On April 28, 2021, the U.S. Court of Appeals for the Ninth Circuit issued a groundbreaking ruling affecting the trucking industry in California Trucking Association v. Rob Bonta (“CTA v. Bonta”).[1]  In its decision, the Ninth Circuit reversed the district court’s preliminary injunction and held that the application of AB 5’s ABC test to motor carriers is not preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”).   Accordingly, motor carriers across the State of California will now need to prepare for the injunction to likely be lifted in May and dramatically adjust their operations based on the limited options available.  While this decision has major implications for motor carriers and independent owner-operators throughout California, as further discussed below, it is likely not the last legal hurdle for the embattled AB 5 as a petition for a rehearing en banc (i.e., before the entire bench) might be forthcoming.

Ultimately, the Ninth Circuit decided in CTA v. Bonta that AB 5 is not preempted by the FAAAA because it 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.”  In reaching its decision, the Ninth Circuit found that the California Trucking Association had the requisite standing required on behalf of its members.  However, the Ninth Circuit held that the district court erred on the basis that the California Trucking Association is “unlikely to succeed on the merits” because of the well-established precedent that generally applicable labor laws (e.g., “Borello test”) are not preempted by federal law.  The Ninth Circuit discussed such precedent at length including its prior holding that the Borello test would “at most impose modest increases in business costs…” and that it would “not have an impermissible effect, such as binding motor carriers to specific services….”   In the end, the Ninth Circuit determined the same analysis regarding Borello applied to the ABC test from AB 5.

Prior to reaching the Ninth Circuit, the California Trucking Association and two individuals sued in the United States District Court for the Southern District of California to enjoin the State from enforcing AB 5.  The California Trucking Association argued that AB 5 should be expressly preempted by the FAAAA because that federal law contains express language prohibiting any state from passing laws that relate to “a price, route, or service of any motor carrier.”  AB 5 codified the ABC test into Labor Code section 2775 and it states that any person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates the following criteria:

1. the person is free from the control and direction of the hiring entity in connection with the performance of the work—in contract and in fact;
2. the person performs work that is outside the usual course of the hiring entity’s business; and
3. the person is customarily engaged in an independently established trade, occupation, or business.

On January 16, 2020, the district court agreed with the California Trucking Association and granted the preliminary injunction, thereby prohibiting the State from enforcing AB 5 against carriers.  The State appealed and argued in its Opening Brief that: (i) the district court erred in concluding that the California Trucking Association was likely to succeed on the merits because the FAAA does not preempt generally applicable labor regulations; (ii) the California Trucking Association’s 19-month delay in seeking preliminary relief undermines their claims of irreparable harm; and (iii) the balance of equities and public interest on behalf of employees weigh in favor against enjoining AB 5.

As fully discussed above, the Ninth Circuit ultimately sided with State.  While the decision complicates the motor carrier industry, Higgs Fletcher & Mack has a team of experienced employment and transportation attorneys ready to assist trucking organizations and businesses in navigating the difficult legal landscape.

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[1] The case was previously titled California Trucking Association v. Xavier Becerra but that was prior to Mr. Becerra’s nomination and approval as the next United States Secretary of Health and Human Services.