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January 9, 2020 12:45 PM, EST

California Judge Rules Federal Law Exempts NFI From AB 5

NFINFI trucks. (NFI Industries)

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A California state judge has ruled that federal law exempts a New Jersey-based motor carrier from a new California law that calls for reclassifying independent contractor truck drivers as company employees.

The Jan. 8 ruling by Los Angeles Superior Court Judge William Highberger said that an independent contractor/employee test required by the new state law, known as Assembly Bill 5, is preempted by the Federal Aviation Administration Authorization Act of 1994, aimed at increasing competition and reducing the cost of trucking services.

“The record before the court in this case confirms the commonsense conclusion that AB 5 would have a substantial impact on trucking prices, routes and services, as motor carriers in California revamp their business models either to utilize only employee drivers or attempt to satisfy the business-to-business exception,” Highberger 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.”

AB 5 Ruling, William Highberger by Transport Topics on Scribd

Highberger’s ruling comes in a lawsuit filed by the Los Angeles City Attorney’s office against NFI Industries and its subsidiaries, drayage operator Cal Cartage Transportation Express, CMI Transportation, and K&R Transportation California, for alleged misclassification of truck drivers under AB 5.

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NFI is a Camden, N.J.-based business that includes transportation operations in California. NFI operates approximately 50 million square feet of warehouse and distribution space, and its company-owned fleet consists of more than 3,000 tractors and 12,500 trailers.

NFI ranks No. 19 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.

California’s AB 5 “ABC test” requires that motor carriers render their workers employees unless the employer demonstrates that the worker is free from the control of the hiring entity; the worker performs work outside the usual course of the hiring entity’s business; and that the worker is customarily engaged in an independent trade or occupation.

The second part of the three-prong test is the one that carriers say they have found next-to-impossible to demonstrate.

Highberger’s ruling comes only days after a federal judge in California temporarily halted the AB 5 law’s application to trucking in a lawsuit filed by the California Trucking Association.

READ MORE: Federal Judge Issues TRO Against Enforcement of California AB 5

Judge Roger Benitez from the Southern District Court of California on Dec. 31 issued a temporary restraining order against the implementation of AB 5. The legislation was set to take effect on Jan. 1.

Benitez’s TRO is set to remain in effect until Jan. 13, when he is scheduled to hold a hearing on a plaintiff’s motion to seek a preliminary injunction against the law.

Highberger points out that his finding of preemption “does not mean that these cases will cease.”

Benetiz

Benitez

He concedes that the question of whether the FAAAA preempts the ABC test “is a controlling question of law as to which there are substantial grounds for difference of opinion, appellate resolution of which may materially advance the conclusion of the litigation.”

State and federal court rulings on the ABC test have been conflicted.

A spokesman for the Los Angeles City Attorney’s Office says it intends to appeal the decision regarding NFI.

“Independent owner-operator truck drivers have been a vital part of the trucking industry, and a path to achieving the American dream, for many decades,” said NFI attorney Joshua Lipshutz of the Los Angeles firm Gibson Dunn. “Judge Highberger’s decision confirms that California cannot simply eliminate that business model and force truck drivers to be employees. This is a win for trucking companies and independent truckers nationwide.”

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