The Infamous 9th Circuit Court in California ruled that AB5 is NOT preempted. An appeals court panel has reversed a lower court’s preliminary injunction protecting California’s trucking industry from the state’s onerous AB5 law, a law which many believe virtually eliminates the traditional trucking owner operator model in the state. In January 2020, the U.S. District Court issued a preliminary injunction blocking California from enforcing Assembly Bill 5 (AB5) on motor carriers and independent owner operators conducting business in the state.
AB5 codified into state law a previous California Supreme Court decision setting forth an “ABC” test in determining whether a worker is an employee or an independent contractor. That test says a worker is an employee unless it can be certified that: A) 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; B) the worker performs work that is outside the usual course of the hiring entity’s business; and C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
The “B” prong, as it’s called, is basically the sticking point for trucking. It’s hard to argue that delivering freight is “outside the usual course” of the motor carrier’s business. The California Trucking Association challenged AB5, contending that the law is preempted by the supremacy and commerce clauses in the U.S. Constitution and is in direct conflict with the Federal Motor Carrier Safety Act and the Federal Aviation Administration Authorization Act of 1994 (part of the FAAAA bans states from enacting laws that affected a motor carrier’s prices, routes and services).
On April 28, the U.S. Court of Appeals for the 9th Circuit ruled that California Trucking Association was unlikely to succeed on the merits with respect to its claim that AB5 is preempted by FAAAA. “As a result, the injunction CTA had obtained from the district court against enforcement of AB5 against motor carriers is overturned and will be dissolved in the near future,” said the transportation attorneys at Scopelitis, Garvin, Light, Hanson & Feary in a news alert.
A panel of the court held that application of AB5 to motor carriers is NOT preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAAA). The panel 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,” wrote Judge Sandra S. Ikuta. Dissenting, Judge Mark Bennett wrote that AB5 not only affects a motor carriers’ relationship with their workers, but it also significantly impacts the services motor carriers are able to provide to their customers, and, for these reasons, it is preempted as applied to California Trucking Association’s members.
The lifting of the preliminary injunction is not immediate, explained the Scopelitis attorneys. The parties have 14 days to seek rehearing and up to 150 days to petition the U.S. Supreme Court. “The injunction will be lifted seven days following the expiration of time to request a rehearing or following a denial of a request for rehearing or may be stayed upon further petition of the parties (for example, if the parties are seeking review by the U.S. Supreme Court). Therefore, it is difficult to predict the precise date when the injunction will be lifted and AB5 can be enforced against motor carriers, although this date could be as early as May 19, 2021.”
Joe Rajkovacz, director of communications for the Western States Trucking Association, has also been closely following this issue, although his group is not part of the CTA’s lawsuit. “One of the things that stood out to me in a quick read (of the decision) was how the 9th Circuit seems to try to differentiate its decision from the decision in the First Circuit where the Massachusetts B prong was preempted,” he told HDT in an interview. “I think it was a real stretch; I think they were trying to inoculate the decision-making process from a SCOTUS challenge. We now have a split between two federal circuits. It’s always been my understanding that’s the number one way the U.S. Supreme Court decides to take up a case to resolve conflicting circuit court decisions,” he said.
The Scopelitis attorneys also noted that “the court strained to explain why pronouncements in earlier 9th Circuit cases addressing whether laws compelling the use of employees were preempted were not binding. A vigorous dissent focused on those earlier cases, suggesting that a law like AB5 can both affect a motor carrier’s relationship with its workers and significantly impact the motor carrier’s services.” In his dissent, Judge Bennett pointed to previous decisions by the court that “all or nothing” rules requiring the use of employees rather than independent contractor drivers are preempted by the FAAAA. One was a decision in favor of the American Trucking Associations that the City of Los Angeles’ imposed concession agreement requiring that motor carriers transition from using independent contractors to employees in order to operate at the Port of Los Angeles.
Other circuit courts, he said, “have also held or signaled that all or nothing rules like California’s ABC test are or should be preempted.” For instance, he said, in Schwann v. FedEx Ground, the First Circuit held that the FAAAA preempts Prong 2 of Massachusetts’ 1-2-3 test, which is similar to California’s ABC test, saying that “Prong 2 would significantly affect how motor carriers provide good and efficient service” by “mandating that motor carriers classify individual contractors as employees,” thereby “significantly impacting the actual routes followed for the pickup and delivery of packages.” The court held that such “regulatory interference” would not be “peripheral” and would “pose a serious potential impediment to the achievement of the (FAAAA’s) objectives because a court, rather than the market participant, would ultimately determine what services that company provides and how it chooses to provide them.”
The California Trucking Association’s next battle against AB5 may be an appeal to the U.S. Supreme Court. “We continue to stand by our initial claim that the implementation of AB5’s classification test is preempted by federal law and is detrimental to the long-standing and historical place California’s 70,000 owner operators have had in the transportation industry,” said Shawn Yadon, CEO of the California Trucking Association. “The CTA will take whatever legal steps are necessary to continue this fight on behalf of independent owner operators and motor carriers operating in California,” Yadon added. Stay tuned!!