Seyfarth Synopsis: Back in January 2020, a federal district court enjoined the State of California from enforcing AB 5, a law about classification of independent contractors, against interstate motor carriers (see our prior piece here). Now, in a split 2-1 decision, a Ninth Circuit panel has reversed the district court, and held that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) does not preempt AB 5. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually the U.S. Supreme Court will likely be asked to address the circuit split on whether the FAAAA preempts “all or nothing” state laws like AB 5.
The District Court’s Injunction Prohibiting Enforcement
On January 16, 2020, a federal judge in the Southern District of California, following up on a temporary restraining order issued on December 31, 2019, granted the California Trucking Association’s request for a preliminary injunction blocking enforcement of AB 5 against interstate motor carriers. The district court found that AB 5’s ABC test destroys the historical owner-operator model, in direct contravention of the FAAAA, a 1994 deregulation measure that forbids any state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” The district court concluded that the FAAAA “likely preempts ‘an all or nothing’ state law like AB 5 that categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.”
The Ninth Circuit’s Decision
A 2-1 panel decision overturned the district court’s decision, effectively permitting the State of California to enforce AB 5 against interstate motor carriers who have long contracted with truck drivers who are owner-operators. The panel majority rejected the district court’s analysis, reasoning that AB 5 is like other state laws (such as those regarding meal and rest periods) that the Ninth Circuit has upheld as generally applying to all industries as opposed to a targeted group. The panel majority concluded that AB 5 is a generally applicable labor law that, while affecting a motor carrier’s relationship with its workforce, is not aimed specifically at the trucking industry.
The panel majority threw out the district court’s finding that the FAAAA preempted AB 5’s enforcement against interstate motor carriers, because AB 5 does not “bind, compel, or otherwise freeze into place the prices, routes, or services of motor carriers,” as required for FAAAA preemption.
A lengthy dissent by Judge Mark Bennett faulted the panel majority for failing to consider the full scope of AB 5’s impact on interstate motor carriers, including the impact on their customer relationship and services. AB 5, Judge Bennett argued, differs from the prior state laws of general applicability that the Ninth Circuit has upheld. AB 5 establishes an “all or nothing” rule for interstate motor carriers and mandates how motor carriers must engage with their workers. Judge Bennett cited the district court’s finding that Prong B was the “Achilles heel” of AB 5 for interstate motor carriers because AB 5 makes a truck driver an employee unless the motor carrier proves that the driver “performs work that is outside the usual course of its business.”
Finally, in an evident effort to garner attention from the U.S. Supreme Court, Judge Bennett pointed out the circuit split that the panel majority has created, in that other Circuits have ruled that the FAAAA preempts “all or nothing” statutes.
Motor Carriers Should Keep A Close Eye On Further Developments
The Ninth Circuit did not immediately lift the injunction, but one can expect the injunction to be lifted by court order in the coming weeks, which would permit California agencies to enforce AB 5 against motor carriers. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually one might expect that the Supreme Court will be asked to weigh in on the issues raised by the appeal, especially in light of Judge Bennett’s characterization of a circuit split on “all or nothing” rules.”
While this litigation may continue to wind its way through the courts, motor carriers should closely examine their current practices, particularly if they use an owner operator model and intend to continue doing so. Seyfarth’s Independent Worker Strategies and Transportation and Logistics teams are here to assist in helping craft agreements and policies that are keeping pace with the current state of the law in this area.
Edited by Coby Turner