California ABC Test Not FAAAA-Preempted

Seyfarth Shaw LLP

Seyfarth Synopsis: In a case involving motor carriers, the California Court of Appeal has held that the FAAAA (Federal Aviation Administration Authorization Act of 1994) does not preempt the ABC employment test California adopted in AB 5.  

The Facts

In January 2018, the State of California sued several motor carriers that contracted with owner-operator trucker drivers, alleging that the motor carriers had misclassified the owner-operators as independent contractors. The lawsuit claimed that the owner-operators should be treated as employees under the traditional Borello test, a multi-factor test that the California Supreme Court used in 1989 to determine whether a worker is an independent contractor.

Shortly after the complaint was filed, the California Supreme Court decided Dynamex, which adopted the ABC test to determine whether a worker is an independent contractor. Thereafter, Governor Newsom signed AB 5 into law, which codified the ABC test, in Labor Code section 2750.3. The new law provided that workers must be classified as employees unless:

(A) the worker is free from the control and direction of the hiring entity,

(B) the worker performs work that is outside the usual course of the hiring entity’s business, and

(C) the worker is customarily engaged in an independently established trade, occupation, or business.

Thereafter, on September 4, 2020, Governor Newsom signed AB 2257 into law, which amended AB 5 to provide for certain exceptions for which a business can qualify for evaluation under the Borello test rather than the ABC test.

Following the enactment of AB 2257, the parties in the motor carrier case disagreed as to whether the ABC test or the Borello test applied to classification of the owner-operators. The motor carriers claimed that the FAAAA preempts the ABC test, thereby requiring the court to apply the Borello test. When the trial court sided with the motor carriers, the People petitioned for a writ of mandate.

The Court of Appeal’s Decision

At issue on appeal was whether the FAAAA preempts California’s ABC test as applied to motor carriers hiring owner-operators as independent contractors. The Court of Appeal concluded that the FAAAA does not preempt the ABC test, because, in enacting the FAAAA, Congress intended to prevent state regulatory laws that have either a direct or indirect connection to, or impact on, carrier prices, routes, or services, and because nothing in the legislative history revealed an intent to undermine state wage and labor laws or other laws of general applicability.  The ABC test, according to the Court of Appeal, is a law of general application and not one that relates to carrier prices, routes, or services. As such, AB 5 is not the type of law that Congress meant to preempt with the FAAAA. The Court of Appeal thus held that because the FAAAA did not preempt the ABC test, analysis of whether the motor carriers misclassified the owner-operators must proceed under the ABC test instead of the Borello test.

What This Case Means to Employers

The motor carriers likely will appeal the appellate court’s ruling. In the meantime, companies whose operations are implicated by the FAAAA, such as motor carrier or other transportation companies, should be especially careful when deciding whether to classify truck drivers as independent contractors, as the ABC test can be far more harsh than the Borello test.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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