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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.

          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 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 (1989). For nearly three decades, California courts have used a test, based on the Borello decision, to determine whether workers are correctly classified as employees or independent contractors. See Id. at 341. 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. 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 (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 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. DISCUSSION

         In support of their motion for preliminary injunction, Plaintiffs argue they are highly likely to show AB-5 is preempted by the FAAAA and by the Dormant Commerce Clause. According to Plaintiffs, unless the Court enjoins Defendants from enforcing AB-5, its members will suffer irreparable injury, including constitutional injuries, as well as enforcement actions imposing civil and criminal penalties. The State Defendants oppose, contending that Plaintiffs are unlikely to succeed on the merits of their claims, that Plaintiffs' delay in seeking injunctive relief undermines their claim of irreparable injury, and that the public interest weighs in the State Defendants' favor. Intervenor-Defendant International Brotherhood of Teamsters opposes on the same grounds as the State Defendants but with the additional contention that Plaintiffs CTA and Odom lack standing.[3] Accordingly, as a threshold matter, the Court first addresses Plaintiffs' standing and then the four elements required for a preliminary injunction.

         A. Article III Standing

         “One of the essential elements of a legal case or controversy is that the plaintiff have standing to sue.” Trump v. Hawaii, 138 S.Ct. 2392, 2416 (2018). To demonstrate Article III standing, a plaintiff must show a “concrete and particularized” injury that is “fairly traceable” to the defendant's conduct and “that is likely to be redressed by a favorable decision.” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547-48 (2016). “At least one plaintiff must have standing to seek each form of relief requested, and that party bears the burden of establishing the elements of standing with the manner and degree of evidence required at the successive stages of the litigation.” City & Cty. of San Francisco v. U.S. Dept. of Homeland Security, 944 F.3d 773, 786-87 (9th Cir. 2019) (internal quotation marks and citations omitted). “At this very preliminary stage, plaintiffs may rely on the allegations in their Complaint and whatever other evidence they submitted in support of their preliminary-injunction motion to meet their burden.” Id. at 787.

         Intervenor attacks Plaintiffs' standing on three grounds, none of which have merit. First, Intervenor argues that Plaintiffs lack standing because they do not establish the ABC test will be used against them, and thus, they do not establish the requisite actual or imminent injury. For the same reasons discussed in the Court's Order granting Plaintiffs' temporary restraining order, the Court disagrees. Plaintiffs have satisfied the imminent injury requirement where, assuming their interpretation of AB-5 is correct, they face the choice of either implementing significant, costly compliance measures or risking criminal and civil prosecution. See, e.g., Cal. Unemp. Ins. Code § 2117; Cal. Labor Code § 1199.5; Cal. Labor Code §§ 226.6 and 226.8. Indeed, as recently as December 23, 2019, Defendants expressly declined to withhold enforcement of AB-5, even for a short time. That is sufficient for standing in a pre-enforcement challenge. See, e.g., Susan B. Anthony List v. Driehaus, 573 U.S. 149, 168 (2014) (finding petitioners in pre-enforcement challenge demonstrated an injury-in-fact sufficient for Article III standing); see also Id. at 158 (“When an individual is subject to [the threatened enforcement of a law], an actual arrest, prosecution, or other enforcement action is not a prerequisite to challenging the law.”).

         Next, Intervenor contends that to show a concrete injury, CTA must definitively show that some of its members' drivers would be classified as independent contractors under the pre-AB-5 Borello classification test. The Court is not persuaded that such proof is required at this very preliminary stage. In other words, Plaintiffs need not show with complete certainty that a CTA member would be harmed by the ABC test but not by the Borello test; rather, plaintiffs “need only establish a risk or threat of injury to satisfy the actual injury requirement.” City & Cty. of San Francisco, 944 F.3d at 787 (quoting Harris v. Bd. of Supervisors, 366 F.3d 754, 762 (9th Cir. 2004) (emphasis in original)). CTA has done so here by claiming that many of its members contract with independent-contractor drivers, who can no longer be classified as independent contractors under the ABC test.

         Regardless, even if CTA were held to the higher standard proposed by Intervenor, CTA would satisfy it. In response to Intervenor's challenge, CTA offers evidence showing that some of its members' drivers have been classified as independent contractors under Borello or tests like Borello.[4] Furthermore, Intervenor's apparent position-that CTA members' drivers will always be classified as employees under Borello and thus, the new ABC test's classification of them as employees cannot harm them-is undermined by the Ninth Circuit's own observations about the two tests. See, e.g., California Trucking Ass'n v. Su, 903 F.3d 953, 964 (9th Cir. 2018) (distinguishing Borello test as “contrary” to ABC tests adopted in other states because under Borello, “[w]hether the work fits within the usual course of an employer's business is one factor among many-and not even the most important one”) (“[T]he Borello standard does not compel the use of employees or independent contractors.”). Accordingly, the Court finds that, at this very preliminary stage, Plaintiffs have carried their burden to show some of its members face the risk of having their drivers, who would be classified as independent contractors under Borello, instead be misclassified as employees under the ABC test.

         Finally, Intervenor argues that CTA lacks “associational standing” because it has not identified any single CTA member who will be injured by use of the ABC test to determine whether drivers are employees. In support, Intervenor cites Summers v. Earth Island Inst., which held that an association has standing to represent its members' interests when “at least one identified member had suffered or would suffer harm.” 555 U.S. 488, 498 (2009). Intervenor further reasons that, if Defendants were enjoined from enforcing the ABC test, employment status would be decided based on the prior Borello test. Thus, again, Intervenor contends that ...


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