New Court Ruling Targets California’s ‘Gig Economy’ Trucking Regulation

Date: Friday, January 10, 2020
Source: The Wall Street Journal

State judge says federal law pre-empts California rule seeking to toughen restrictions on use of independent driver-contractors

A California court ruled that a state law that could force companies to classify certain contract workers as employees doesn’t apply to trucking companies, bolstering an industry push to carve out an exemption from the law targeting “gig-economy” business models.

The decision issued Wednesday comes after a federal judge last week granted the California Trucking Association’s request for a temporary restraining order blocking the law’s immediate enforcement for independent truck drivers. A hearing on the industry group’s request for a preliminary injunction is set for Jan. 13.

Many U.S. trucking companies hire their own drivers but most supplement their operations by using independent drivers that own or lease their equipment, particularly in port-trucking operations.

The decision by Los Angeles County Superior Court Judge William Highberger said the California law is pre-empted by the Federal Aviation Administration Authorization Act, which largely pre-empts states from regulating interstate motor carriers, because a test it uses to determine whether workers should be considered employees “prohibits motor carriers from using independent contractors as truck drivers.”

The California law, known as AB5, would likely have “a substantial impact on trucking prices, routes and services,” the judge wrote. “As the evidence shows, in those circumstances where Defendants have contracted with licensed motor-carriers to transport loads, the cost of such transport was nearly triple the cost of using independent owner-operators for the same route.”

The ruling involved a case filed by the Los Angeles City Attorney’s office in January 2018 against several trucking companies that haul goods at Southern California ports for allegedly denying drivers wages and benefits by illegally classifying them as independent contractors. The lawsuit was filed before the new California law took effect on Jan. 1. The new law aimed at “gig-economy” companies like Uber Technologies Inc. and Lyft Inc. essentially codifies a state court ruling from April 2018 involving package-delivery drivers.

The matter is likely to end up before the California Supreme Court, said Greg Feary, president and managing partner of transportation law firm Scopelitis, Garvin, Light, Hanson & Feary, PC, one of two firms representing NFI Industries Inc., which owns three port trucking companies targeted in the case.

The ruling Wednesday could also bolster a decision in favor of issuing a preliminary injunction in the federal case, Mr. Feary said.

“We are appealing the Court’s decision,” Los Angeles City Attorney Mike Feuer said. “As the Court itself stated, ‘…there are substantial grounds for difference of opinion.’”

The Teamsters union, which backed AB5 and has waged a yearslong campaign to organize California port drivers, said it disagreed with the ruling, and said the question of whether the test is pre-empted “will go through legal proceedings before there is any final determination.”

 

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