Federal court rules California's AB 5 applies to trucking, dealing blow to owner-operator model in state

The Ninth Circuit Court of Appeals overturned a lower court  injunction that had exempted the trucking industry from California’s  AB 5 law. The injunction could be lifted as soon as May 19, 2921. 

The leased owner-operator model in California suffered a severe blow  Wednesday as the Ninth Circuit Court of Appeals reversed an  injunction that had exempted the trucking industry from state’s AB 5  law and the ABC test for determining validity of any independent  contractor classification. 

Transportation specialists Scopelitis, Garvin, Light, Hansen and Feary  said the California Trucking Association has 14 days to seek rehearing  and up to 150 days to appeal with the U.S. Supreme Court. Scopelitis  added that the injunction will be lifted either seven days after the  expiration of time to request a rehearing or following a denial of a  request for rehearing. Or it could be stayed upon further petition of  CTA, such as if CTA seeks review by the U.S. Supreme Court. 

"Therefore, it is difficult to predict the precise date when the  injunction will be lifted and AB 5 can be enforced against motor  carriers, although this date could be as early as May 19," Scopelitis  said. 

Small fleet owner Jimmy Nevarez, who works with more than one  owner-operator contractor in addition to hauling himself, remained  "curious to see what can be done" in terms of further appeals. He  believes the injunction reversal to be "the ugliest thing that could 

happen to the labor laws in California" when applied to trucking, if it  sticks. 

The AB 5 law took effect at the beginning of 2020, but a district  judge granted CTA an injunction on the grounds that the Federal  Aviation Administration Authorization Act of 1994 (F4A or FAAAA)  preempted the ABC test’s application to trucking. F4A preempts any  state-level laws that would “interfere with prices, routes and services”  of motor carriers. 

The 'B' prong of test is particularly problematic for traditional leasing  arrangements with owner-operators classified as independent  contractors, given it requires a contractor to be outside the normal  course of business of the entity contracted to. 

In Wednesday’s ruling the three-judge panel, which voted 2-1 to  overturn the injunction, said the district court that issued the  injunction “abused its discretion by enjoining the state of California  from enforcing AB 5 against motor carriers doing business in  California on the ground that such enforcement is preempted by the  FAAAA.” 

The panel determined that because AB 5 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 F4A. 

In a statement following Wednesday’s ruling, CTA said it still  believes AB 5 should be preempted by federal law. To do otherwise  "is clearly detrimental to the long-standing and historical place  California’s 70,000 owner-operators have had in the transportation  industry,” said CTA CEO Shawn Yadon. “The California Trucking  Association will take whatever legal steps are necessary to continue  this fight." 

Angus Transportation owner Nevarez will be watching for next steps,  though may ultimately put in place plans he described to Overdrive in  2019, ahead of AB 5's original implementation date. "I might consider  the move out of state now, depending what’s going to happen with the  PRO Act,” he said, making reference to a labor union-friendly bill that would enshrine a similar ABC test for the independent contractor  classification, which typically puts a worker outside National Labor  Relations Act protections. 

"If we have to move out of state and then we just get thrown to the  wolves because of the PRO Act," he speculated, maybe the move isn't  worth the effort. At once, "all of our contractor relationships are true  business to business" relationships, which Nevarez has hoped could be  sufficient to really cement the validity of the contractor status of the  owner-operators leasing there. 

He's also considered two-check systems he's familiar with through  family members in other industries. A welding business owner, for  instance, is paid wages and treated as an employee for his time but  also earns rental fees for his equipment, including his truck, as a business owner. Such hybrid systems were once common in segments  of trucking, too. 

The lone dissenting voice on the Ninth Circuit's three-person panel,  Judge Mark Bennett, said he did not agree with the other two judges  that AB 5 is not related to motor carriers’ services and therefore not  preempted by F4A. 

“California will now be free to enforce its preempted law,” Bennett  said. “CTA’s members will now suffer irreparable injury. And the  damage to the policies mandated by Congress will likely be  profound.” 

Joe Rajkovacz, director of governmental affairs and communications  for the Western States Trucking Association, is hopeful for an appeal  by CTA to the U.S. Supreme Court. 

Rajkovacz believes SCOTUS would hear the case because “there is  now a split among federal circuit courts on whether a state can apply  an ABC test to motor carrier operations." The First Circuit Court of  Appeals ruled in 2016 that Massachusetts' independent contractor  statute is preempted by F4A. 

“Having that split, which is why I think the Ninth tried to differentiate  their decision, is typically the number one way the Supreme Court  accepts cases – can’t have Americans living under two different sets  of laws, depending on where you live,” Rajkovacz said. 

He added that he believed that if SCOTUS does not overturn  Wednesday’s decision, it will be more harmful to the trucking industry  than the proposed PRO Act legislation in Congress. 

“If this decision is not overturned, it is not a stretch to assume ‘blue  states’ would adopt similar labor-friendly laws effectively banning the  use of owner-operators under [traditional] federally authorized lease  arrangements,” he said. 

“While many think getting one’s own operating authority is the  solution, there are a lot of issues there, too. For example, an owner operator could be fully independent but mostly rely on a single broker  who also happens to be a motor carrier for their work. That business  model, in my opinion, would also fail the ‘B’ prong of the ABC test.” 

To keep up with the latest News from NTA, be sure you are signed up: