The California trucking industry is braced for impact after the U.S. Appeals Court for the Ninth Circuit lifted the injunction on the Golden State's AB5, which regulates the use of independent contractors in trucking. The lifting of the injunction clears the way for AB5 to apply to the trucking industry.

California transport officials had gone almost 18 months since winning the injunction. But because its merits were argued in the federal court in September, most legal observers suspected the injunction would be lifted.

Greg Feary, president of Scopelitis, Garvin, Light, Hanson & Feary, was one attorney who suspected the three-judge panel was skeptical of the injunction. During a September hearing, two of the three federal judges seemed ready to lift the injunction and allow the law to proceed, even as the California Trucking Association continued its appeals.

On Wednesday, the appellate court acted and said AB5 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."

Therefore, two of the judges wrote, it is not preempted by a 1994 federal law.

Feary said that as the law was shaped in 2019, many industries were exempted from AB5. And on Election Day 2020, Uber, Lyft and food-delivery services were also exempted from the law via a referendum overwhelmingly approved by California voters.

Feary said AB5 was targeted toward transport companies, and fails the test of applicability.

"How is it a law of general applicability when so many industries were exempted?" asked Feary.

How we got here

Misclassification of workers is something that frequently comes out in state legislatures and courts. Hiring independent contractors "allows employers to avoid paying unemployment and other taxes on workers, and from covering them on workers compensation and unemployment insurance," according to the National Conference of State Legislatures.

Workers across the country who felt they had been misclassified would sue, but it wasn't until 2018 that they scored an earth-shaking win.

On April 30, 2018, the California Supreme Court — in Dynamex Operations West Inc. v. The Superior Court of Los Angeles County — came up with three steps for classifying workers as either employees or independent contractors.

The court said a carrier could classify an independent contractor only if the employer established:

• A) That 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.
• B) And that the worker performs work that is outside the usual course of the hiring entity's business.
• C) And that 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 ruling rocked California.

And the trucking industry said the so-called "B prong" is where the rub is.  A driver for a carrier is unlikely to perform work outside of a carrier's "usual course" of business.

In 2019, the state codified the 2018 California judicial decision that created the three-step test. The CTA immediately sued, arguing that the Federal Aviation Administration Authorization Act of 1994 prevented the state from dabbling in the affairs of motor carriers.

A judge granted a temporary restraining order, preventing AB5 from applying to trucking, on Dec. 31, 2019. Then in January 2020, the CTA was granted its preliminary injunction.

Some authorities appealed the decision, but trucking was largely left alone, until now.

Battles to come

The B prong of the test and AB5 are direct shots at the manner in which many trucking firms begin and grow, according to David Heller, vice president of government affairs for the Truckload Carriers Association. Major TL carriers, such as Prime, grew out of the independent-carrier model, Heller said.

"Any threat to that business model we would certainly push back against," said Heller. "It's a needed entity in this business."

Joe Rajkovacz, director of government affairs for the Western States Trucking Association, said a new appeal will be up to the CTA. One of two options is an "en banc" request, Rajkovacz said, in which CTA asks a wider panel of the Ninth Circuit to review the decision.

Or the CTA could go to the U.S. Supreme Court. But the problem with that route is the highest court is nearing the end of its legal year, Rajkovacz said.

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"It's thermonuclear."

Joe Rajkovacz

Director of Government Affairs for the Western States Trucking Association

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But some challenge will come, because implementing AB5 would be too damaging to the transport community, Rajkovacz said. And there is no easy fix for independent drivers trying to mesh with the law. If drivers seek their own authority from the FMCSA, they would still need to seek work through a broker.

Rajkovacz said California's employment agencies have also been targeting freight brokers as misclassifying drivers. Overall, the independent model is allowed by federal law, but it is now in jeopardy in California.

"It's thermonuclear," said Rajkovacz of AB5 being implemented by late May.

That could mean fleets with independent contractors could begin to leave California, if they do not change the composition of their workforce by converting drivers to company employees. Feary said fleets are already pulling trucks out of California.

Rajkovacz said enforcing AB5 in trucking would create two regions of the United States: California, which would not allow independent contractors in transport, and the rest of the nation, which would.

That bleak outlook might not happen soon. In a Wednesday news release, Shawn Yadon, CTA CEO, kept up the legal fight.

"We continue to stand by our initial claim that the implementation of AB5's classification test is preempted by federal law and is clearly detrimental to the long-standing and historical place California’s 70,000 owner-operators have had in the transportation industry," Yadon said. "The California Trucking Association will take any and all legal steps necessary to continue this fight on behalf of independent owner-operators and motor carriers operating in California."

The Owner-Operator Independent Drivers Association declined to comment as its officials reviewed the decision.

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"I don't think this is the end, by any stretch of the imagination."

David Heller

Vice President of Government Affairs for the Truckload Carriers Association

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But not every organization opposes AB5. The Teamsters celebrated the win and said independent drivers had been exploited.

"Today's ruling ... is a massive victory for California’s truck drivers, who for far too long have faced exploitation and misclassification at the hands of trucking companies that place corporate profit ahead of drivers’ safety and well-being," the Teamsters national organization said in a statement. "The court's ruling confirms that California's AB5 law can be enforced against trucking companies that misclassify their workers — and it should be obvious to everyone that drivers who perform work for a trucking company are employees of that company, not independent contractors."

Heller said he expects further battles to come. Those battles will be confined to courtrooms for now, as the California State Assembly still supports its law. A change in federal law is possible, but President Joe Biden and the Democratic-controlled Congress have signaled they favor a federal version of AB5.

But with Congress evenly divided in the Senate, it is unlikely major changes will be made. That means trucking officials are likely to go to the highest court in the land.

"I don't think this is the end, by any stretch of the imagination," said Heller.