that that requirement could not be enforced because the Federal Aviation Administration Authorization Act (FAAAA) of 1994 gives Congress authority over interstate commerce.
From the perspective of the trucking industry, the federal preemption issue was resolved almost 10 years ago by the Ninth Circuit. "The law that Benitez applied is the Ninth Circuit law," said Greg Stefflre, owner of Rail Delivery Services and an attorney of more than 40 years who has represented the American and California trucking associations.
Two prominent cases addressing AB5 have been unfolding: California Trucking Association (CTA) v. Becerra, which is being heard by Benitez, and the People of California v. Cal Cartage, which is being heard in California Superior Court. Both cases address the question as to whether licensed motor carriers (LMCs) are allowed to contract with independent owner-operator drivers, or whether the LMCs must hire the drivers as employees, which AB5 requires.
The issue of independent contractor versus employee status is important to states such as California and New Jersey. Revenue agencies view the independent contractor model as costing them millions of dollars a year because companies in various industries have used it to avoid paying certain state taxes. Meanwhile, the California Employment Development Department views the independent contractor model as being used to deny workers basic rights such as rest breaks, overtime pay, and pension benefits.
A second important case, The People of California v. Cal Cartage, which is being heard by California Superior Court Judge William Highberger, is also under appeal. Highberger on Jan. 8 ruled that AB5 is preempted by the FAAAA.
Greg Feary, a partner in the firm Scopelitis, Garvin, Light, Hanson & Feary, told the Journal of Commerce that the Becerra and Cal Cartage cases have similarities, but they are proceeding on independent tracks. Feary said the cases involving AB5 ultimately get down to the question, "Does the application of the ABC test as written into AB5 create a significant impact on prices, routes, and services of LMCs?"
In their appeals, attorneys representing the state are expected to argue that failure to adhere to the ABC test as codified now in AB5 will cause irreparable harm to the people of California. Feary said that given the experience of the past decade, he is "skeptical" that the courts will rule in favor of the state.
Another issue involved in the litigation is the federal dormant commerce clause, which is intended to protect LMCs from having to deal with a "patchwork of state laws" when moving freight from one state to another, Feary said.
Source: Journal of Commerce