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California Trucking Association v. Becerra

United States District Court, S.D. California

January 16, 2020

CALIFORNIA TRUCKING ASSOCIATION, et al., Plaintiffs,
v.
Attorney General Xavier BECERRA, et al., Defendants, International Brotherhood of Teamsters, Intervenor-Defendant.

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          Robert R. Roginson, Alexander Miller Chemers, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., Los Angeles, CA, Spencer C. Skeen, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., San Diego, CA, for Plaintiffs.

          Jose A. Zelidon-Zepeda, California Department of Justice, San Francisco, CA, for Defendants.

         ORDER GRANTING PRELIMINARY INJUNCTION

         HON. ROGER T. BENITEZ, United States District Judge.

         Plaintiffs California Trucking Association, Ravinder Singh, and Thomas Odom move for a preliminary injunction. Having carefully considered the parties' arguments, the motion is GRANTED.

         I. BACKGROUND

         The following facts are taken from the Second Amended Complaint and the declarations filed related to Plaintiffs' preliminary injunction motion.[1] Plaintiff

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California Trucking Association ("CTA") is an association of licensed motor-carrier companies that manage, coordinate, and schedule the movement of property throughout California. Many of CTA's motor-carrier members contract with owner-operators as independent contractors. Plaintiff Ravinder Singh is one example. He owns and operates his own truck, and he contracts as an independent contractor with different motor carriers and brokers in California to perform various trucking services. Plaintiff Thomas Odom also owns and operates his own truck. He contracts as an independent contractor with a national motor carrier to haul property within California and between California and Texas.

         For decades, the trucking industry has used an owner-operator model to provide the transportation of property in interstate commerce. That model generally involves a licensed motor carrier contracting with an independent contractor driver to transport the carrier-customer's property. The volume of trucking services needed within different industries can vary over time based on numerous factors. For example, in the agriculture industry, demand for trucking services varies depending on the time of year, the price at which the produce can be sold, the available markets, the length of the growing season, and the size of the crop, which itself varies based on temperature, rainfall, and other factors. Motor carriers offer many types of trucking services, including conventional trucking, the transport of hazardous materials, refrigerated transportation, flatbed conveyance, intermodal container transport, long-haul shipping, movement of oversized loads, and more. Motor carriers meet the fluctuating demand for highly varied services by relying upon independent-contractor drivers.

         Individual owner-operators use a business model common in both California and across the country. They typically buy or lease their own trucks, a significant personal investment considering that the record reflects a single truck can cost in excess of $100,000. See, e.g., Doc. 54-2 at 5. Then, the owner-operators typically work for themselves for some time to build up their experience and reputation in the industry. Once the owner-operator is ready to expand their business, they contract for or bid on jobs that require more than one truck, at which time, the owner-operator will subcontract with one or more other owner-operators to complete the job. Many individual owner-operators have invested in specialized equipment and have obtained the skills to operate that equipment efficiently.

         Whether certain laws and regulations in the California Labor Code apply to truck drivers, generally, depends on their status as employees or independent contractors. S.G. Borello & Sons, Inc. v. Dep't of Indus. Relations, 48 Cal.3d 341, 350, 256 Cal.Rptr. 543, 769 P.2d 399 (1989). For nearly three decades, California courts have used a test, based on the Borello decision, to determine whether workers

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are correctly classified as employees or independent contractors. See id. at 341, 256 Cal.Rptr. 543, 769 P.2d 399. The Borello standard considers the "right to control work," as well as many other factors, including (a) whether the worker is engaged in a distinct occupation or business, (b) the amount of supervision required, (c) the skill required, (d) whether the worker supplies the tools required, (e) the length of time for which services are to be performed, (f) the method of payment, (g) whether the work is part of the regular business of the principal, and (h) whether the parties believe they are creating an employer-employee relationship. Id. at 355, 256 Cal.Rptr. 543, 769 P.2d 399. In April of 2018, the California Supreme Court replaced the Borello classification test for Wage Order No. 9 with the "ABC test." Dynamex Operations West v. Superior Court, 4 Cal. 5th 903, 232 Cal.Rptr.3d 1, 416 P.3d 1 (2018).

         California's Assembly-Bill 5 ("AB-5") codified the ABC test adopted in Dynamex and expanded its reach to contexts beyond Wage Order No. 9, including workers' compensation, unemployment insurance, and disability insurance. As applied to the motor carrier context, AB-5 provides a mandatory test for determining whether a person driving or hauling freight for another contracting person or entity is an independent contractor or an employee for all purposes under the California Labor Code, the Industrial Welfare Commission wage orders, and the Unemployment Insurance Code. See Cal. Labor Code § 2750.3(a)(1). Under AB-5's ABC test, an owner-operator is presumed to be an employee unless the motor carrier establishes each of three requirements:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity's business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

AB-5 also includes certain exceptions that were not part of the Dynamex test, including an exception for "business-to-business contracting relationship[s]."[2] Id. at § 2750.3(a)(1)(e). The statute additionally provides that "[i]f a court of law rules that the three-part [ABC] test ... cannot be applied to a particular context" due, for example, to federal preemption, "then the determination of employee or independent contractor status in that context shall instead be governed by [Borello]." Id. at § 2750.3(a)(1)(3).

         On September 18, 2019, California Governor Gavin Newsom signed AB-5 into law. AB-5 went into effect on January 1, 2020. On December 2, 2019, Plaintiffs filed their motion for a preliminary injunction with a hearing set for December 30, 2019. When the Court continued the hearing to January 13, 2020, Plaintiffs filed a motion for a temporary restraining order on December 24, 2019. After considering the parties' arguments in their briefing, the Court granted the temporary restraining order and

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enjoined Defendants from enforcing AB-5 as to any motor carrier operating in California until this Court's resolution of Plaintiffs' motion for a preliminary injunction. On January 13, 2020, the Court heard argument on Plaintiffs' motion for a preliminary injunction. At the hearing, the Court extended the temporary restraining order until the date of the Court's decision on Plaintiffs' motion. For the following reasons, the Court finds a preliminary injunction is warranted.

         II. ...


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