AB5 case denied by Supreme Court; what’s next?

The U.S. Supreme Court announced on June 30 that it denied the California Trucking Association’s petition for a hearing over the state’s Assembly Bill 5.

So, what does that all mean for motor carriers and truckers in California, and where do we go from here?

The decision to decline the trucking group’s petition means that a previous ruling from the U.S. Court of Appeals for the Ninth Circuit stands and that a preliminary injunction preventing AB5 from being enforced on motor carriers will end. According to a court order, it was set to end seven days after the Supreme Court’s decision.

However, the fight against California’s AB5 in the trucking industry is not necessarily over. The case will be kicked back to the district court. There, the court will now have to consider the California Trucking Association’s arguments that AB5 violates the Commerce Clause.

For now, though, motor carriers and truck drivers in California should prepare for a climate that includes AB5. OOIDA members who are leased on to carriers in California are telling the Association that they are being encouraged to get their own authority.

What is AB5?

AB5, which codified the ABC Test, makes it more difficult for a worker to be considered an independent contractor. Many in the trucking industry, including the California Trucking Association and the Owner-Operator Independent Drivers Association, said the law would force the end of the owner-operator model in the state.

The ABC Test has three parts:

• A. That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact.
• B. That the worker performs work that is outside the usual course of the hiring entity’s business.
• C. That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.

The B prong of the test appears to make it nearly impossible for a leased-on truck driver to be considered an independent contractor.

AB5 was passed into law in 2019, but the lawsuit had prevented it from affecting the trucking industry.

The lawsuit

After the California legislature passed AB5 into law, the California Trucking Association sought a preliminary injunction with the U.S. District Court for the Southern District of California. The trucking group argued that AB5 was preempted by the Federal Aviation Administration Authorization Act, or F4A, which prevents states from enforcing a law or regulation related to a price, route or service of motor carriers. The law also violates the Commerce Clause of the U.S. Constitution, the California Trucking Association claimed.

The district court found that the law was likely to be preempted by the F4A and granted a preliminary injunction. Pointing to the F4A argument, the court did not tackle the questions surrounding the Commerce Clause.

“To prevail on their motion for a preliminary injunction, plaintiffs must establish, at a minimum, that there are ‘serious questions’ on the merits of at least one of their challenges to AB5’s ABC test,” Judge Robert Benitez wrote in January 2020. “Plaintiffs have done so with their (F4A) preemption challenge.

“The court finds AB5’s ABC Test has more than a ‘tenuous, remote or peripheral’ impact on motor carriers’ prices, routes or services, particularly in light of our Ninth Circuit jurisprudence casting serious doubt on the type of ‘all or nothing rule’ that AB5 implements.”

California’s attorney general then asked for the Ninth Circuit to review the injunction.

In 2021, the Ninth Circuit ruled 2-1 that California’s AB5 “is a generally applicable labor law” and called for the removal of a preliminary injunction. The California Trucking Association then filed a petition to the U.S. Supreme Court. OOIDA was one of more than a dozen organizations to file amicus briefs in support of the California Trucking Association’s petition.

On June 30, the Supreme Court announced that it denied the California Trucking Association’s petition.

What’s next?

California has provided little to no guidance regarding how the law will be enforced, and it is unclear how exactly the courts will interpret the law.

Some carriers already changed their business model in California when AB5 was originally passed into law. Springfield, Mo.-based New Prime Inc., for instance, told Land Line in in January 2020 that it stopped associating with new independent contractors from California and were offering other opportunities, including relocation, to existing contractors.

“Motor carriers should immediately evaluate their California operations to determine what steps, if any, should be taken to respond to the changed backdrop for trucking,” the transportation-focused, Indianapolis-based the Scopelitis law firm said in a statement on June 30.

Greg Feary, a partner in Scopelitis, told Land Line that motor carriers and owner-operators in California should be discussing what options are available.

“The motor carrier could offer employment,” Feary said. “The owner-operator could choose to get their own authority.”

Feary also mentioned the possibility of an arrangement where the truck driver became an employee but then leased the truck back to the motor carrier.

OOIDA criticized California for not providing current independent contractors a road map for how to navigate an AB5 landscape.

“With AB5 now set to go into effect, thousands of owner-operators driving in California face an uncertain future,” OOIDA President Todd Spencer said. “California has provided no guidance to owner-operators about how they can work as independent contractors under this new scheme, and truckers will be at the mercy of the courts to interpret how the law will be applied.

“For truckers that have invested their blood, sweat and treasure to create their own businesses, it is dismaying that lawmakers and the courts are forging ahead with this radical policy that dismisses a beneficial business model that has been in place for decades. At the same time, we know this will not be the last word on the legality of AB5 and expect to participate in future challenges to the law.”

The California Trucking Association said that allowing AB5 to be enforced on the trucking industry will worsen current supply chain problems.

“Gasoline has been poured on the fire that is our ongoing supply chain crisis,” the California Trucking Association said in a statement. “In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation.”

Meanwhile, the International Brotherhood of Teamsters lauded the Supreme Court’s decision, pointing to misclassification among port drivers.

“Finally, port truck drivers and so many others across California will have the opportunity to join together and earn a fair wage that allows them to support their families,” Teamsters General President Sean M. O’Brien said in a statement. “These companies can no longer take advantage of workers and fill their own executive pockets with unfairly earned profits.”

Is the fight over?

Groups, such as the California Trucking Association and OOIDA, will continue to pursue all legal options.

First, the spotlight moves back to the district court to see if it will revive the California Trucking Association’s claim that AB5 violates the Commerce Clause of the U.S. Constitution.

The Commerce Clause protects the right to engage in interstate commerce free of undue burdens and discrimination by state governments.

AB5 creates unnecessary burdens for motor carriers, the California Trucking Association said.

“For example, in order to comply with the ABC Test, motor carriers that contract with individual owner-operators to provide trucking services to customers for movements that originate in other states and terminate in California can no longer use that same individual owner-operator to perform the entire movement,” the California Trucking Association told the district court in November 2019. “Instead, under the new ABC Test, the motor carrier must terminate that movement by the individual owner-operator at the California border and arrange for the final leg of that movement within California by an employee driver …”

“Similarly, for movements that originate in California and terminate in a different state, the motor carrier cannot contract with an individual owner-operator for that entire movement but must instead employ a driver … to complete that first leg of the movement to the California border.”

In addition to the courts, the California Trucking Association already is lobbying the state legislature to reverse course regarding AB5 in the trucking industry.

“The legislature and (Gov. Gavin) Newsom administration must immediately take action to avoid worsening the supply chain crisis and inflation.” LL