United States: California State Court Agrees With Motor Carriers' Preemption Challenge To AB 5

Seyfarth Synopsis: On the heels of last week's federal court order temporarily blocking enforcement of AB 5 by the State of California, a California state court in Los Angeles reached the same conclusion, finding the Federal Aviation Administration Authorization Act of 1994 ("FAAAA") preempts AB 5 as applied to owner-operators contracting with motor carriers. Ruling AB 5's ABC test is preempted by the FAAAA, the order reestablishes the multi-factor Borello test as the relevant standard for deciding truck drivers' misclassification claims. While this order does not block enforcement of AB 5 by the State of California or private actors, the trial court's order is another step in what is bound to be a long appellate road to determine whether the FAAAA preempts enforcement of the ABC test as applied against truck drivers.

In January 2018, the State of California filed complaints against several motor carriers contracting with owner-operators, alleging that the motor carriers had misclassified the owner-operators as independent contractors under the traditional Borello standard. Two months later, the Supreme Court decided Dynamex and established the ABC test. Thereafter, Governor Newsom signed AB 5 into law, effectively codifying the ABC test. Given the change in the law, the motor carriers requested an order from the Los Angeles Superior Court seeking to clarify whether AB 5's ABC test now applied to truck drivers' misclassification claims, or whether the FAAAA preempted AB 5 and Borello remained the rule of the road. The motor carriers did not, however, ask the Court to enjoin or block enforcement of AB 5 to any extent; they asked only for clarification on what law applied to their case going forward.

Like the Southern District of California last week, the Court ruled that the FAAAA preempted Prong B of AB 5's ABC test because it effectively prohibits motor carriers from utilizing independent owner-operator truck drivers.

Unlike the federal court's TRO finding this preemption was "likely," this Court's order was much more definitive. The Court first analyzed the text of AB 5 as well as the legislative history underlying the FAAAA, noting Congress already made clear "there was a desire to preempt a specific California statute which limited use of owner-operators by freight companies..." To the Court, federal legislative history "demonstrates Congress' intent to protect the owner-operator business model in the trucking industry and preclude its replacement by an 'employee-operator' regime," which AB 5 seeks to impose because "it is plain that a motor carrier's core transportation-related services cannot be performed by independent contractors." The Court also rejected the State's arguments that motor carriers could establish AB 5's business-to-business exception or that joint employment could allow motor carriers to continue utilizing independent contractors.

Also this week, the Ninth Circuit in Ridgeway v. Walmart reaffirmed the notion that the FAAAA does not preempt California's meal and rest break laws. Using this rather unremarkable holding, some groups already have argued that the FAAAA cannot preempt AB 5 because, they argue, AB 5 is a state law of general applicability and thus immune from preemption like the meal and rest break provisions Walmart upheld.

But on this point, the Los Angeles Superior Court's order cited recent California Supreme Court authority to rule that state laws are not always immune from FAAAA preemption, and such laws must be closely analyzed to determine whether they relate to motor carrier prices, routes, or services. In the case of AB 5, the Court found it all but compels motor carriers to "revamp their business models" to utilize only employee drivers, which leads to the "common-sense conclusion that AB 5 would have a substantial impact on trucking prices, routes, and services," and thus is preempted by the FAAAA.

Importantly, this order does not enjoin or block enforcement of AB 5 by the State or private actors because the motors carriers did not ask for that specific relief. But this order is yet another pit stop on the long and winding road to determine whether federal law preempts AB 5's ABC test as applied to motor carriers. Now, at least two California courts in the past week now found that the FAAAA preempts AB 5, but these cases are bound to be appealed.

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