US Supreme Court Delivers Blow to the California Trucking Industry: Many Owner-Operators May be Deemed Misclassified
On June 30, 2022, the United States Supreme Court denied review of the California Trucking Association’s (“CTA”) challenge to Assembly Bill 5 (“AB 5”). Enforcement of AB 5 in the trucking industry had been put on hold since the CTA filed a lawsuit challenging the law when it took effective in January 2020. The Supreme Court’s denial of review clears the way for AB 5 to be enforced against motor carriers operating in California. AB 5 may disqualify many current owner-operators from being properly classified as independent contractors in California. California Trucking Ass'n v. Bonta, 996 F.3d 644, 649 (9th Cir. 2021), cert. denied sub nom. CA Trucking Assn. v. Bonta, No. 21-194, 2022 WL 2347627 (U.S. June 30, 2022).
Briefly, AB 5 codified the ABC test, which is used to determine whether workers are properly classified as employees or independent contractors. The ABC test presumes that a worker is an employee (and not an independent contractor) unless the hiring entity can prove that the worker:
- Is free from the control and direction of the employer in performing work, both practically and in a contractual agreement.
- Performs work that is outside the usual course of the employer’s business.
- Is usually engaged in an independently established trade, occupation or business of the same nature as the work performed for the employer.
Our detailed explanation of the ABC test can be located here.
The Bonta case challenged the application of AB 5 and the ABC test to motor carriers. The CTA, on behalf of its independent contractor driver members, argued that the application of AB 5 to the transportation industry was preempted by the Federal Aviation Administration Authorization Act (“FAAAA”), 49 U.S.C. § 14501(c)(1). The FAAAA provides that states “may not enact or enforce a law, regulation or other provision having the force and effect of law related to a price, route or service of any motor carrier, … broker or freight forwarder with respect to the transportation of property.”
The CTA’s legal challenge focused largely on prong B of the ABC test. To avoid misclassification liability, under prong B, a business must show its independent contractors perform work that is outside the usual course of the motor carrier’s business. For motor carriers, being able to show that the work of a driver is distinct from the work of the motor carrier that hired them is a significant challenge.
The District Court for the Southern District of California found the FAAAA preempted AB 5 and issued an injunction, finding that AB 5’s application to motor carriers impermissibly impacted their prices, routes, and services. The State of California appealed the court’s injunction to the 9th Circuit Court of Appeals, which was reversed on April 28, 2021. The 9th Circuit court found that application of AB 5 to motor carriers did not sufficiently impact the prices, routes, or services of motor carriers to fall within the preemptive scope of the FAAAA. This reversal cleared the road for AB 5 to take effect, impacting the current independent contractor model used by many trucking companies in California.
On June 23, 2021, the 9th Circuit stayed the reversal, pending CTA’s appeal to the U.S. Supreme Court. The stay previously issued by the 9th Circuit directs that its mandate take effect immediately upon the denial of certiorari by the Supreme Court. The Supreme Court’s recent refusal to review the Bonta case leaves the 9th Circuit’s decision intact.
Although further legal challenges to AB 5 and the ABC test are likely, motor carriers operating in California should immediately evaluate the classification of any California independent contractor drivers. Do not hesitate to contact your AALRR counsel or the authors to determine what, if any, steps should be taken to comply with AB 5 in light of this recent development.
For further information regarding the economic impacts of AB5 on the trucking industry, please follow our Economic Impact Work Group.