Did California Make It Illegal For Truck Drivers To Be Independent Contractors?

California’s governor, Gavin Newsom, recently signed into law AB 5 – the bill that would codify the “ABC test” and make most workers employees if they perform the same services for a business that the business provides to its customers. For example, Uber and Lyft drivers perform the transportation services those companies provide to their customers. Under the ABC test, these drivers must be classified as employees. [UPDATE (11/2020): Following passage of Prop 22 drivers for app based driving services, including Uber and Lyft, will be independent contractors]

This is, of course, a major concern for trucking companies that hire owner-operator drivers as independent contractors. If you are a trucking company, the people that drive trucks for you will be your employees under the new law. So does that make the owner-operator model illegal? Not necessarily.

In Alvarez v. XPO Logistics Cartage, (C.D. Cal. Nov. 15, 2018), the defendant challenged the ABC test on the grounds that it was preempted by the Federal Aviation Administration Authorization Act (“FAAAA”). The FAAAA provides that states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier.” The Federal District court agreed, and found the ABC test preempted.

Here, the question is not whether the FAAAA preempts California wage orders; rather, it is whether the ABC test—used to interpret the wage orders—is preempted. … [W]hile the Ninth Circuit declined to affirmatively address whether the ABC test was preempted by the FAAAA, it nevertheless distinguished the two standards, noting that “the ABC test may effectively compel a motor carrier to use employees for certain services because, under the ABC test, a worker providing a service within an employer’s usual course of business will never be considered an independent contractor.” The Court agrees with this dicta and finds that the ABC test—as adopted by the California Supreme Court—”relates” to a motor carrier’s services in more than a “tenous” manner and is therefore preempted by the FAAAA.

So does that settle the matter? Unfortunately, no. Other Federal courts have come to the opposite conclusion on the same issue, and it will thus need to be resolved by the Ninth Circuit and possibly the U.S. Supreme Court.