Appeals Court Rules AB5 Not Preempted

An appeals court panel has reversed a lower court’s preliminary injunction protecting California’s trucking industry from the state’s onerous AB5 law, a law which many believe virtually eliminates the traditional trucking owner-operator model in the state.

In January 2020, the U.S. District Court issued a preliminary injunction blocking California from enforcing Assembly Bill 5 (AB5) on motor carriers and independent owner-operators conducting business in the state.

AB5 codified into state law a previous California Supreme Court decision setting forth an “ABC” test in determining whether a worker is an employee or an independent contractor. That test says a worker is an employee, unless it can be certified that:

• A the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
• 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 of the same nature as the work performed.

The “B prong,” as it’s called is the sticking point for trucking. It’s hard to argue that delivering freight is “outside the usual course” of the motor carrier’s business.

The California Trucking Association challenged AB5, contending that the law is preempted by the supremacy and commerce clauses in the U.S. Constitution and is in direct conflict with the Federal Motor Carrier Safety Act and the Federal Aviation Administration Authorization Act of 1994. (Part of the FAAAA bans states from enacting laws that affected a motor carrier's prices, routes and services.)

On April 28, the U.S. Court of Appeals for the 9^th Circuit ruled that California Trucking Association was unlikely to succeed on the merits with respect to its claim that AB5 is preempted by F4A.

“As a result, the injunction CTA had obtained from the district court against enforcement of AB5 against motor carriers is overturned and will be dissolved in the near future,” said the transportation attorneys at Scopelitis, Garvin, Light, Hanson & Feary in a news alert.

A panel of the court held that application of AB5 to motor carriers is not preempted by the Federal Aviation Administration Authorization Act of 1994.

The panel held that “because AB5 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 the FAAAA,” wrote Judge Sandra S. Ikuta.

Dissenting, Judge Mark Bennett wrote that AB5 both affects motor carriers’ relationship with their workers and significantly impacts the services motor carriers are able to provide to their customers, and it therefore is preempted as applied to California Trucking Association’s members.

The lifting of the preliminary injunction is not immediate, explained the Scopelitis attorneys. The parties have 14 days to seek rehearing and up to 150 days to petition the U.S. Supreme Court. “The injunction will be lifted seven days following the expiration of time to request a rehearing or following a denial of a request for rehearing, or may be stayed upon further petition of the parties (for example, if the parties are seeking 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.”

‘Straining to Explain'

Joe Rajkovacz, director of communications for the Western States Trucking Association, has also been closely following this issue, although his group is not part of the CTA’s lawsuit.

“One of the things that stood out to me in a quick read [of the decision] was how the 9^th Circuit seems to try to differentiate its decision from the decision in the First Circuit where the Massachusetts B prong was pre-empted,” he told HDT in an interview. “I think it was a real stretch; I think they were trying to inoculate the decision-making process from a SCOTUS challenge.”

“We now have a split between two federal circuits,” he said. “It’s always been my understanding that’s the number one way the U.S. Supreme Court decides to take up a case,” he said, to resolve conflicting circuit-court decisions.

The Scopelitis attorneys also noted that “the court strained to explain why pronouncements in earlier 9^th Circuit cases addressing whether laws compelling the use of employees were preempted were not binding. A vigorous dissent focused on those earlier cases, suggesting that a law like AB5 can both affect a motor carrier’s relationship with its workers and significantly impact the motor carrier’s services.”

In his dissent, Bennett pointed to previous decisions by the court that “all or nothing” rules requiring the use of employee rather than independent contractor drivers are preempted by the F4A. One was a decision in favor of the American Trucking Associations that the City of Los Angeles imposed concession agreement requiring that motor carriers transition from using independent contractors to employees in order to operate at the Port of Los Angeles.

Other circuit courts, he said, “have also held or signaled that all or nothing rules like California’s ABC test are or should be preempted.”

For instance, he said, in Schwann v. FedEx Ground, the First Circuit held that the F4A preempts Prong 2 of Massachusetts’s 1-2-3 test, which is similar to California’s ABC test, saying that “Prong 2 would significantly affect how [motor carriers] provide good and efficient service” by “mandat[ing] that [motor carriers] classify. . . individual contractors as employees,” thereby “significant[ly] impact[ing].. . the actual routes followed for the pick-up and delivery of packages.” The court held that such “regulatory interference” would not be “peripheral” and would “pose a serious potential impediment to the achievement of the [F4A’s] objectives because a court, rather than the market participant, would ultimately determine what services that company provides and how it chooses to provide them.”

Next Steps in Trucking's Battle Against AB5

The California Trucking Association may appeal to the U.S. Supreme Court.

“We continue to stand by our initial claim that the implementation of AB 5’s classification test is preempted by federal law and is clearly detrimental to the long-standing and historical place California’s 70,000 owner-operators have had in the transportation industry,” said Shawn Yadon, CEO of the California Trucking Association, in a statement.

“The California Trucking Association will take whatever legal steps are necessary to continue this fight on behalf of independent owner-operators and motor carriers operating in California," Yadon said.

The Scopelitis alert explained that CTA will have several options available for appealing the decision, “and for many of the reasons the dissent pointed out, an appeal is likely.”

Ronald Zambrano, litigation chair at West Coast Employment Lawyers, called the decision surprising.

“The CTA could seek en banc review, but the decision was issued by Republican-appointed judges, which makes it surprising," he said in an email statement. "The ruling was quite a loud bell that will affect thousands of truckers in California who don’t cross state lines. Only a small percentage of drivers will be subject to FAAA preemption; the majority operate within the state’s boundaries and can now pursue employee classification under AB 5.”

Originally posted on Trucking Info