By: Ryan McCoy and David Kadue

Seyfarth Synopsis: A federal court has granted a preliminary injunction blocking the State of California from enforcing AB 5 against motor carriers. The court provided a fulsome analysis demonstrating that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) preempts enforcement of Prong B of AB 5’s ABC Test. The injunction, unless modified, will block California from enforcing AB 5 against motor carriers until the case is resolved.

The District Court’s Decision

On January 16, 2020, a federal judge in the Southern District of California, following up on a temporary restraining order issued on December 31, 2019, granted the California Trucking Association’s request for a preliminary injunction blocking enforcement of AB 5 against motor carriers. Two owner-operators joined the Association’s request, both claiming that they want to remain independent contractors and not be forced into the employment relationship that AB 5 would require.

In its 23-page order, the court first noted that “for decades, the trucking industry has used an owner-operator model to provide the transportation of property in interstate commerce.” The Association argued that Prong B of AB 5’s ABC test destroys this historical owner-operator model, in direct contravention of the FAAAA, a 1994 de-regulation measure that forbids any state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.”

The court rejected California’s argument that the Association lacks standing to challenge AB 5. The court found that the Association and its members face “imminent injury” if AB 5 is enforced because they must either implement “significant, costly compliance measures” or “risk[] criminal and civil prosecution.”

The court then ruled that the Association was likely to ultimately succeed on the merits of its argument that the FAAA preempts AB 5. The court, applying Ninth Circuit precedent, concluded that the FAAAA “likely preempts ‘an all or nothing’ state law like AB 5 that categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.” Owner-operators necessarily perform work within “the usual course of the [motor carriers] hiring entity’s business,” meaning drivers can “never” be considered independent contractors under Prong B. By effectively prohibiting motor carriers from using drivers as independent contractors, AB 5’s ABC test has a “significant, impermissible effect on motor carrier’ ‘prices, routes, and services” and thus is preempted by the FAAAA. In support of this conclusion, the court cited the Los Angeles Superior Court’s January 8 order likewise finding that the FAAAA preempts AB 5.

The court also rejected California’s argument that the ABC test is a state law of general applicability that “cannot be preempted.” Even if the ABC test were such a law, the court ruled, the FAAAA would still preempt the “all or nothing” ABC test because it impermissibly compels a motor carrier to use employees instead of independent contractors for certain services.

Finally, the court found that the Association and its members would likely suffer irreparable harm in the absence of an injunction because motor carriers would have to “significantly restructure their business model” or face criminal and civil penalties. While California has legitimate concerns about preventing misclassification of independent contractors, Congress has decided to deregulate the motor carrier industry and the FAAAA is “supreme” to AB 5:

[T]he State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking. In so doing, California disregards Congress’ intent to deregulate interstate trucking, instead adopting a law that produces the patchwork of state regulations Congress sought to prevent. With AB-5, California runs off the road and into the preemption ditch of the FAAAA.

What the Injunction Means for Employers

This preliminary injunction will remain in effect while the Association’s case continues or until the Court modifies or vacates the injunction. Like the earlier TRO, the injunction is against the State of California and does not necessarily prevent private enforcement.

The State of California and Teamsters have each filed motions to dismiss the Association’s lawsuit. The hearing is set for February 3, 2020.