JANUARY 10, 2020 - ALEXANDRIA, VA - In a huge victory for trucking companies and the transportation industry, Los Angeles Superior Court Judge William Highberger ruled this week that California Assembly Bill 5 (AB5) is preempted by federal law. In his ruling, Judge Highberger wrote that the statute (and the Supreme Court decision it reflects) “clearly” runs afoul of the Federal Aviation Administrative Authorization Act of F4A, which prohibits States from enacting or enforcing policies related to “price, route, or service of any motor carrier.”

The State of New Jersey is in the midst of enacting its own law similar to AB5, and this decision will potentially have a positive impact on New Jersey and any other additional States that attempt to shift away from the independent contractor model.

The law, which took effect January 1, 2020, broadly directs companies to categorize many of their workers as employees rather than independent contractors. Several companies and industry trade associations have sued to block the law or limit its scope, including trucking groups that warn the law would be devastating to drivers who own and operate their vehicles.

The relationship between 3PLs and independent contractors is considered by many industry experts as a gray area because our 3PLs simply “arrange” transportation and the motor carrier would be operating under the B “prong” of the ABC test (the person performs work that is outside the usual course of the hiring entity’s business). Specifically, the motor carrier would be transporting and the 3PL would be arranging.

Industry groups are still monitoring the law to gauge the impact on companies that utilize the “agent-based model” and have independent contractors in the State of California.

Courtesy of TIA Government Affairs