While a request for Supreme Court review of the Ninth Circuit Court of Appeals decision to overturn an injunction banning enforcement of California’s AB5 will almost certainly follow, at this time, motor carriers who operate in California must be prepared to act in accordance with AB5. (Photo: Shutterstock)
The Ninth Circuit Court of Appeals (which oversees California, Oregon, Washington, Arizona, Nevada, Idaho, Montana, Alaska, and Hawaii) recently overturned an injunction banning the enforcement of California’s AB5, which involves the factors and tests for determining independent contractor status in California. With this ruling, the Ninth Circuit has allowed the State of California and its agencies to being enforcement of AB5 against motor carriers.
Background
In 2019, California passed into law Assembly Bill 5 (“AB5”) which established the presumption that workers are employees unless: (A) the worker is free from the control and direction of the hiring entity; (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. As you may recall, at that time we informed readers of the dangers of AB5 and the negative impact it could have on the trucking industry, particularly those motor carriers who utilize owner-operators and independent contractors. Shortly after AB5 was passed, we applauded the district court’s decision enjoining the State of California from enforcing AB5, and provided readers with an update on this development. This law is back in the limelight, with the Ninth Circuit’s decision overturning the district court injunction.
District Court Case
When AB5 was challenged in court, the federal district court held that AB 5’s ABC test eliminates the historical owner-operator model, in direct contravention of the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”), and granted an injunction preventing the enforcement of AB5. The FAAA is a federal deregulation measure with broad preemption characteristics that forbids any state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” The district court found that the FAAAA “likely preempts ‘an all or nothing’ state law like AB 5,” which has categorical applications. The district court concluded, “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.”
Appellate Court Case
On appeal, the Ninth Circuit disagreed. The Ninth Circuit held that AB5 was not preempted by the FAAAA because AB5 is “a generally applicable labor law that impacts the relationship between [a] motor carrier and its workforce, and does not bind, compel or otherwise freeze into place a particular price, route, or service of a motor carrier at the level of its customers[.]” The Ninth Circuit went on to hold that AB5 “merely” affects the classification of workers, and any potential increase on motor carriers’ costs of doing business would represent only an indirect, remote, or tenuous relation to prices, routes, and services offered, because the law only affects the carrier’s relationship with its workforce, not its consumers. The Ninth Circuit concluded that AB5 can be differentiated from laws that would “compel[] a motor vehicle carrier to a certain result in its relationship with consumers, such as requiring a motor carrier ‘to offer a system of services that the market does not provide’ or that ‘would freeze into place services that carriers might prefer to discontinue in the future,’ and ‘that the market would not otherwise provide.’” On these bases, the Ninth Circuit found that AB5 was not preempted and, by extension, the injunction against AB5’s enforcement was improper.
Takeaway
While a request for Supreme Court review of this decision will almost certainly follow, at this time, motor carriers who operate in California must be prepared to act in accordance with AB5. Once the injunction is formally lifted by the district court (which is expected to come sooner than later), the State of California and its agencies will be free to enforce AB5, unless and until the Supreme Court (or a full Ninth Circuit) says otherwise. All motors carriers, but particularly those who utilize the owner-operator model and are operating in California, should carefully reevaluate the classification of their drivers in light of these developments.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.