The Ninth Circuit Reverses AB5 Injunction

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The Ninth Circuit Court of Appeals, in California Trucking Association v. Bonta, has reversed the preliminary injunction staying enforcement of AB 5 (now Labor Code § 2775).  The Circuit Court determined that the California Trucking Association (“CTA”) is unlikely to succeed on the merits of its district court claim that AB 5 is preempted by the Federal Aviation Administration Authorization Act of 1994 (“F4A”).  This decision may have far-reaching consequences for not only California motor carriers but also California businesses and consumers due to increased costs of employing truckers and potentially owning and maintaining fleets of trucks.

The Injunction Staying AB5

The California Legislature enacted AB 5 in response to the California Supreme Court’s decision in Dynamex Operations W. v. Superior Court, which created the “ABC Test” for determining the proper classification of workers.  Labor Code 2775 states that “a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor” unless the hiring entity demonstrates that each element of the ABC Test is satisfied.  

Motor carrier operators often hire owner-operator truck drivers to deliver goods pursuant to independent contractor agreements.  The “B” element of the ABC Test requires that the worker perform work that is outside the usual course of the hiring entity’s business.  Because the owner-operator truck drivers provide services within the usual course of the motor carrier operator’s business, motor carrier operators are at risk of misclassifying the truck drivers as independent contractors absent exemption or an injunction.  The CTA challenged AB 5’s enforceability, seeking a preliminary injunction and permanent injunctive relief, contending that AB 5 is preempted by the U.S. Constitution and Federal law under the F4A.  The district court granted a preliminary injunction.

The Ninth Circuit Court’s Polarized Opinions

F4A preempts state laws that are significantly related to motor carrier rates, routes or services.  The appellate panel majority 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 [F4A].”  The vigorous dissenting opinion pointed out, however, that preemption should apply as AB5 affects motor carrier relationships with their workers, and also significantly impacts the rates and services motor carriers are able to provide to their customers.  This split within the appellate panel, hand in hand with the split along the same lines among several other circuit courts, foreshadows a likely request for en banc review or appeal to the Supreme Court.

What Businesses Should Do Now

Motor carriers who contract with independent owner-operator truck drivers will have to comply with Labor Code § 2775 and should review their independent contractor agreements with counsel.  Labor Code § 2776 does provide some exemptions that may apply but require careful planning.  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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