OOIDA appeal: AB5 will kill off lease drivers, raising Commerce Clause issues

The now five-year timeline of AB5, trucking and the courts starts with an injunction blocking AB5 enforcement by Judge Roger Benitez in the U.S. District Court for the Southern District of California on New Year’s Eve 2019; a divided 9th Circuit ruling overturning that decision in April 2021; and the U.S. Supreme Court in June 2022 rejecting review of the appellate court decision, kicking it back to the same court where in March, Benitez rejected the arguments of the CTA and OOIDA.

The history of the case

After the lower court rejection of the CTA and OOIDA arguments, various trucking sector attorneys doubted the two trade groups would undertake a renewed and possibly expensive legal fight. But they plowed ahead. (The CTA filed the original lawsuit. OOIDA was added as a plaintiff in September 2022.)

A few months after the Supreme Court’s denial of review, AB5 was implemented in the state’s trucking sector. It had become law at the start of 2020, albeit with a long list of exemptions. (Gig workers earned their exemption through Prop 22, which has now been upheld in state court).

Observers have noted that there are no known public enforcement efforts by the state’s Employment Development Department against any trucking companies for AB5 violations, although the department did hold a forum two years ago on its plans for enforcement. 

OOIDA’s argument in its latest brief focuses on the Dormant Commerce Clause of the Constitution. As the Constitutional Law Reporter defined it and the better-known Commerce Clause, “the Commerce Clause allows laws passed by the federal government to override state laws that affect interstate commerce. The Dormant Commerce Clause automatically invalidates a protectionist state law, whether or not the federal government has legislated on the issue.”

OOIDA begins its argument with a stark statement that was not quite as explicit in earlier CTA filings: It is impossible for a leased owner-operator to continue in that role in California under AB5.

“[AB5] effectively prohibits an entire sector of small business truckers from operating in California: individual truck owners and operators who lease their truck and driving services to move freight as independent contractors for motor carriers,” OOIDA argues in its brief. “Because leased owner-operators’ work is within motor carriers’ usual course of business — moving freight by truck — they cannot work as independent contractors for motor carriers under the ABC test.”

That argument, as it always has for the trucking sector, comes back to the B prong of the ABC test that provides one of the standards for when a worker can be considered independent: if the work is “outside the usual course of the hiring entity’s business.” An independent owner-operator driving a truck while leased on to a carrier would have difficulty meeting that test.

Maligned B2B Exception takes center stage in OOIDA arguments

AB5 also contains the B2B exception, a 12-part test that needs a passing grade of 100% to enable an independent contractor in any industry who might otherwise be viewed as misclassified under the ABC test to be viewed as truly independent. But since its inclusion in the law, critics have said its many tenets would be largely impossible to meet given that use of the exception to define a worker as independent requires all 12 tests to be met. (There is some disagreement over how many steps there are in the exception, but OOIDA cited 12.)

OOIDA’s brief says the rules surrounding the B2B exemption effectively apply only to California trucking companies, which it says puts the exception in conflict with the Dormant Commerce Clause. It sees conflicts between the exception and federal leasing laws.

“As a matter of plain language and simple logic, owner-operator drivers cannot be ‘free from the control and direction’ of the motor carrier necessary to qualify for AB5’s B2B exemption while their equipment and operation of that equipment is under the ‘exclusive possession, control, and use of their motor carrier,’” OOIDA argues, citing phrasing contained in federal leasing law. 

The inconsistency between the exemption and federal leasing laws, OOIDA said, “discriminates against interstate commerce and favors California domestic interests in violation of the Dormant Commerce Clause.”

Additionally, OOIDA argues, “because there is no rational basis for the B2B exemption’s disparate treatment of interstate California truckers and truckers operating in interstate commerce, AB5 violates the Equal Protection clause of the U.S. and California Constitutions.”

Although the question of federal preemption of state law through the Federal Aviation Administration Authorization Act does not come up in the OOIDA brief – that argument is considered dead given earlier decisions – OOIDA raises the federal versus state issue.

OOIDA argues that court precedents on the Dormant Commerce Clause would block a state law that regulates “even-handedly but [imposes] a burden on interstate commerce that clearly exceeds the law’s putative benefits.”

There are no benefits from imposing AB5 in trucking, OOIDA argued. “There is no burden, cost, or regulatory hurdle that an independent contractor can take on, pay for, or overcome to keep their small business as a leased owner-operator,” OOIDA argues, keeping with a constituent theme that leased owner-operators will be wiped out in the Golden State by AB5.

Given what OOIDA deems a lack of benefits to AB5 governing the trucking sector as well as the issues it raises on the B2B exemption burdening interstate commerce, it calls for the appeals court to overturn the lower court decision.

Borello is adequate

OOIDA’s brief also suggests AB5 does not significantly aid the cause of workers who might have an argument that they were misclassified. What governed California law before, as well as in many states, is the Borello standard, based on a 1989 decision that is generally seen as leaning toward defining a worker as an employee rather than an independent contractor, similar to AB5. But AB5 and the ABC test are considered more stringent.

Adding this all up, OOIDA argues, means that “the burden to leased owner-operators — the loss of their small businesses (or being cut off from any business moving freight in California) — clearly exceeds the minimal, illusory, or nonexistent benefit to the State of applying AB 5 to them.”

In making its argument that AB5 would essentially destroy leased owner-operators in California, OOIDA raised the conventional argument for how an independent owner-operator could continue to operate independently even if a lease were shut off as an option: Get motor carrier authority from the Federal Motor Carrier Safety Administration.

OOIDA said that isn’t all that easy. 

“Neither employee drivers nor drivers with motor carrier operating authority do the same work or run the same type of business as leased owner-operators,” it said in its brief. “[California] incorrectly mischaracterizes employee drivers, leased owner-operators, and motor carriers as simply interchangeable truck driving jobs.”

In a separate section, OOIDA said “the acquisition of federal motor carrier authority and the attendant increase in professional and regulatory responsibilities are not necessarily within a leased owner-operator’s experience or abilities.”

Further briefs are expected to be filed soon by the CTA as well as the state’s Attorney General office.

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