California’s AB 5 Goes Into Effect, Leaves Questions for Carriers, Owner-Operators

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Now that the U.S. Supreme Court has declined to review a challenge to a controversial California law aimed at reclassifying owner-operators as motor carrier employees, carriers and independent contractors could soon be thrust into an uncertain business environment.

By remaining silent on a challenge to California’s AB 5 law, the high court on June 30 sent a clear message to the trucking industry, but the fallout could be unsettling for some on both sides of the issue.

The California Trucking Association, which asked for a Supreme Court review of its 2018 lawsuit, said of the court’s decision to not hear the case: “Gasoline has been poured on the fire that is our ongoing supply chain crisis.”

CTA also said the AB 5 law “would cause motor carriers and owner-operators to bear the substantial, if not insurmountable, costs and burdens associated with shifting to an employer-employee business model.”

Now that an injunction at the federal district court level has been lifted, the law is immediately enforceable. And based on a statement by California Attorney General Robert Bonta, that’s exactly what the state is planning to do.

The AB 5 law, which was planned to take effect in January 2020, was stalled for a little more than two years due to the federal lawsuit filed by CTA, aimed at seeking to put a stop to a so-called “ABC test” designed to reclassify independent contractors into motor carrier employees.

The three-pronged ABC test requires motor carriers to classify their workers as employees unless they demonstrate that the worker:   

• Is free from the control of the hiring entity.
• Performs work outside the usual course of the hiring entity’s business.
• Is customarily engaged in an independent trade or occupation.

CTA has claimed that the second condition, the B-prong of the test, makes it virtually impossible to block an owner-operator from being reclassified as a motor carrier employee.

It’s unknown what exactly will trigger use of the ABC test. Will independent contractors who want to be carrier employees demand it? Or will specific legal cases be generated by the state’s Division of Labor Standards Enforcement office?

Some legal experts said CTA has little recourse in the courts now, and after the 9th U.S. Circuit Court of Appeals earlier also ruled against the CTA challenge.

The Supreme Court’s denial leaves in place the 9th Circuit’s decision that federal law does not pre-empt application of AB 5 to owner-operators. Further, it establishes that CTA was unlikely to succeed on the Federal Aviation Administration Authorization Act’s pre-emption issue.

“I think it’s a done deal,” said Greg Feary, president of the Indianapolis-based trucking law firm Scopelitis, Garvin, Light, Hanson & Feary. “They could ask the Supreme Court for reconsideration, but I don’t think they’re going to do that. That’s kind of a Hail Mary pass that’s virtually never caught.”

Still, no one seems certain whether any, or how many, of the 70,000 owner-operators domiciled and working in California, really want to become carrier employees, or will be forced by the state to become employees of trucking companies.

“AB 5 is so wide-ranging that knowing how to comply is impossible for many directly working in trucking,” said Todd Spencer, president of the Owner-Operator Independent Drivers Association.

OOIDA filed an amicus brief with the Supreme Court in support of knocking down the AB 5 law, claiming that many independent contractors want to keep their independent status. “California has provided no guidance to owner-operators about how they can work as independent contractors under this new scheme, and truckers will be at the mercy of the courts to interpret how the law will be applied.”

What if the state attempts to force a carrier to transition an independent contractor into an employee? In that case, a carrier could take the issue to court, said Scopelitis’ Feary.

“I suppose a carrier could make an argument based on the ABC test,” Feary said. “But, in the end, will a left-leaning California judge buy that argument?

As for CTA, Eric Sauer, senior vice president of government affairs for the trade association, said the group is working with its attorneys and its legal advisory members to explore legal options, most likely aimed at the federal district court level.

“We’re going to be presenting those options to our membership in the coming days. There are some legal pathways that we can pursue.”

He added: “The valid question is, do these owner-operators even want to become employee drivers? Time and time again, these owner-operators that we have met with over the years say they like being owner-operators. They like the flexibility and they like the economic opportunity it provides them.”

He said he’s concerned that some drivers, if forced to be reclassified, will opt to leave their jobs — further exacerbating the driver shortage.