Transportation Law Update: Federal District Court Enjoins California Statute Regarding Independent Contractors

02.05.2020

In what has become a closely watched battle in the transportation industry, on December 31, 2019, the United States District Court for the Southern District of California held that a temporary restraining order was warranted in California Trucking Ass’n v. Becerra, pending the Court’s resolution of Plaintiff’s motion for preliminary injunction.

On December 24, 2019, Plaintiff, California Trucking Association, filed a motion for temporary restraining order seeking to enjoin Defendants from enforcing Assembly Bill 5 (“AB-5”) to motor carriers operating in California. AB-5, which took effect on January 1, 2020, provides that individuals driving or hauling freight on behalf of a motor carrier are presumed employees unless the motor carrier can establish that, among other things, the individual performs work that is outside the usual course of the motor carrier’s business.

In support of their motion for temporary restraining order, the Plaintiff’s argue AB-5 is preempted by the Federal Aviation Administration Authorization Act (“FAAAA”) of 1994. The Court found a temporary restraining order was warranted because AB-5 is likely preempted by the FAAAA, and, absent an order from the Court, the Plaintiff’s would likely suffer irreparable harm. In support of its order, the Court noted that, because AB-5 “effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are,” the regulation is likely preempted by the FAAAA’s prohibition on states enacting laws related to “a price, route, or service of any motor carrier . . . with respect to the transportation of property.” Further, the Court noted that the Plaintiffs would have to undertake significant steps to transform their operations to treat drivers as employees in compliance with AB-5. Without taking proper steps, Plaintiffs could be subject to governmental enforcement actions as well as criminal and civil penalties. Thus, the Court granted a temporary restraining order on the enforcement of AB-5.

On January 13, 2020, the Court heard argument on the much-anticipated motion for preliminary injunction. The Court first addressed Intervenor-Defendant, International Brotherhood of Teamsters argument that Plaintiffs lacked Article II standing. The Court disagreed with all three grounds brought by the Intervenor-Defendant on this issue. The Court noted, as it did in the temporary restraining order, that Plaintiffs would suffer imminent injury if Defendants were not enjoined from enforcing AB-5. The Court also noted Plaintiffs were not required to prove, at this preliminary stage of litigation, that some its members would actually be affected by AB-5, rather, the Court held it sufficient that Plaintiffs established many of its members contract with independent contractor drivers and would likely be affected. Thus, the Court held Plaintiffs had standing to bring forth their claims.

The Court then turned to the preliminary injunction, noting that an injunction is warranted where Plaintiffs establish: 1) they are likely to succeed on the merits; 2) they are likely to suffer irreparable harm in the absence of preliminary relief; 3) the balance of equities tips in their favor; and 4) an injunction is in the public interest. As to the first element, the Court held that, while AB-5 is a matter of first impression in the Ninth Circuit, the “[Circuit’s] jurisprudence touching on the issue strongly suggests preemption.” Based on jurisprudence in both the Ninth Circuit and the First Circuit, the Court held Plaintiffs had carried their burden of showing a likelihood of success on the merits.

As to the second element, the Court again found that Plaintiffs met their burden in proving that irreparable harm was likely based on the significant cost and burden of treating their independent-contractor drivers as employees to comply with AB-5. The Court once again noted the risk of governmental enforcement actions, as well as criminal and civil penalties if the Plaintiffs failed to comply.

The Court analyzed the last two elements together, noting that while “Defendants have legitimate concerns about preventing the misclassification of workers as independent contractors,” the hardships faced by the Plaintiffs “significantly outweigh those faced by Defendants.” Similarly, the Court found that “public interest tips sharply in Plaintiffs’ favor.” The Court noted that there are still numerous laws and regulations in place to protect the classification of workers.

The Court ultimately granted the Plaintiff’s request for injunction on January 16, 2020. The injunction will remain in place through the trial.

Contact John F. Fatino for more information about trucking and transportation matters at 515-288-6041. Anna E. Mallen, associate attorney, assisted in the preparation of these materials.

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