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June 5, 2019 3:30 PM, EDT

California Legislation to Codify ABC Employee-Contractor Test Gains Approval of State Assembly

Bill Awaits Action by the Senate
Trucks on highway Trucks on California highway by City of Industry

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Legislation has passed in California’s State Assembly that would mandate use of the so-called “ABC test” that legal experts say makes it extremely difficult, if not impossible, for motor carriers to use independent contractors.

If passed by the state Senate, the bill would codify in the state’s labor code a groundbreaking decision last year by the California Supreme Court in the Dynamex Operations West v. Superior Court of Los Angeles case that sets the test to determine if a worker is an employee or independent contractor.

Fuel Tax Hike Repeal

Yadon

“We have been opposed to the legislation since it was introduced back in December,” said Shawn Yadon, CEO of the California Trucking Association. “But I would tell you that CTA has been engaged in ongoing discussion with the author and proponents of the bill trying to see if there’s a pathway where independent truck drivers could continue to operate as independent contractors.”

Yadon said the bill is expected to be taken up by a Senate committee in about a month.

California Trucking Association is fighting the ABC test in an ongoing legal challenge to the state Supreme Court decision in the U.S. District Court for the Southern District of California, and has pledged to appeal the case if unsuccessful in the district court.

“It’s hard to talk about Assembly Bill 5 without talking about our challenge to the Dynamex decision because the whole premise of our federal lawsuit is the fact that there is federal pre-emption to the Federal Aviation Administration Authorization Act of 1994 as it relates to interstate commerce that a state law cannot interfere with rates, routes or services,” Yadon told Transport Topics.

The three-pronged ABC test dictates that a worker is considered an independent contractor if he is free from the control and direction of the hiring entity, performs work that is outside the usual course of the hiring entity’s business, and is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

It is the second or B prong of the test that is most troublesome to motor carriers. “It makes it virtually an impossible hurdle to clear for those drivers that want to continue to operate independently and as an entrepreneur,” Yadon said.

The Dynamex decision cited harm to misclassified workers who lose significant workplace protections, unfairness to companies that compete with companies that misclassify workers, and the loss to the state of revenue for employers who avoid payment of payroll taxes, premiums for workers’ compensation, Social Security, unemployment and disability insurance, according to the legislative counsel’s analysis of AB5.

Greg Feary, managing partner of the Indianapolis-based trucking law firm of Scopelitis, Garvin, Light, Hanson & Feary, said he believes the bill is moving “undeterred” for approval in the state Senate.

Although the state Supreme Court Dynamex decision already is the current California state law, AB5 would expand the law to apply to all aspects of the state labor code as well as the unemployment tax, Feary told TT.

“By no means is AB5 good for trucking,” Feary said.

“While the Dynamex case is a bit more narrow, so far it certainly doesn’t apply to workers’ compensation,” Feary said. “The one thing AB5 does is it broadens the application of the ABC test into a lot of areas of the law in California. It still has the potential to be pre-empted by the FAAAA.”

There are two federal district courts that have recognized that Dynamex went too far in using the ABC test, he said.

Those two cases Feary referred to include Angel Omar Alvarez v. XPO Logistics Cartage in the federal Central District of California, and Miguel Valadez v. CSX Intermodal Terminal Inc. in the Northern District of California.

Feary said that in the Alvarez case the court said it doesn’t believe the underlying law is pre-empted by FAAAA, but that using the ABC test is pre-empted by federal law.

In the Valadez case the court said it didn’t think the ABC test was pre-empted by federal law, but that the B prong of the test is pre-empted, Feary said.

But if the California Trucking Association lawsuit prevails in declaring the ABC test pre-empted by federal law, the AB5 law would “be in peril,” he added.