California’s trucking industry is facing the reality that its battle to keep the state’s AB5 independent contractor law out of the trucking sector is likely at a dead end.
Appeals are possible of the decision Friday in the U.S. District Court for the Southern District of California that emphatically rejected all the arguments by the California Trucking Association (CTA) and the Owner-Operator Independent Drivers Association. But several observers of the legal battle that has gone on for more than four years said that may prove too big a challenge to proceed.
“I’m sure that some will advocate for the appeal and exhausting all efforts, but I’m certainly not bullish on the likelihood of success in the 9th Circuit,” an attorney who is not representing any of the parties and requested anonymity said of possible future CTA/OOIDA action. “It is time to ‘move on’ absent the political will to change.”
“It’s hard to imagine the industry committing fees to this now,” another attorney, who also requested anonymity, said.
AB5, passed in 2019, codifies the so-called ABC test in setting guidelines for determining whether a worker is an employee or an independent contractor. It is seen as leaning heavily toward defining a worker as an employee.
The B prong of the ABC test is a particular problem for the trucking sector. It defines an independent contractor as a worker who “performs work that is outside the usual course of the hiring entity’s business.” A truck driver hired as an independent contractor either as a one-time use or through a lease purchase plan could be seen as violating the B prong. And given that moving freight through independent contractors is a fundamental pillar of trucking today, the threat from AB5 is viewed as existential by some.
Still no word on an appeal
An OOIDA spokeswoman said Saturday the group was considering whether to appeal. She said Monday there was no further addition to that statement.
Eric Sauer, the president of CTA, said in a prepared statement that his group was “extremely disappointed in this ruling.”
“AB 5 continues to disrupt the lives and businesses of hard working independent truckers who, after four years, are still provided little to no guidance on how to protect their livelihoods,” he said in the statement. “These men and women, at a minimum, deserve to have some clarity about how to comply with the law. Unfortunately, that clarity has not been brought about by this litigation.”
A CTA spokeswoman said the group is still considering whether to appeal. In an email to members obtained by FreightWaves, CTA officials said, “we will be discussing remaining options moving forward with counsel and supporters of the litigation.”
The CTA (before OOIDA was a co-plaintiff) already lost once in the full 9th U.S. Circuit Court of Appeals. That decision in April 2021 overturned the initial New Year’s Eve 2019 preliminary injunction handed down by Judge Roger Benitez — the same judge who rejected all the CTA/OOIDA arguments last week — that AB5 could not be enforced in the California trucking sector because it conflicted with the Federal Aviation Administration Authorization Act (FAAAA).
Benitez cited that loss at the circuit level as why he did not repeat his earlier finding about FAAAA preemption of a state law like AB5. But one trucking official in California said the industry had hoped Benitez might return to his earlier argument anyway. “I think a lot of us hoped he may have been willing based on his original well-written decision on F4A preemption,” the official said, requesting anonymity.
In an email sent to a wide audience, the transportation practice of the Benesch law firm cautioned that a potential end to the AB5 fight was not necessarily the apocalypse for the trucking industry that it might seem to be at first glance.
“Considering that AB5 has been in effect for over four years, and has been enforceable against the trucking industry since mid-2022, most responsible motor carriers operating in California have already pivoted to alternative business models that comply with AB5,” Benesch said in its email. “Those who have not yet done so are cautioned to do so promptly.”
As the chart from FreightWaves SONAR illustrates, there is no obvious uptick in freight rates for dry van movements out of Chicago. The data in the graph is an all-in number for the cost of the truck.
However, it would not reflect prices in the Southern California drayage community, which is seen as a key target of the backers of AB5.
Several attorneys have noted that the legal landscape lacks any known state enforcement actions against trucking over alleged AB5 violations. Those actions could have begun anytime after the New Year’s Eve 2019 injunction disappeared, which happened after the U.S. Supreme Court chose not to review the appellate court’s decision overturning that injunction.
What might happen if the state starts enforcing AB5 in trucking
But that doesn’t mean there won’t be enforcement. As one California trucking official told FreightWaves, requesting anonymity, companies still employing drivers under a lease purchase agreement may find themselves on the wrong side of any revived state enforcement effort. Avoiding that situation was seen as one of the reasons why drayage provider Universal Logistics (NASDAQ: ULH) switched its independent contractors to employees in 2022.
But the source added that while a California trucking company with lease purchase agreements is possibly “screwed” under AB5 enforcement, “there are few doing that in California.”
The “other” AB5 case moves on
A second court case involving the validity of AB5 is also making its way through the courts: the so-called Uber/Postmates case, filed by the companies in 2019, like the original CTA case. It is also known as the Olson case, after the lead named plaintiff.
Oral arguments in front of the entire 9th Circuit court, known as an en banc hearing, are scheduled for Wednesday.
That case, like the CTA AB5 case, has had a back-and-forth history. The U.S. District Court for the Western District of California ruled against Uber and Postmates, which in its original suit argued that AB5 should be overturned on several grounds. One of the core arguments was that the myriad of exemptions given to various businesses — but not trucking or gig workers, like those at Uber and Postmates — constituted an illegal violation of equal protection of the laws.
A three-judge panel of the 9th Circuit reversed that decision, leading to the appeal to be heard on Wednesday.
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