AB 5 hit with collection of challenges from range of industries

Less than 72 hours old, the employee-presumptive Assembly Bill 5 already faces several legal challenges from industries opposed to reclassifying independent contractors.

U.S. District Judge Roger T. Benitez of San Diego granted a temporary restraining order against AB 5 for truck drivers who were set to become employees beginning Wednesday. The filing was made late on New Year's Eve.

On the same day, lawyers for the American Society of Journalists and Authors and the National Press Photographers Association filed an ex parte motion, requesting U.S. District Judge Philip S. Gutierrez also enjoin AB 5 on their behalf, court documents show. American Society of Journalists and Authors v. Becerra, 19-CV10645 (C.D. Cal., filed Dec. 17, 2019).

Lawyers for Uber Technologies Inc. and Postmates Inc. requested an injunction in a suit filed Monday against the state and Attorney General Xavier Becerra, claiming AB 5 violates several portions of the U.S. and state Constitutions. Olson v. California, 19-CV10956 (C.D. Cal., filed Dec. 30, 2019).

"Challenges to legislation are not uncommon, especially when you have something as significant as AB 5," said Mike Arias of Arias Sanguinetti Wang & Torrijos LLP in Los Angeles. "With [restraining orders], it just depends on if the judge feels it's necessary."

Arias said a compelling argument could persuade a judge to grant the order, effectively bringing the required reclassification to a standstill.

"It was intended to protect truckers, so they can get paid for what they do," Arias said. "But who knows? They could come up with a creative argument."

In granting the temporary restraining order, Benitez wrote the California Trucking Association "carried their burden for purposes of emergency relief" by showing the merits of its argument and the likelihood of irreparable harm if subjected to reclassification. California Trucking Association v. Becerra, 18-CV02458 (S.D. Cal., filed Oct. 25, 2018).

In the motion, attorneys for the association argued Prong B of AB 5's "ABC" test is preempted by the Federal Aviation Administration Authorization Act of 1994, which prohibits states from enacting or enforcing any law, regulation or provision that affects the "price, route or service of any motor carrier ... with respect to the transportation of property."

If the argument holds, the association will have negated Prong B, which many consider the biggest hurdle to classifying workers as independent contractors via the now-codified "ABC" test originally set in Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856.

According to the test, workers qualify as contractors under Prong B if the work they perform "is outside the usual course of the hiring entity's business."

"Plaintiffs have shown that [AB 5's] Prong B is likely preempted by the FAAAA because [AB 5] effectively mandates that motor carriers treat owner-operators as employees, rather than as the independent contractors that they are," Benitez wrote in his order. "In other words, because contrary to Prong B, drivers perform work within 'the usual course of the [motor carrier] hiring entity's business,' drivers will never be considered independent under California law."

But that's the point, said Arias. Lawmakers reviewed the trucking industry extensively prior to exempting dozens of professions in AB 5 and determined truck drivers did not qualify.

"I don't know if the challenge is going to work," Arias said. "In trucking, there's only one business you're employed in, and if you're a trucker who works for one employer, that's going to be hard to argue."

While restraining orders are a common tactic, the fact various companies and industry groups are issuing the challenges -- rather than responding to a plaintiff's claim -- is surprising, said Koray J. Bulut, a partner in Goodwin Procter LLP's employment group in San Francisco.

Bulut said he advised clients who use but don't rely on contractors to take a "wait-and-see" approach to AB 5's rollout. But he understands why "gig" or on-demand companies like Uber, Lyft and Postmates with majority-contractor work forces would take the initiative.

"These arguments probably would have percolated through the course of civil litigation when [the companies] are sued," Bulut said. "But for on-demand companies, [contractors] are essential to their business model, so they need to get ahead of it. They're not going to wait."