FAAAA Delay: Curves Ahead for AB 5

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Judge Benitez of the United States District Court for the Southern District of California recently granted the California Trucking Association’s (“CTA”) motion for preliminary injunction enjoining the enforcement of AB 5.[i] This week California and intervening-defendant the International Brotherhood Teamsters filed interlocutory appeals from that decision to the United States Court of Appeals for the Ninth Circuit. Opening briefs are due on February 26, 2020.

As previously discussed by The Cullen Law Firm, AB 5 requires hiring entities to satisfy a three-part test (“ABC test”) to enter into an independent contractor relationship with a worker. The court held that AB 5 is the type of “all of nothing” state law that “categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.”[ii] According to the court, such laws are likely preempted by the Federal Aviation and Administration Authorization Act of 1994 (“FAAAA”), which prohibits state laws or regulations “related to a price, route, or service of any motor carrier.”[iii]

The Ninth and First Circuit Decisions Pump the AB 5 Brakes.

The court relied on both Ninth and First Circuit jurisprudence to hold that AB 5 is likely preempted by the FAAAA. While acknowledging that FAAAA preemption of the ABC test is a matter of a first impression for the Ninth Circuit, the court noted that the Ninth Circuit has twice opined that a law restricting the ability of motor carriers to hire independent contractors (i.e., owner-operators) would be preempted.[iv] In American Trucking Associations, Inc. v. City of Los Angeles[v], the Ninth Circuit “concluded that it could ‘hardly be doubted’ that the FAAAA preempted the provision . . . ‘phasing out’ of thousands of independent contractors.”[vi] Nearly ten years later, in California Trucking Association v. Su[vii], the Ninth Circuit again endorsed the “‘obvious proposition . . . ‘that an all or nothing rule requiring services be performed by certain types of employee drivers . . . was likely preempted.’”[viii]

Although not binding, the Court also relied on the First Circuit’s decision in Schwann v. FedEx Ground Packaging System.[ix] Schwann addressed a similar ABC test that also required hiring entities to demonstrate that the “person performs work that is outside the usual course of the hiring entity’s business” in order to establish an independent contractor relationship.[x] The First Circuit determined that the ABC test was preempted by the FAAAA because “‘a court, rather than the market participant, would ultimately determine what services that company provides and how it chooses to provide them.’”[xi]

The court’s decision is consistent with at least three other federal district courts that assessed the enforceability of the ABC test, then under the California Supreme Court’s Dynamex[xii] decision, prior to the passage of AB 5.[xiii] Those courts, as in the present case, also relied upon the American Trucking Association, Su, and Schwann decisions.[xiv] Although the preliminary injunction continues to tip the scale in favor FAAAA preemption, there is no consensus among the courts yet.[xv]

Fork in the Road or Merger Ahead?

The disagreement among California federal district courts reflects a larger, long-standing debate about the scope of FAAAA preemption. For the past two decades, the circuit courts have been at odds. While the Ninth Circuit has traditionally interpreted FAAAA preemption narrowly, the First Circuit has adopted a broad interpretation.[xvi] The United States Supreme Court recently declined an opportunity to address that split.[xvii]

Judge Benitez held that AB 5 is likely preempted by the FAAAA even though “FAAAA’s preemption clause ‘does not mean the sky is the limit.’”[xviii] It is unclear whether the Ninth Circuit, will chart a similar course concurring with the First Circuit’s holding in Schwann or apply its established narrow interpretation in favor of a state’s authority to impose labor and wage laws. That question will likely be answered this spring once appellate briefing is concluded.

Pay Close Attention to AB 5 Traffic Updates.

In the meantime, pursuant to the preliminary injunction, California’s motor carriers and owner-operators are free from AB 5. They are not, however, on the open road just yet. Depending on the Ninth Circuit and whether other states adopt similar ABC tests, motor carriers and owner-operators could eventually be taking the exit for the Supreme Court.

 

For more information about AB 5, the ABC test, and the ABC test’s impact on the motor carrier industry, please contact:

Greg Reed                    (202) 298-4767 grr@cullenlaw.com

Paul D. Cullen, Jr.        (202) 944-8600 pxc@cullenlaw.com

 

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[i] California Trucking Association v. Becerra, No. 3:18-cv-02458-BEN-BLM, 2020 WL 248993, at *5-9, *11 (S.D. Cal. Jan 16, 2020) (granting motion for preliminary injunction on FAAAA preemption grounds).

[ii] Id. at *7.

[iii] See id. at *9 (“By effectively prohibiting motor carriers from contracting with independent-contractor drivers, AB-5 and its ABC test would transform California into its own patch in the ‘very patchwork’ of state-specific laws Congress intended to prevent.”).

[iv] Id. at *6.

[v] 559 F.3d 1046, 1053 (9th Cir. 2009).

[vi] California Trucking Association, 2020 WL 248993, at *6 (citing American Trucking Associations, 559 F.3d at 1056).

[vii] 903 F.3d 953, 964 (9th Cir. 2018).

[viii] California Trucking Association, 2020 WL 248993, at *6 (citing Su, 903 F.3d at 964).

[ix] 813 F.3d 429, 438 (1st Cir. 2016).

[x] California Trucking Association, 2020 WL 248993, at *7.

[xi] Id. (quoting Schwann, 813 F.3d at 438).

[xii] Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903 (2018).

[xiii] See B&O Logistics, Inc. v. Cho, No. CV 18-5400 DMG, 2019 WL 289876, at *3 (C.D. Cal. April 15, 2019); Valadez v. CSX Intermodal Terminals, Inc., No. 15-cv-05433-EDL, 2019 WL 1975460, at *6-8 (N.D. Cal. March 3, 2019); Alvarez v. XPO Logistics Cartage, LLC, No. CV 18-03736 SJO, 2018 WL 6271965, at *4-5 (C.D. Cal. No. 15, 2018).

[xiv] Id.

[xv] See Henry v. Central Freight Lines, Inc., No. 2:16-cv-00280-JAM-EFB, 2019 WL 2465330, at *7 (E.D. Cal. June 13, 2019); W. States Trucking Ass’n v. Schoorl, 377 F.Supp.3d 1056, 1070-72 (E.D. Cal. March 29, 2019).

[xvi] Compare Dilts v. Penske Logistics, LLC, 769 F.3d 637, 646-47 (9th Cir. 2014) and Ridgeway v. Walmart, Inc., Nos. 17-15983 & 17-16142, 2020 WL 55073, at *13-15 (9th Cir. Jan. 6, 2020), with Schwann v. FedEx Group Package Sys., Inc., 813 F.3d 429, 432-33 (1st Cir. 2016) and Massachusetts Delivery Ass’n v. Coakley, 769 F.3d 11 (1st Cir. 2014).

[xvii] Am. Eagle Express, Inc. v. Bedoya, 140 S. Ct. 102 (2019) (denying petition for writ of certiorari).

[xviii] California Trucking Association, 2020 WL 248993, at *6 (quoting Su, 903 F.3d at 960-61).

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