Recent Evolution of California’s Independent Contractor Laws reviewed changes to California’s independent contractor laws over the last few years, including the implementation of the ABC Test. The ABC Test was first established by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court (2018) 4 Cal.5th 903, 916-917 and then codified in 2019 by Assembly Bill 5 (“AB-5”). The ABC Test presumes that a worker is an employee unless the employer can establish:
(A) The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;
(B) The worker performs work that is outside the usual course of the hiring entity’s business; and
(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.
The recent ruling by the Ninth Circuit Court of Appeals in California Trucking Association v. Bonta (9th Cir. Apr. 28, 2021, Nos. 20-55106, 20-55107) 2021 U.S. App. LEXIS 12629 now makes it difficult to classify motor carriers as independent contractors by holding that AB-5 is not preempted by the Federal Aviation Administration Authorization Act of 1994 (“F4A”).
California Trucking Association (“CTA”) along with two independent owner-operators filed suit challenging AB-5’s application to motor carriers. After filing the challenge, CTA asked the lower court to grant a preliminary injunction, temporarily barring California from enforcing AB-5 against motor carriers. The district court granted the preliminary injunction, finding that CTA was likely to succeed on the merits of its case because AB-5 was preempted by the F4A. The Ninth Circuit, however, reversed.
The F4A specifically states that it 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). CTA argued that this language preempted AB-5’s application to motor carriers, but the Ninth Circuit disagreed. The court relied heavily on precedent when interpreting the meaning of the F4A. It first looked at how the term “related to” has been interpreted in prior F4A rulings. The court “attempted to ‘draw a line between laws that are significantly related to rates, routes, or services, even indirectly, and thus are preempted, and those that have only a tenuous, remote, or peripheral connection to rates, routes, or services, and thus are not preempted.” Laws concerning the relationship between a motor carrier and its workforce are considered laws of “generally applicability” are “not significantly related to rates, routes or services.” As such, the F4A’s preemption clause does not apply to AB-5.
The court rejected several of CTA’s arguments that the F4A preemption should apply. For instance, CTA argued that “AB-5’s impact is so significant that it indirectly determines prices, routes, or services.” CTA claimed that AB-5 would increase member costs by as much as 150%, by requiring it purchase fleets of trucks, provide meal and rest breaks, and provide worker’s-compensation benefits, among other issues. These prices would be passed off to customers as price increases. The court, relying on prior decisions, held that CTA’s argument would essentially invalidate many state laws “solely on their percentage effect on motor carrier prices” and that such concerns were too “indirect, remote, and tenuous” to invoke the preemption clause of F4A.
It should be noted that there is a split of authority in the federal courts on this issue. The Seventh Circuit and now the Ninth Circuit have held that the F4A does not preempt laws establishing the ABC independent contractor test. The First and Third Circuits, however, have held that the ABC Test is preempted by the F4A. This issue may well be taken up by the Supreme Court in the future. In the meantime, however, motor carriers must now review their business models to comply with AB-5.
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Matthew Wallin is a senior associate in the Los Angeles office where he practices labor and employment law. He has extensive experience defending private business and public entities in litigation and advising clients on labor compliance issues.
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