Federal Law Doesn’t Preempt AB 5, Ninth Circuit Rules

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In the latest chapter of the independent contractor or employee saga in California, the U.S. Court of Appeals for the Ninth Circuit, in California Trucking Ass’n v. Bonta, ruled that federal law doesn’t preempt AB 5, the state law codifying the “ABC test” established by the state’s highest court in the Dynamex Operations v. Superior Court decision.

The battle dates back several years, beginning with the Dynamex decision in 2018. The following year, the California legislature enshrined in AB 5 the presumption that workers are employees unless the employer can affirmatively prove the three prongs of the ABC test.

The California Trucking Association (CTA)—which represents motor carriers that hire independent contractors who own their own vehicles to transport property throughout the state—sued the state attorney general, seeking to enjoin enforcement of the statute. Together with two independent owner-operators, the CTA argued that the Federal Aviation Administration Authorization Act (FAAAA) preempts application of the state law to motor carriers.

A federal court judge granted a preliminary injunction against enforcement of AB 5 towards any motor carrier doing business in California. The state appealed.

Reversing the district court, the federal appellate panel ruled that because AB 5 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.

The FAAAA was enacted in 1994 to regulate intrastate trucking and create a level playing field so that all companies using motor carriers and air carriers received the same protections, regardless of how they were organized, the Ninth Circuit explained.

According to the statute, “a state … may not enact or enforce a law … related to a price, route, or service of any motor carrier … with respect to the transportation of property.”

The phrase “with respect to the transportation of property” massively limits the scope of preemption, the court noted, and case law has attempted to draw a line between laws that are significantly related to prices, routes or services (and thus preempted) and those that have only a “tenuous, remote, or peripheral connection” to rates, routes or services (and thus are not preempted).

“[L]aws of general applicability that affect a motor carrier’s relationship with its workforce, and compel a certain wage or preclude discrimination in hiring or firing decisions, are not significantly related to rates, routes or services,” the panel wrote.

A “generally applicable law” is one that affects individuals “solely in their capacity as members of the general public,” the court said, and applies “to hundreds of different industries.” Examples include California’s wage law and the application of the state’s meal and rest break laws.

AB 5 is such a law, the court held. It applies to employers generally and does not single out motor carriers but instead affects them solely in their capacity as employers. Even if some businesses are exempt from the law, it certainly applies to hundreds of different industries.

Further, AB 5 affects the way motor carriers must classify their workers, compelling a result at the level of its relationship with its workforce. The law does not compel a result in a motor carrier’s relationship with consumers, such as freezing into place a particular price, route or service that a carrier would otherwise not provide.

CTA argued that AB 5’s impact was so significant that it indirectly determines price, routes or services, alleging that the law would increase its members’ costs by 150 percent or more.

But the panel wasn’t persuaded, noting that it has “routinely rejected” arguments that the FAAAA preempts California labor laws that impose such indirect effects, including a 2018 decision in California Trucking Ass’n v. Su, where the court concluded that the FAAAA did not preempt the Borello test—the standard used prior to Dynamex and AB 5.

Because the CTA was unable to demonstrate a likelihood of success on the merits of its preemption claim, the court reversed the district court’s order enjoining the state from enforcing AB 5 against motor carriers operating in California.

To read the opinion in California Trucking Ass’n v. Bonta, click here.

Why it matters: The Ninth Circuit decision sends a powerful message to employers about the breadth of AB 5’s application and enforcement. While the opinion will likely be appealed—one member of the panel dissented and pointed out that a circuit split now exists with regard to the FAAAA and preemption of state employment laws—California employers should be in compliance with the statute for the time being.

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