By Julius Young, Boxer Gerson, Partner
Workers have won a big victory in the Federal courts, as the 9th Circuit Court of Appeals has ruled that AB-5 can be enforced against the California trucking industry, and is not “pre-empted” by a Federal law known as the Federal Aviation Authorization Act of 1994.
The California Trucking Association and two independent owner-operators had filed a lawsuit alleging that the “F4A” law precluded application of AB-5. AB-5, passed in 2019, codifies the “ABC test” adopted to define employment status in the California Supreme Court case known as Dynamex. They obtained an injunction at the Federal District Court level, preventing AB-5 from being enforced against any motor carrier doing business in California. But on appeal, the trucking companies have lost, and the Teamsters and owner operators who believe they were misclassified have won.
Why is this case, known as California Trucking Association v. Bonta (see link to the decision below) important?
It is significantly easier to prove employment status under the ABC test/AB-5 than under the previous Borello case standard. Prop 22 , adopted by the voters in 2020, exempted app-based drivers from AB-5, and certain other occupations were exempted by statute. But AB-5 will likely apply to many motor carrier situations, making it tough for those who are claiming they have hired independent contractors.
The 9th Circuit panel noted that:
“The change from the Borello test to Dynamex and then to AB-5 concerned CTA. It viewed the new rule statutorily classifying a worker as an employee unless the hiring entity demonstrates that the worker performs “work that is outside the usual course of the hiring entity’s business,” id. § 2775(b)(1)(B), as effectively precluding the business model employed by CTA’s members.“
In particular, at issue was the meaning of the words in the F4A statute that provide for pre-emption of state laws “related to a price, route or service of any motor carrier”. The panel noted that:
“This requires us to determine whether AB-5 is “significantly related to rates, routes, or services . . . and thus [is] preempted,” or whether it has “only a tenuous, remote, or peripheral connection to rates, routes, or services” and therefore is not preempted.”
The 9th Circuit panel noted a case where state meal and rest break laws were not pre-empted by F4A (the Dilts case), one where California minimum wage laws for long haul truckers was not pre-empted (the Ridgeway case), and one where application of the Borello employment test was not-preempted (the Su case).
The 9th Circuit panel 2-1 majority brushed aside arguments by the California Trucking Association (CTA) that the impact of AB-5 is so significant that it indirectly determines prices, routes or services. They noted that:
“Although CTA’s allegations of increased costs rely heavily on its claim that motor carriers will be forced to buy a fleet of trucks, CTA conceded that its members could avoid incurring such costs by hiring owner-operators (i.e., drivers who own their own trucks) as employees. Given the undeveloped record in the district court, CTA’s allegations with respect to prices, routes, and services are merely speculative.”
Moreover, the panel majority stated that:
“CTA contends that the increased labor costs caused by AB-5 would likely put small motor carriers out of business and force other motor carriers to leave California. The remaining motor carriers would therefore offer “diminished services.”
We have routinely rejected similar arguments that the F4A preempts California labor laws that impose such indirect effects. See, e.g., Dilts, 769 F.3d at 646 (holding that California’s meal-and-rest-break laws “are not preempted even if they raise the overall cost of doing business or require a carrier to re-direct or reroute some equipment”).”
As to whether application of the ABC test itself would violate F4A, the court noted:
“We likewise reject the arguments made by CTA and the dissent based on Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429, 437–40 (1st Cir. 2016) and Bedoya v. Am. Eagle Express Inc., 914 F.3d 812, 816 (3d Cir. 2019), cert. denied, 140 S. Ct. 102 (2019). The language relied upon is contrary to our precedent.
In Schwann, the First Circuit determined that Prong 2 of Massachusetts’ ABC test (which is identical to Prong B of the California ABC test codified in AB-5) sufficiently relates to a motor carrier’s services and routes, because interfering with the employer’s decision whether to use an employee or an independent contractor could prevent a motor carrier from using its preferred methods of providing delivery services, raise the motor carrier’s costs, and impact routes. Schwann, 813 F.3d at 438–39; see also Bedoya, 914 F.3d at 824–25 (opining in dicta that the F4A preempts Massachusetts’ ABC test because it “mandate[s] a particular course of action—e.g., requiring carriers to use employees rather than independent contractors”). But we have previously concluded that such indirect consequences have “only a tenuous, remote, or peripheral connection to rates, routes or services.” Dilts, 769 F.3d at 643.”
The CTA will undoubtedly appeal to the U.S. Supreme Court, so the issue is not necessarily resolved just yet. Interestingly, however, conservative-minded judges came down of different sides on this case. Writing the opinion was Circuit Judge Sandra Ikuta, a Bush appointee and a former clerk for Sandra Day O’Connor. Dissenting was recent Trump appointee Mark Bennett.
For now, however, trucking firms are taking a big choice, i.e. whether to re-think their strategy rather than risk enforcement problems under AB-5.
Whether the workers’ comp system will actually see increased trucking worker claims is unknown.
But making it harder for companies to misclassify their workers is a major victory.
The decision in California Trucking Association v. Bonta can be found here.