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California Truckers Can Bypass New Contractor Law, Judge Rules

Jan. 9, 2020, 2:33 AM

The new California law that makes it harder for employers to classify workers as contractors doesn’t apply to trucking businesses, a state court judge in Los Angeles said in a ruling marking a big win for the industry.

The law is preempted by the Federal Aviation Administration Authorization Act, said Los Angeles County Superior Court Judge William Highberger in a Jan. 8 decision. That’s because it would ban motor carriers “from using independent contractors to provide transportation services,” Highberger said.

The dispute is among several legal actions that have arisen in the wake of the state’s rigid worker classification standard. Although much of the focus has been on gig companies like Uber Technologies Inc. and Lyft Inc., the trucking industry heavily relies on independent owner-operator truck drivers, and industry groups have pressed the argument in other lawsuits that say business would be harmed if the law were enforced.

Assembly Bill 5, which took effect Jan. 1, codifies and expands the California Supreme Court’s 2018 ruling in Dynamex West Operation v. California Superior Court. That decision created the “ABC test” that requires employers to meet three specific criteria in order to classify workers as contractors, instead of employees entitled to minimum wages, overtime, and other benefits.

The Los Angeles City Attorney’s office sued several trucking companies—NFI Industries and its subsidiaries, Cal Cartage Transportation Express, CMI Transportation, and K&R Transportation California—for alleged misclassification of truck drivers in violation of the state’s Unfair Competition Law. The Los Angeles city attorney’s office didn’t immediately respond to a request for comment.

The judge’s ruling means the lawsuit will proceed under the previous standard used in the state to determine who is an employee. That more flexible standard is known as the Borello test.

Gibson, Dunn & Crutcher partner Joshua Lipshutz, counsel for NFI, said in a statement, “Independent owner-operator truck drivers have been a vital part of the trucking industry, and a path to achieving the American dream, for many decades. Judge Highberger’s decision confirms that California cannot simply eliminate that business model and force truck drivers to be employees. This is a win for trucking companies and independent truckers nationwide.”

A hearing is slated for Jan. 13 in a separate federal case in which the California Trucking Association is challenging A.B. 5. Highberger noted in his decision that the U.S. District Court for the Southern District of California already granted a temporary restraining order in that case.

Contracting out truck driving shifts the cost of truck ownership and operation from trucking companies to individual truck drivers, according to a report from the Labor Center at the University of California, Berkeley. The report said that these drivers have long been incorrectly classified under the law as contractors, and have been burdened with the capital costs of operating trucks, which cost as much as $120,000, and keeping up with strict regulatory standards imposed in the state.

The U.S. Courts of Appeals for the Seventh and Third circuits have previously dismissed the trucking industry’s federal preemption arguments. Yet, the First Circuit ruled in 2016 that part of a worker classification test in Massachusetts was preempted by federal law.

The case is The People of the State of California v. Cal Cartage Transp. Express, Cal. Super. Ct., No. BC689320, order 1/8/20.

To contact the reporter on this story: Erin Mulvaney in Washington at emulvaney@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com

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