California’s anti-AB5 strategy may not work in NJ: attorney

California’s anti-AB5 strategy may not work in NJ: attorney

The legal strategy employed by California truckers against AB5 would carry little weight in New Jersey, according to an attorney who served on the board of the New Jersey Motor Carriers Association. Photo credit: Shutterstock.com.

Two strategies used by California truckers to counter a newly passed law making it tougher for truck drivers to be classified as independent contractors will have a harder go in New Jersey if the state enacts a similar bill, an attorney experienced in trucker classification cases warned. 

California truckers’ legal strategy against Assembly Bill 5 (AB5), based on arguing that the state law is preempted by federal law, would carry little weight in New Jersey, said Salvador P. Simao, a New Jersey attorney and former board member of the New Jersey Motor Carriers Association. That’s because a federal court has already ruled that existing New Jersey rules that are similar to the New Jersey bill — which is less restrictive than the California law on the conditions under which a worker can be classified as an independent contractor — were not preempted under federal law, Simao said.

The strategy employed by some West Coast trucking companies of creating a separate brokerage operation also may not work as a protection for trucking companies in New Jersey, he said. Some California trucking companies believe that a broker relationship, because it is not an employer-worker relationship, will not be subject to classification rules. But a bill passed Thursday and now sitting on New Jersey Gov. Phil Murphy’s desk — if signed — will create joint and individual liability for these types of relationships under state tax and employment laws, he said. 

Legal roadblock

California’s AB5 took effect Jan. 1, the day after a federal judge ruled in a suit filed by the California Trucking Association (CTA) that truckers would be temporarily excluded from the law while a lawsuit filed by truckers to strike the law down is heard.

Similar legislation in New Jersey, S4204, faltered as the current legislative session wound down. But Senate president Steven Sweeney, the bill’s sponsor, has said he is committed to refiling the proposal and passing it in the next legislative session, which begins Tuesday. The bill faced extensive opposition from independent contractors in a variety of industries, and drayage truckers fear the proposal could severely deplete the drayage fleet in the Port of New York and New Jersey, where 77 percent of the trucks are driven by owner-operators. 

The proposals in both states assess the independence of the contractor from the employer, and make it more difficult — impossible, say some opponents — to prove that the worker is a separate entity from the employer. 

Trucker opposition in California, aside from the carve-out in the CTA suit, yielded a second success. A state court in Los Angeles ruled Jan. 9 in an employee classification lawsuit that truck drivers can’t be bound by the California AB5 bill.

Constitutional violation

The CTA suit argues that because the United States deregulated the trucking sector, allowing motor carriers to freely operate in interstate commerce, the state cannot overrule the federal decision and start trying to regulate such commerce.

The CTA suit, filed in October 2018, claims that AB5 is preempted by the supremacy and commerce clauses in the US Constitution and is in direct conflict with the Federal Motor Carrier Safety Act (FMCSA) and the Federal Aviation Administration Authorization Act (FAAA) of 1994. 

In New Jersey, however, “we can't make a preemptive challenge because our law is technically easier to meet,” Simao told JOC.com.

The difficulty in New Jersey lies in the “B-prong” of the so-called ABC test that is used to assess whether the worker does work that is independent of the employer company, and is an unrelated contractor, or an employee. The B-prong in California asks whether “the person performs work that is outside the usual course of the hiring entity’s business.” In New Jersey, the B prong asks a similar question and adds a caveat — if the person provides a service that is “performed outside of all the places of business of the enterprise for which such service is performed.”

The federal Third Circuit Appellate Court held that an earlier version of this additional New Jersey clause means owner operators are not precluded from being contractors and therefore the New Jersey ABC test is not subject to preemption, Simao said. The tighter California language means almost no worker could be classed as an independent contractor, which opens the door for the truckers to argue that the state — through the AB5 law — is interfering with interstate commerce, he said.  

Restructuring the company

California truckers have also sought to hedge their bets against the law by channeling more freight through their brokerage divisions, or looking at that model. The trucking companies, especially drayage companies that contract with dozens of owner-operator drivers, believe that presenting themselves as a middleman to multiple clients and owner-operator drivers will help show they are not employing the owner-operators. 

Two events are necessary to make the freight brokerage model work in harbor drayage: the licensed motor carrier establishes a brokerage operation, and the owner operators — who own their trucks and are contracted by drayage companies — secure operating licenses as Licensed Motor Carriers (LMCs).

“The act of brokering, and property brokering, is not an employer-employee relationship,” said Cameron Roberts, a California trade attorney who works on transportation issues. The relationship centers on a licensed property broker, who “federal law expressly defines as someone who brokers the load to a licensed motor carrier,” he said. “So, if that is a federally permissible sanctioned activity, how is it that federal law can be trumped by California state law redefining what that relationship is?”

Yet Simao said he is skeptical that trucking companies in New Jersey could avoid the impact of the law by creating brokerages, given that the state Department of Labor has in the past refused to accept similar arguments.

In addition, the legislation passed Thursday, S4225, that is now on the governor’s desk, would make employers and labor contractors that violate state wage and hour laws, or anyone acting on their behalf, jointly liable for the violation.  

Currently, vertically integrated companies that rely on each other to operate are very unlikely to be found independent, Simao said. The new legislation broadens this view, making clients potentially liable for their contractor’s misclassification errors, thus reducing their claim to independence, he said.

In order for the broker model to avoid joint employment liability, the broker should contract with several independent motor carriers, and those carriers should operate under their own authority and not that of the brokers, Simao said. In addition, those carriers should be providing services to other independent brokers. If any of those factors are not met, then there could be joint employment liability, he said.

Contact Hugh R. Morley at hugh.morley@ihsmarkit.com and follow him on Twitter: @HughRMorley1.