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Truckers Could Be on Road to High Court in Classification Battle

Jan. 10, 2020, 5:43 PM

The trucking industry is already having success arguing that California’s new worker classification law has a hole in it, but whether big-rig businesses in the Golden State can continue to treat drivers as self-employed contractors will likely depend on the appeals courts.

The City of Los Angeles plans to appeal a Jan. 8 state court ruling that trucking companies are not covered by Assembly Bill 5, which makes it harder for businesses to classify workers as employees rather than contractors. A federal court in San Diego is slated to consider on Jan. 13 whether to make permanent a temporary order exempting the industry from A.B. 5.

Both cases are expected to wind their way through the state and federal court systems, respectively. That is likely to give California’s highest court and the federal appellate branch opportunities to weigh in on the central legal question: whether requiring trucking companies to make drivers employees would interfere with motor carriers’ prices, routes, or services in a way that’s preempted under federal law.

“There is no question that it’s going to be appealed and that both sides will not accept interim appeals court decisions,” says Stephen Berry, a business lawyer for Paul Hastings in California. “I believe it will be taken to the California Supreme Court and the U.S. Supreme Court because there is a conflict in the circuits and this involves an important issue.”

The cases are part of a growing legal and lobbying offensive against A.B. 5, which went into effect Jan. 1. Industry groups representing freelance journalists have sued to block the law, while gig companies Uber Technologies Inc. and Postmates Inc. are challenging the measure in court and by promoting a ballot initiative that would give voters a chance to nix it. The U.S. Chamber of Commerce’s leader signaled Thursday that the business advocacy giant may also get involved.

A.B. 5 is designed to give more workers minimum wage, overtime, unemployment and other protections—benefits that employers are required to provide to employees but not to independent contractors. But representatives from a number of industries argue that the state’s attempt to force companies to reclassify independent contractors will upend long-standing business models. Roughly 70,000 truckers operate as contractors in California, according to industry group estimates.

“There are more questions than answers. We’re in a state of legal limbo where there are some questions about the validity of the law as it applies to certain industries,” Dan Handman, a Los Angeles business lawyer with Hirschfeld Kraemer, told Bloomberg Law. “There are questions in general about how broadly or narrowly that it applies. Everyone is trying to figure out the legal terrain.”

The trucking industry has battled the law’s “ABC” test, which lays out three specific criteria employers must meet to label workers as contractors, since the California Supreme Court created the standard in 2018 through its ruling in Dynamex West Operation v. California Superior Court. Trucking groups say the test clashes with the Federal Aviation Administration Authorization Act, which preempts certain state regulations for the industry.

The truckers could have a stronger argument against A.B. 5 than other groups challenging the law because of the preemption issue, several employment attorneys and academics told Bloomberg Law. Appeals courts have been mixed on the question of how far that preemption extends, however.

The state court ruling in Los Angeles earlier this week “confirms that California cannot simply eliminate that business model and force truck drivers to be employees,” Joshua Lipshutz, a lawyer for the companies in that case, said. This is a win for trucking companies and independent truckers nationwide.”

Pushing For a Carve-out

Attorneys for the California Trucking Association, an industry group representing trucking companies, argued in the federal lawsuit that under the new test, “it would be impractical if not impossible” for motor-carrier members to contract with owner-operators to provide interstate trucking services while treating the drivers as employees. The practical consequence, they argue, is that the companies will ultimately lose business.

The association refiled its lawsuit after the state passed A.B, 5, codifying the ABC test from Dynamex.

The association lobbied hard against A.B. 5 before it became law, while also trying to carve out an exemption for its members. Earlier this year, the Western States Trucking Association lost its challenge to the ABC test in the Eastern District of California. The group represents owner-operators and the motor-carriers that employ them, with its membership ranging from individual owners, to small family-owned for-hire fleets to the world’s largest international carriers.

Contracting out the driver’s role allows companies to shift the cost of truck ownership and operation to individual truck drivers, according to a report from Labor Center at the University of California, Berkeley. The report said these drivers have long been incorrectly classified 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.

Courts thus far have issued mixed rulings in response to requests from the trucking industry to restore the previous standard, known as the Borello standard, at least in instances when it might contradict with federal law. The U.S. Supreme Court on March 18 declined a request by the California Trucking Association to take up the issue under the Borello standard.

The U.S. Courts of Appeals for the Seventh and Third Circuits previously dismissed such arguments by the trucking industry. The First Circuit ruled in 2016, however, that federal law preempted part of a worker classification test in Massachusetts.

‘Shock to the System’

The new law was a “shock to the system” that altered every assumption companies and workers had about who is an employee, said Handman, who represents employers.

He said the truckers’ case holds special weight because it can wield the argument that federal law directed at the transportation industry should apply. He said the other challenges filed against A. B. 5 are tough standards to meet. The gig companies argue the law is unfair in its application and the freelance journalists are claiming their First Amendment rights are being violated. A judge denied a temporary restraining order in the journalists’ case.

Since the Dynamex case has been law since 2018, challenges to the new state law that codifies the ABC test are not likely to succeed, said Catherine Fisk, a professor at Berkeley Law. The Dynamex case in state Supreme Court applied the test to claims involving overtime and minimum wage, and A.B. 5 expanded it to the entire labor code, which includes workers’ compensation, sick leave and disability. The truckers’ argument is a stretch, she said, but could get the most traction of any of the lawsuits filed to block the law.

Veena Dubal, a professor at the University of California, Hastings, College of Law, said that if one considers the issue structurally, many of truckers were already misclassified under the previous standard. California previously relied on the Borello standard, which balanced multiple factors and was thus more flexible.

“There is a lot of hysteria around A.B. 5 that may be misplaced,” Dubal said. “It’s a structural tool. Employment protections are there to support everyone. If enforced, it would be to restructure the fissured workplace. The people who are going to be affected are the low-income workers like janitors, nail salon workers and those in construction who have been exploited.”

The California Trucking Association is represented by attorneys with Ogletree, Deakins, Nash, Smoak & Stewart. The California Justice Department is defending the state.

The case is Calif. Trucking Ass’n v. Becerra, S.D. Cal., No. 3:18-cv-02458, oral argument 1/13/20.

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; John Lauinger at jlauinger@bloomberglaw.com

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