The brief filed by the California Trucking Association in response to the solicitor general’s views on whether the U.S. Supreme Court should review the state’s AB5 law opens by citing a well-known legal philosopher: Chico Marx.
“Who you gonna believe, me or your own eyes?” is the famous Chico quote (spoken while dressed as Groucho) the CTA invokes in its critique of the solicitor general (SG) recommendation that the Supreme Court not review a 9th Circuit appellate court decision. That decision, if allowed to stand, would immediately implement California’s AB5 independent contractor law in the trucking sector.
“The government … postulates that AB5’s requirements are easily avoided; that the law may have no impact at all on carriers or owner-operators,” the CTA brief said. “In fact, AB5 was designed to, and surely will, upend the operation of the trucking industry.”
The legal question before the Supreme Court is whether AB5 will impact prices, routes or services, the three-pronged test that is contained in the Federal Aviation Administration Authorization Act, the so-called F4A. A lower court injunction in early 2020 found that applying AB5 to trucking had the potential to impact those three parts of the business and was therefore preempted by federal law, which says a state action must leave those three factors undisturbed.
The injunction was overturned in April 2021, but has been allowed to stay in place during the appeals process.
The status of AB5 at the Supreme Court is that the full court is considering whether to grant certiorari of the appellate court decision. There is no guarantee that the court will make its decision before the end of its current term, which closes at the end of June. If it does not make a decision on granting certiorari, the issue spills over into the next term and the lower court injunction against implementation of AB5 continues to stay in place. If review is denied, AB5 will become a reality for the California trucking sector. There is no interim period.
CTA’s brief is therefore a dual document: It urges the Court to grant review of its appeal, and it provides a roadmap for the arguments it would presumably make before the full court if review is granted.
Those arguments have been consistent throughout the legal process. But the SG brief gave the CTA attorneys (from the firms of Ogletree, Deakins, Nash, Smoak & Stewart in California, and Mayer Brown in Washington) a clearly-defined target to pursue in their own brief.
The CTA attorneys maintain that the impact of AB5 on trucking, with its tight definition of what fairly constitutes an independent contractor, would create such upheaval in trucking that it would impact prices, routes or services.
“We have, to date, observed no indication that the current prices for liner shipping are a result of collusive or illegal conduct on the part of the major ocean carriers in our markets,” the report said.
Among some of the key points made by the CTA brief:
- A proposed workaround cited by the SG — that owner-operators be hired as part-time workers and supply their own truck — “assumes that owner-operators will give up their independent business and become employees of carriers,” said the CTA brief. But owner-operators “regard independence and flexibility as far more important than do employee drivers.” “It therefore can be expected that numerous owner-operators would retire, leave California to work … in other states, or seek work opportunities in other industries, rather than become employees of carriers.” The proof of that, according to CTA, is that even with numerous employee driver jobs available now, independent owner-operators are not significantly leaving behind their business to move to a company payroll.
- If that sort of shift did happen — with drivers moving from independence to payroll — it would necessitate wholesale changes in business models that would “alter the incentives governing the transport of goods, with impossible-to-quantify consequences,” according to the CTA.
- An issue that has not received a significant amount of attention in earlier briefs is the focus of one of CTA’s arguments: out-of-state drivers. The brief notes that AB5 applies to all drivers in California, even if they are coming from out of state. Implementing AB5 for California trucking would either require an employee driver to operate for an entire trip — since an independent owner-operator crossing the border from another state would fall under the law in California — or “incur the expense and delay of transferring the freight to a truck driven by an employee when the freight enters California, or to a truck owned by an owner-operator when the freight leaves California. The government makes no attempt to explain how this problem could be addressed.”
- The SG’s brief, according to CTA, relies heavily on the suggestion that AB5’s business-to-business exception could be utilized for California trucking companies to continue to hire independent owner-operators as needed. The B-to-B exception is a multi-pronged test that must pass with a grade of 100%: If any of its 12 points are not met, the exception can’t be utilized. “There is substantial certainty that attempted use of the business-go-business exception would be challenged in class-action litigation and state enforcement proceedings, with the prospect of enormous civil damages, as well as criminal and civil penalties,” the CTA brief said. “No business could be expected to roll the dice in the face of that uncertainty.”
- The CTA’s brief also maintained that the decision of the Ninth Circuit is in conflict with other decisions regarding F4A and the question of the extent of F4A preemption over state action. Lawyers connected to various trucking groups, while avoiding predictions of what the Supreme Court might do, have repeatedly said that the fact that the Court has not denied certiorari yet, and has asked the SG for its opinion, shows the question of F4A preemption is viewed by the court as significant. It’s also at the heart of a case up for possible review involving C.H. Robinson. (NASDAQ: CHRW)
AB5 is in effect throughout California, with a number of exceptions carved out. Most of the exceptions were granted by the legislature; the one blocking AB5 from trucking came from the lower court.
While various parts of the law are problematic for the trucking industry, the individual section that is expected to create the most difficulty is the so-called B prong of the ABC test that is at the heart of AB5’s definition of when a worker is an employee as opposed to an independent contractor.
The B prong says a worker can be considered independent if he/she “performs work that is outside the usual course of the hiring entity’s business.” An independent owner-operator hired by a trucking company has obvious risks under the B prong.