New York and California Aim to Provide Consumers with Additional Protections
Consumer Finance Observer – Winter 2020

California’s Attorney General Appeals a Preliminary Injunction Barring Enforcement of AB-5, The State’s New Worker Classification Law

 

By: Gabriel K. Gillett and Philip B. Sailer

CaliforniaCalifornia’s new AB-5, which took effect January 1, 2020, revised the state’s worker classification law to make it very difficult to classify a worker as an independent contractor.  Under the so-called ABC Test codified in the new law, businesses must show (A) that the worker is free from the hiring entity’s control and direction, (B) performs work that is outside the usual course of the business, and (C) engages in an independently established trade, occupation, or business.  A number of plaintiffs challenged the law, including Uber, freelance journalists, and the California Trucking Association. 

On January 16, 2020, the California Trucking Association became the first plaintiff to succeed in its challenge (at least so far).  In California Trucking Assn v. Becerra, the Southern District of California issued a preliminary injunction barring the state from enforcing the law as to motor carriers.  2020 WL 248993 (S.D. Cal. Jan. 16, 2020).  As the court explained, the Federal Aviation Authorization Administration Act (FAAAA) expressly preempted state regulations that “related to . . . price, route, or service of any motor carrier.”  49 U.S.C. § 14501(c)(1).  The court cited past cases in the First and Ninth Circuits that held that the FAAAA preempted similar state employee classification statutes, and distinguished a Third Circuit case that held otherwise.  See id. at *6 (comparing Schwann v. Fedex Ground Package Sys., 813 F.3d 429 (1st Cir. 2016), California Trucking Ass’n v. Su, 903 F.3d 953 (9th Cir. 2018), and Bedoya v. Am. Eagle Express, Inc., 914 F.3d 812 (3d Cir. 2019)).  Notably, the court explained, AB-5 codified a test that “classif[ied] workers for the purpose of determining whether all of California employment laws do or do not apply, rather than a small group of those laws” as other states had done.  Id. at *9.  The result, according to the court, is that AB-5 will cause employers to reclassify a substantial amount of independent contractors as employees because they work “within ‘the usual course of the hiring entity’s business.’”  Id. at *7.

On January 29, the California Attorney General filed a notice of appeal.  Briefing before the Ninth Circuit is set to conclude in mid-April.  See Cal. Trucking Assn v. Becerra, No. 20-55106, ECF No. 6 (9th Cir. Jan. 30, 2020).  While the injunction being challenged is relatively narrow, as it applies only to certain motor carriers, the Ninth Circuit’s eventual decision could be notable if it provides insight into how that court might interpret AB-5, and, relatedly, how the other pending challenges to AB-5 may fare.