Appellate Court rules Ab5 is not Preempted

On April 28, 2021, the 9th U.S. Circuit Court of Appeals overturned a prior federal court ruling that federal interstate transportation law pre-empted the 2019 enactment of California’s AB5.

As discussed in our February newsletter, AB5 sets forth an “all or nothing” three prong test to determine whether a worker is an employee or independent contractor. Under this “ABC” standard, an individual is an employee unless the worker:

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

Known as California’s “Gig Economy” law, AB5 is one of the most stringent in the country. Many in the trucking industry are most concerned about prong B, in that it may be difficult to prove that picking up and delivering freight is not part of the normal course of business.

In its ruling, the Court held that “because AB5 is a generally applicable labor law that affects a motor carrier’s relationship with its workforce and does not bind, compel, or otherwise freeze into place the prices, routes, or services of motor carriers, it is not preempted by the FAAAA.”

This ruling means that a January 2020 preliminary injunction blocking enforcement of the bill will be lifted. Prior to that, however, both parties may seek a rehearing and/or appeal to the U.S. Supreme Court. With two divided federal decisions, time will tell if this action makes its way to SCOTUS.

For more information or updates on this important issue, please contact Joe Welch at or call 312.339.5601 direct.

There's an end in sight, but we're not there yet.

With an estimated 229 million vaccinations administered in the U.S. as of 4/26/21, along with recent declines in positivity rates and loosening of restrictions in some states, many believe there is a light at the end of the pandemic tunnel.

While positivity numbers may be on the decline, the number of COVID related employment litigation cases continue to rise. Over 2,000 cases were filed in 2020 and an estimated 875 cases have been filed in just the past four months. To date, the majority of the claims center around workplace safety, medical leave and retaliation associated with asserting rights or protection under whistleblower status. With the onslaught of cases expected to continue, employers cannot afford to relax their COVID workplace safety measures.

One recent case of interest concerns employees who work in the field or on site at a third party location. The Plaintiff in Holtzman v. Cleaning Services Corporation, a lawsuit recently filed in Pennsylvania, claims he was wrongfully terminated for objecting to working onsite at a customer’s location. Upon arriving at the site, Holtzman noticed the customer’s employees were not wearing masks and not practicing social distancing. Holtzman then informed his company’s management that he would not work at a facility where COVID precautions were not being followed as he was responsible for caring for an elderly relative. Holtzman claims he was terminated after refusing to work at the offsite location where COVID safety precautions were not being practiced.

This case serves as a reminder that an employer’s duty extends beyond the physical barriers of their own workplace. OSHA’s General Duty Clause states that every employer has a general duty to “… furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees.” A place of employment could include working at a customer’s facility, such as with the aforementioned case, or loading and unloading trailers or performing vehicle maintenance off-site. Dismissing an employee’s COVID safety related complaint due to the fact that it was off-site without proper review and accommodations could potentially lead to costly litigation and/or fines.

For more information or updates, please contact Eric Emerson at or call 312.758.4301 direct.

"The Rock" Solid Case

The U.S. Court of Appeals for the Federal Circuit recently affirmed a lower court’s decision granting summary judgment to the U.S. Army in a recent ruling on a trademark licensing case. The Court held that the U.S. Army did not breach the terms of their contact or any implied duty of good faith or fair dealing when rejecting products submitted for approval by licensee Authentic Apparel Group, LLC.

Following termination of its license in 2014, Authentic Apparel sued the Army for breach of contract. They alleged the Army denied them the right to exploit the goodwill associated with the Army’s trademarks and denied approval for advertising and a clothing line featuring Dwayne “The Rock” Johnson, among other claims. Over the span of four years, the Army approved 459 of 500 product approval requests. Further, the contract gave the Army “sole and absolute discretion” on approving products or marketing materials bearing the Army’s trademarks. Exculpatory clauses exempting the Army from liability for exercising its discretion were also included in the contract.

The Court held that both parties contemplated the terms of the contract and voluntarily decided to include the language regarding broad discretionary approval and exemption from liability. Both contracting parties, therefore, should be held to the terms of the agreement. Furthermore, the fact that the Army approved more than 90% of the product requests was an indication that the Army did not violate its duty of good faith and fair dealing. In identifying this as a contract interpretation case, the Court held that “Authentic could not have contract remorse now and recover damages just because the contract went to its detriment, especially when the Army was in line with its obligations under the plain terms of the agreement.”

An important takeaway from this case is that although the dispute was over a licensing trademark agreement, the Federal Circuit employed the basic principles of contract law and the interpretation and plain language analysis of the contract. Anyone considering entering into a licensing agreement should consult counsel to ensure the language adequately protects their interests and to help stave off any potential “contract remorse.”

For more information about licensing agreements or other Entertainment Law issues, please contact Eric Emerson at or call 312.758.4301 direct.

A Retread on an Old Bill?

On April 15, 2021, Illinois Representative Jesús “Chuy” García reintroduced a bill seeking to increase the minimum insurance requirements for motor carriers. The bill seeks an initial adjustment to a rate as high as $2.0 million, with additional adjustments every five years to account for inflationary costs associated with medical care.

First introduced in 2019, the "Insurance Act" sought to adjust the minimum insurance requirement of $750,000 for motor carriers. The minimum had been in effect since 1980, with no accommodation for inflation. At the time, a version of the original bill was included in the House approved amendment to the INVEST Act, as well as in the Moving Forward Act in 2020. To date, neither bill has been approved by the Senate.

Positioned as a way to improve highway safety, proponents of the bill include various highway safety groups who feel this adjustment, as well as future inflationary adjustments, are long overdue and will provide economic relief for accident victims and their families who they say are often faced with insurmountable medical bills.

Transportation groups, including the Owner-Operator Independent Drivers Association (OOIDA), believe the substantial increase in rates will cause many small businesses and owner operators to go out of business. They also question the bill sponsor’s claim that increased premiums will contribute to highway safety. A recent letter issued by the OOIDA cited that there is no correlation between safety and insurance coverage and that “…the vast majority of CMV-caused crashes have relatively small cost consequences, and the costs are easily covered with the limits of mandatory liability insurance.”

The issue of increased minimum insurance requirements was also raised by the Federal Motor Carrier Safety Administration (FMSCA) in April 2014. At the time, the FMSCA announced an advanced notice of rulemaking to consider increasing the financial responsibility for motor carriers, freight forwarders, and brokers. The FMCSA noted that it was within its authority to establish minimum insurance levels for motor carriers at or above the minimum levels set by Congress. Following a nearly 3 year review, however, the FMCSA withdrew its rulemaking stating insufficient data and a lack of substantive rationale to determine if higher insurance levels were needed. The FMSCA noted, however, that the withdrawal did not constitute a determination that an increase in premiums were or were not needed.

This proposed bill is yet another recent development that could result in increased costs for the transportation industry. We will continue to monitor this, as well the DOL’s anticipated final ruling on the proposed withdrawal of the Independent Contractor Status Under the Fair Labor Standards Act (FLSA) rule we addressed in our April newsletter.

For more information or updates, please contact Joe Welch at or call 312.339.5601.

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