Arrows of neon and flashing marquees out on Main Street / Chicago, New York, Detroit and it’s all on the same street.”  (Truckin’, the 1970 song by the Grateful Dead.)

Earlier this year, the Ninth Circuit Court of Appeal ruled that California’s meal and rest break rules were unenforceable as to truckers carrying goods in interstate commerce, due to upholding a federal preemption decision by the Federal Motor Carrier Safety Administration (“FMCSA”).  (See, International Brotherhood of Teamsters, Local 2785 v. Federal Motor Carrier Safety Administration No. 18-73488, 2021 WL 139728 (9th Cir. Jan. 15, 2021).)

Now, on the exhaust fumes of that earlier preemption case, on April 28, 2021, the Ninth Circuit, in California Trucking Association v. Bonta, ruled that there is no federal preemption of California’s new independent contractor law, AB-5.

In this recent case, a three-judge panel of the Ninth Circuit Court has examined the Federal Aviation Administration Authorization Act of 1994 (“F4A”), which federal statute preempts any state law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”  49 U.S.C. § 14501(c)(1).  The Court found, in a 2-1 decision, that in 2020, the United States District Court for California, Southern District (San Diego) had abused its discretion when it enjoined the State of California from enforcing AB-5 against motor carriers doing business in California (on the ground that such enforcement was preempted by F4A).  (Our prior article on the District Court’s ruling can be read here.)

In reaching this conclusion, the Ninth Circuit Court determined that AB-5 did not directly nor acutely impact the “prices, routes or services” of a motor carrier, but rather, was simply a “generally applicable law” which did not effectively “bind” motor carriers to specific prices, routes, or services at the consumer level.

“Sometimes the light’s all shining on me / Other times I can barely see.  Lately, it occurs to me / What a long, strange trip it’s been . . . .”

You may recall that AB-5 has been often in the news.  First, AB-5 was codified, at section 2750.3 of the California Labor Code, as a judge-made test for classifying workers as either employees or independent contractors, known as the “ABC test.”  Second, in September 2020, the California legislature revised some of AB-5’s exemptions for certain business service providers and created additional exemptions with Assembly Bill 2257.  Third, in November 2020, California voters passed Proposition 22, which provided that app-based drivers who provide delivery and transportation services in the driver’s own personal vehicle, through a business’s online platform (such as Uber or Lyft), are independent contractors if certain conditions are met.

The ABC test includes three factors, and if the employer fails to establish all three, then the worker “shall be considered an employee rather than an independent contractor.”  Cal. Lab. Code § 2750.3(a)(1) (emphasis added).  The trade associations representing the trucking industry have expressed concerns over factor B, and rightfully so: whether the worker “performs work that is outside the usual course of the hiring entity’s business.” (Id., § 2750.3(a)(1)(B).)

The trial court found that, under factor B, “drivers who may own and operate their own rigs will never be considered independent contractors under California law.”  (Cal. Trucking Ass’n v. Becerra, 433 F. Supp. 3d 1154, 1165 (S.D. Cal. 2020) [with Rob Bonta being substituted in the appeal for his predecessor, Xavier Becerra, as California Attorney General].).

This made the ABC test become also known as an “all or nothing rule.”

The district court concluded, “there is little question that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking.”  Hence, the injunction was issued in 2020.

“Busted down on Bourbon Street / Set up like a bowling pin / Knocked down, it gets to wearing thin / They just won’t let you be.”

With the injunction no longer in force, the State of California’s anticipated enforcement of AB-5 (and the ABC test) will effectively compel a motor carrier to use employees for most services because, under the ABC test, a driver providing a service within an employer’s usual course of business would never be considered an independent contractor.

Circuit Judge Bennett, in his dissent, found this to be self-evident: “independent-contractor truckers hauling goods for the hiring entity are perforce not performing work outside the usual course of the hiring entity’s business, which is, of course, hauling goods.”  Thus, as the district court correctly found, motor carriers would have to “reclassify all independent-contractor drivers as employee-drivers for all purposes under the California Labor Code, the Industrial Welfare Commission [(IWC)] wage orders, and the Unemployment Insurance Code.”  (Id., at 1166.)

We concur with Judge Bennet’s dissent:  our analysis of the ABC test, as currently codified in section 2775 of the California Labor Code, means that AB-5 will likely eliminate motor carriers’ use of owner-operators (and their personally owned or leased specialized equipment) to accommodate fluctuations in supply and demand, especially given that California’s Industrial Wage Order “(IWC”) No. 4-2001(9)(B) requires employers to supply their employees’ tools and equipment.

“Truckin’ I’m a going home / Whoa, whoa, baby, back where I belong / Back home, sit down and patch my bones / And get back truckin’ on.”

However, two other federal circuits have signaled that “all or nothing” rules, like California’s ABC test, are or should be preempted.

Moreover, the Ninth Circuit previously found that the F4A statute (at issue) did in fact preempt a city-imposed concession agreement that motor carriers should transition to using employees only to operate at the Port of Los Angeles; this was due to a finding that the concession agreement would possibly force motor carriers to change their price, routes or services “in a way that the market would not otherwise dictate.”  (Am. Trucking Ass’ns, Inc. v. City of L.A., 577 F. Supp. 2d 1110, 1117 (C.D. Cal. 2008).)

With such differences in opinions, this latest decision may be appealed to the U.S. Supreme Court.  Unless and until review is granted or a rehearing held before the Ninth Circuit, en banc, however, motor carriers should now be analyzing how best to proceed in California, as its rules are no longer “all on the same street.”