LEGISLATIVE UPDATE: Independent Contractor v. Employee

NJ: Proposed Legislation

NJ State House

It was all but certain to pass. New Jersey Governor Phil Murphy was waiting to sign it. Television ads proclaimed its virtues. But the State’s anti-independent contractor bill (similar to California’s AB5) was pulled from the last legislative session. Groups representing independent contractors in myriad occupations made forceful and practical arguments against the bill. Included were freelance writers, musicians, doctors, various independent teachers, truckers, graphic designers, bakers, and others. Many legitimate independent contractor businesspeople prefer the freedom of owning and operating their own businesses. They do not want to be artificially classified as employees, a move they say would harm their businesses. The legislation was re-introduced on January 14th, and referred to the Labor Committees of both the Senate and Assembly. We are watching developments in both New Jersey and New York, which is also considering similar legislation.

CA: Preliminary Injunction Granted

Much to the relief of many, on January 16th, Judge Benitez granted a preliminary injunction to the California Trucking Association, temporarily stopping the enforcement of AB5 upon motor carriers. In his decision, Judge Benitez writes, “…there is little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking. In so doing, California disregards Congress’ intent to deregulate interstate trucking, instead adopting a law that produces the patchwork of state regulations Congress sought to prevent. With AB-5, California runs off the road and into the preemption ditch of the FAAAA.”

CA Federal Court Restrains Enforcement of “ABC Test” for Motor Carriers

Edward J. Schwartz United States Courthouse

A federal district court in southern California issued a temporary restraining order on New Year’s Eve barring the enforcement of the state’s Assembly Bill 5, set to go into effect on New Year’s Day. AB 5 adopted the “ABC test” to determine if a particular worker is an independent contractor or an employee. The test hits particularly hard on the motor carrier industry, because many trucking companies use legitimate independent contractors – owner-operators – as part of their business model. The court’s decision was compelled largely because under the Federal Aviation Administration Authorization Act (“FAAAA”), states are not to enact or enforce their own laws related to a price, route, or service of any motor carrier regarding transportation of property. The TRO applies only to the motor carrier industry.

The ABC test presumes that a worker is an employee, not an independent contractor. The hiring party can rebut that presumption only if it can establish each of three factors:

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

Rebutting the presumption is virtually impossible for a motor carrier, because it cannot meet Prong B. The owner-operator will always be within, not outside, the usual course of business of the hiring motor carrier. Thus, the California Trucking Association and several members of the industry brought the legal challenge.

Judge Benitez granted the TRO, holding that the plaintiffs had met their burden to show 1) they are likely to succeed on the merits, 2) they are likely to suffer irreparable harm in the absence of relief, 3) the balance of the equities tips in their favor, and 4) the requested relief is in the public interest.

Although this is a very preliminary victory, it signals what may come from Judge Benitez on the motion for a preliminary injunction and, ultimately, the outcome of the case at the trial level. There is still a long road to travel, but this outstanding beginning sends a signal to the states that the Congress has a preemptive role in motor carriers’ business regulation. Notably, New Jersey has just enacted legislation adopting the ABC test, and for the same reasons as are evident in California. Will New Jersey’s legislation, too, be found to interfere with Congressional regulation of motor carriers? We will be watching.