By: William F. Bresee, Esq.
On April 28, 2021, in a much-anticipated ruling, the Ninth Circuit Court of Appeals lifted a District Court’s injunction and found that California’s AB 5 employee classification scheme is applicable to the trucking industry in California and is not preempted by Federal law governing motor carriers. California Trucking Association v. Rob Bonta, et al., D.C. No. 3:18-cv-02458-BEN-BLM.
In September 2020, a judge in the Southern District of California found that, as Federal law governs trucking firms in interstate commerce, California’s law – Assembly Bill 5 (AB 5) – enacted in 2019 was likely preempted and issued an injunction prohibiting its enforcement against motor carriers in the state. AB 5, enacted in September 2019, codified the California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (2018) adopting the “ABC test” in the classification of workers as employees or independent contractors; the test generally favoring classification as employees. The California Trucking Association, which had sued to enjoin enforcement of the law, argued that AB 5 makes it more difficult for independent drivers and independent owner-operators who own their own trucks and operate on their own hours to make a living where they are forced to be classified as employees rather than independent contractors. As in the District Court, in the Ninth Circuit appeal, the lawyers for the State of California and the International Brotherhood of Teamsters could not articulate a single situation in which a motor carrier could satisfy the ABC test with respect to owner-operators. California Trucking Association argued that, while AB 5 is cast as a law of general applicability, it has numerous industry exceptions from the law (many added to the legislation at the last minute before passage); strongly suggesting that AB 5 is nothing more than a law targeting certain industries (notably trucking) while exempting many others. The Ninth Circuit panel held that AB 5 is a generally applicable labor law that affects a motor carrier’s relationship with its workforce and does not bind, compel, or otherwise freeze into place the prices, routes, or services of motor carriers governed by the Federal law; in doing so, lifting the injunction against enforcement ordered by the District Court.
The construction industry is still operating under AB 5’s construction industry trucking exemption which is in effect until January 1, 2022. The criteria for the exemption of motor carrier subcontractors on a project are as follows:
- The subcontractor is a business entity formed as a sole proprietorship, partnership, limited liability company, limited liability partnership, or corporation.
- For work performed after January 1, 2020, the subcontractor is registered with the Department of Industrial Relations as a public works contractor pursuant to Section 1725.5, regardless of whether the subcontract involves public work.
- The subcontractor utilizes its own employees to perform the construction trucking services unless the subcontractor is a sole proprietor who operates his or her own truck to perform the entire subcontract and holds a valid motor carrier permit issued by the Department of Motor Vehicles.
- The subcontractor negotiates and contracts with, and is compensated directly by, the licensed contractor.
Whether the decision of the Ninth Circuit panel will be appealed is uncertain at present. In the meantime, California’s legislature is considering Assembly Bill 1561, which would extend the industry’s exemption from the ABC test of AB 5 until January 1, 2025.
For any further analysis of how this California court decision will affect construction and trucking industries operating in California, or if you have any questions on this article, please contact William F. Bresee.
Bill Bresee is a Partner with Leech Tishman and leads the Construction and Energy & Natural Resources Industry Groups. He is also a member of the Corporate Practice Group. Bill is based in the Pasadena and Pittsburgh offices and can be reached at 626.796.4000 or 412.261.1600 or email@example.com.