By Miles L. Kavaller
Federal preemption of California’s AB5i under the F4Aii was at issue in the U.S. Supreme Court’s denial of the petition for a writ of certiorari to the United States Court of Appeals for the Ninth Circuit in California Trucking Assn. v. Bontaiii None of the 8 justices voted to grant the petition despite the conflict between the 9th and 1st Circuits decisions on the issue.iv
An estimated 350,000 owner operatorsv lease their equipment to, and drive for, trucking companies throughout the United States in interstate, as well as intrastate, commerce.vi The owner-operator model has been the backbone of the trucking industry for decades. Federal law regulating the industry is administered by the U.S. Dept. of Transportation and the Federal Motor Carrier Safety Administration.
Until 1994 the Interstate Commerce Commission among other things, granted authority to transport cargo and passengers over designated routes, approved motor carrier rates and service. The ICC Termination Act of 1994 “deregulated” the industryvii, and like the airline industry, Congress forbade the states from attempting to re-regulate trucking by providing that they may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.
Prompted by the California Supreme Court’s ruling in Dynamex Operations W. v. Superior Courtviii and the ports truckers claims of wage theft based on worker misclassification, the California legislature enacted California Labor Code §2775 and created a truncated test to, in large part, replace its 1989 Borello decision. ix The statute in pertinent part states as follows:
“(b)(1) …. a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied:
(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
(B) The person performs work that is outside the usual course of the hiring entity’s business.
(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”
An owner-operator cannot perform work that is outside the usual course of the hiring entity’s business, that being trucking. The owner-operator is now, ipso facto, an employee of the trucking company for which he or she drives, whether they want to be or not.
The California Trucking Association’s challenge to Labor Code 2775 was successful with U.S. District Judge Roger Benitez issuing a preliminary injunction prohibiting its enforcement. “FAAAA preemption is broad but not so broad that the sky is the limit: states retain the ability to execute their police power with laws that do not significantly impact rates, routes, or services. Here, however, 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. In so doing, California disregards Congress’ intent to deregulate interstate trucking, instead adopting a law that produces the patchwork of state regulations Congress sought to prevent. With AB-5, California runs off the road and into the preemption ditch of the FAAAA. Accordingly, Plaintiffs’ motion for a preliminary injunction is GRANTED.”x
However, the 9th Circuit concluded that “[b]ecause AB 5 is a generally applicable labor law that impacts the relationship between a motor carrier and its workforce, and does not bind, compel, or otherwise freeze into place a particular price, route, or service of a motor carrier at the level of its customers, it is not preempted by the F4A. Because CTA is unlikely to succeed on the merits, the district court erred by enjoining the state from enforcing AB-5 against motor carriers operating in California.xi
Perhaps a reason that the Supreme Court did not take the case was the argument made in Attorney General’s opposition to the certiorari petition: California Labor Code §2776 provides for a “business to-business” exception. It contains 11 qualifying criteria and then requires that the Borello test be satisfied. Maybe the obituary of the California owner-operator has not yet been written. Only time will tell!
i California Labor Code §2775.
ii The acronym for the provision in the Federal Aviation Authorization Act of 1994 in 49 U.S.C. §14501( c ).
iii 996 F.3d 644 (9th Cir. 2020), cert. denied, No. 21-194, 2022 U.S. LEXIS 3261 (June 30, 2022).
iv See Schwann v. FedEx Ground Package System, Inc., 813 F.3d 429 (1st Cir. 2016).
v California Vehicle Code §34624. An owner-operator is a person who owns, leases, or otherwise operates not more than one power unit and not more than three towed vehicles and is required to obtain a permit as a motor carrier of property.
vii Added Dec. 29, 1995, P. L. 104-88, Title I, § 103, 109 Stat. 899. See 49 U.S.C. §§13101, et seq.
viii 4 Cal. 5th 903 (2018).
ix S. G. Borello & Sons, Inc. v. Dep’t of Indus. Relations, 48 Cal. 3d 341 (1989).
x Cal. Trucking Ass’n v. Becerra, 433 F. Supp. 3d 1154, 1171 (S.D. Cal. 2020).
xi Cal. Trucking Ass’n v. Bonta, 996 F.3d 644, 664 (9th Cir. 2020).