A recent California court decision may have far-reaching implications on the trucking industry, not just in California, but also nationwide. In the wake of that decision, the California Trucking Association (the “CTA”), a trade association representing motor carriers that hire independent contractors who are owner-operators, has vowed to continue its fight against the State of California to enjoin its enforcement of Assembly Bill 5 (“AB-5”).
AB-5 codified the judge-made “ABC test” for classifying workers as either employees or independent contractors. The three-pronged ABC test dictates that a worker is considered an independent contractor to whom a wage order does not apply on if the hiring agency can establish:
A. That the worker is free from the control and direction of the hirer in connection with the performance of work, both under the contract for the performance of such work and in fact;
B. That the worker performs work that is outside the usual course of the hiring entity’s business; and
C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
The CTA originally won its bid for a preliminary injunction in the District Court for the Southern District of California. Its lawsuit contends that independent contractors are essential for carriers to meet fluctuating demand for highly varied services, and that AB-5’s application to the trucking industry is pre-empted by the Federal Aviation Administration Authorization Act of 1994 (the “F4A”). The F4A pre-empts any state law “related to the price, route, or service of any motor carrier…with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1).
District Judge Roger Benitez agreed with the CTA, writing, “[t]here is little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor divers, a choice at the very heart of interstate trucking. In so doing, California disregards Congress’ intent to deregulate interstate trucking, instead adopting a law that produces a patchwork of state regulations Congress sought to prevent. With AB-5, California runs off the road and into the preemption ditch of the [F4A].”
The Ninth Circuit reversed the Judge Benitez’s decision on appeal. The panel held the district court abused its discretion by enjoining the State of California from enforcing AB-5 against motor carriers. The panel reasoned that, because AB-5 is generally applicable labor law that does not bind, compel, or otherwise freeze into place the prices, routes, or services of motor carriers, it is not pre-empted by the F4A. Sean Yadon, CEO of the CTA, vowed to appeal the Ninth Circuit’s decision and request a rehearing en banc. Yadon stated the CTA will continue to stand by its pre-emption claim and that AB-5 “is clearly detrimental to the long-standing and historical place California’s 70,000 owner-operators have in the transportation industry.”
If the Ninth Circuit’s decision is upheld, AB-5 will have a profound impact on the trucking industry. While not explicitly freezing prices, routes, or services, application of the law would have drastic effects on the ability of motor carriers to meet demand surges and may have downstream effects on the price and availability of goods. Application of AB-5 would impose severe hurdles on motor carriers’ ability to operate not only within the State of California, but may have potential nationwide implications if other states follow suit.
For any questions about how AB-5 may affect you or your business, please contact the attorneys at Rock Fusco & Connelly, LLC.