Judge rules in favor of California in case involving Assembly Bill 5

The latest battle in a yearslong fight over a stringent state worker classification law ended in California’s favor.

In March, a U.S. District Court judge ruled that California’s Assembly Bill 5 does not violate the Constitution and that any problems with it should be corrected in the political arena.

“Remedying complexities and perceived deficiencies in AB5 are the kind of work better left to the soap box and the ballot box than to the jury box,” Judge Roger Benitez wrote in his ruling. “If sufficient political or economic pressure can be brought to bear by plaintiffs and their supporters, the more onerous provisions of the statute can be amended. The courts, on the other hand, are not the proper bodies for imposing legislative amendments.”

The California Trucking Association and Owner-Operator Independent Drivers Association argued that AB5 eliminates the independent contractor driver business model in the trucking industry and violates the U.S. and California constitutions. OOIDA also argued that it had forced out-of-state members to give up business opportunities in California or to change their business model.

The U.S. District Court for the Southern District of California heard oral arguments in November and ruled in favor of the state on March 15.

“In the end, AB5 does not offend the core constitutional principle of prohibiting purposeful discrimination against interstate commerce,” Benitez wrote. “And while AB5 had economic effects, the effects do not confirm purposeful discrimination against interstate commerce in the design of AB5. Although courts are not well-equipped to do such weighing, when it comes to weighing the burdens of AB5 against the salutary effects … it does not appear that the pure economic burdens on out-of-state worker-drivers and freight hauling firms substantially outweigh the in-state benefits of correctly classifying worker-drivers as employees.”

Response

The California Trucking Association and OOIDA both expressed disappointment over the ruling and argued that the law remains disruptive to truck drivers and motor carriers.

OOIDA said it disagreed with Judge Benitez’s ruling and the reasoning behind it. As of press time in early April, the Association was poised to appeal the decision to the U.S. Court of Appeals for the Ninth Circuit.

The California Trucking Association said it also will consider options going forward. In addition, the trucking group offered advice to truckers and carriers who will operate in the state.

“Owner-operators and entities who do business with them should continue to consult with legal counsel,” the California Trucking Association wrote on its website. “Since AB5 was adopted, both the courts and briefs in CTA’s litigation have suggested that the business-to-business exemption to the ABC Test could apply to owner-operators and the entities who hire them. However, businesses must continue to carefully examine their contractual relationships in the face of AB5 and still-evolving case law.”

Background

California signed AB5 into law in 2019. The worker classification law is based on the ABC Test, which requires a business to demonstrate three factors are established before a worker can be deemed an independent contractor.

The “B prong” of the ABC Test appears to prevent a trucking company from classifying a truck driver as an independent contractor, regardless of the level of control or any other factors.

The California Trucking Association filed a lawsuit soon after AB5 became law, saying that it violated the Federal Aviation Administration Authorization Act, or F4A. The district court granted an injunction against enforcement of the law on the trucking industry until the U.S. Supreme Court declined to take the case in June 2022.

The case then was sent back to the lower court, and OOIDA joined CTA as an intervenor to represent the rights of small-business truckers who travel in and out of California. The trucking groups contended that AB5 imposes undue burdens on interstate commerce in violation of the dormant Commerce Clause. In addition, OOIDA and CTA said that the law’s decisions on who it exempts violate the U.S. and California constitutions’ equal protection clauses.

As part of oral arguments in November, OOIDA said that AB5 destroys the independent contractor model in the trucking industry rather than focusing on the true problem of misclassification.

“OOIDA readily concedes that there are bad actors in the trucking industry, as in many industries, who misclassify and exploit workers,” the Association wrote. “But defendants can’t justify eliminating the independent contractor driver business model, needlessly reclassifying genuine independent contractors as employees.”

California offers a business-to-business exemption, but it is available only to intrastate California motor carriers and drivers. OOIDA said that distinction causes the law to violate the Commerce Clause. OOIDA also told the court that the law violates equal protection clauses, because there is no “rational basis” for granting exemptions to intrastate carriers and the construction industry but not to all motor carriers.

Ruling

Benitez declined to order a new injunction and ruled in favor of the state on all claims, including arguments that AB5 violates the Commerce Clause, which protects the right to engage in interstate commerce free of undue burdens and discrimination by state governments. The judge cited a previous U.S. Supreme Court case as justification for his decision.

“The state benefit of potentially overclassifying all independent contractor worker-drivers as employees may be debatable, maybe even illusory, but ‘the dormant Commerce Clause does not protect a particular structure or method of operation,’” Benitez wrote. LL