by Alexandra P. Saddik and Jonathan R. Babione

On January 16, 2020, the United States District Court for the Southern District of California granted the California Trucking Association (CTA) a preliminary injunction enjoining the state from enforcing AB-5 to motor carriers operating in California. AB-5 codifies the ABC test in the California Supreme Court’s Dynamex decision. Under this law, with a few exceptions that come with their own requirements, workers are classified as employees unless the employer can establish that the person (1) is free from control and direction of the hiring entity; (2) performs work that is outside the usual course of the hiring entity’s business; and (3) is customarily engaged in an independently established business of the same nature as the work being performed by the hiring entity.

The District Court determined that there are at least “serious questions” on the merit as to the CTA’s argument that the Federal Aviation Administration Authorization Act (FAAAA) preempts AB-5. The FAAAA has an express preemption provision that prevents states from either enacting or enforcing “a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” The District Court noted that both the Ninth Circuit, which is binding, and the First Circuit, which is persuasive, interpreted this preemption provision broadly. In particular, the District Court noted that the Ninth Circuit’s prior rulings on the FAAAA “strongly suggests preemption.” Furthermore, the Los Angeles Superior Court concluded on January 8, 2020 that the FAAAA preempts the ABC test codified in AB-5.

The District Court also concluded that the CTA would incur irreparable harm if the preliminary injunction was not granted. The trucking industry uses an owner-operator model where the owner-operators are independent contractors. Therefore, compliance with AB-5 would have been costly since the method of doing business across the industry would have had to have been transformed. Otherwise, businesses relying on these owner-operators would risk facing governmental enforcement actions and both civil and criminal penalties. Furthermore, California’s Attorney General made it clear that the state was going to enforce AB-5 against the trucking industry, making the irreparable injury imminent.

Finally, the District Court concluded that, though California had a “public interest in protecting misclassified workers,” there is a stronger public interest in Congress’ motivation behind the FAAAA and “the Constitution’s declaration that federal law is to be supreme.” This tips the public interest “sharply in Plaintiffs’ favor.”

The District Court’s decision to grant the preliminary injunction provides some insight into the strength of the CTA’s preemption argument against AB-5, but it is still uncertain how the Court will ultimately choose to resolve the issues surrounding AB-5. Ferber Law has the expertise to advise you on how to work with the uncertainty surrounding AB-5.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.