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Judicial panel hears why AB5 should be kept out of California trucking sector

Photo: Jim Allen/FreightWaves

In a 45-minute hearing viewable online for all the trucking industry to see, a Ninth Circuit Court of Appeals panel appeared split on whether a temporary injunction barring California’s AB5 employee classification law from being enforced within the trucking industry should be allowed to stand.

The law firm of Scopelitis Garvin Light Hanson & Feary noted in a commentary after last week’s hearing, “It is always difficult to predict the outcome of a case based solely on oral argument.” But the fact that two of the three judges questioned the reasoning behind the injunction “raises some concern the court is leaning toward reversing the District Court’s order,” noted the Scopelitis commentary.

At issue is whether the lower court, in opinions issued by Judge Roger Benitez earlier this year, erred in concluding that the Federal Aviation Administration Authorization Act (F4A) of 1994 grants a broad exemption to the trucking sector from enforcement of state labor laws like AB5. The F4A law bars any state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” 

The initial request for an injunction and the challenge to the law, citing F4A, came from the California Trucking Association (CTA). It filed suit against the state and has prevailed in the handing down of a temporary injunction as well as a preliminary injunction blocking AB5’s implementation in California. 

Efforts by the state to defend the law were joined by the International Brotherhood of Teamsters. Attorneys representing CTA, the state of California and the Teamsters made oral arguments during the videotaped hearing as the court considered whether to maintain the injunction. 

One issue that arose repeatedly was the question of “all or nothing.” The question was whether AB5 is an all-or-nothing rule or whether it has some leeway that would allow the use of independent owner-operators. Andrew Tauber, representing the CTA, said courts in earlier cases have made “abundantly clear” that all-or-nothing rules are not permissible under F4A. 

Judge Mark Bennett — who was not one of the two justices Scopelitis saw as potentially skeptical of the earlier Benitez rulings — said the lower court judge had asked both the state and the Teamsters to say how AB5 was not an all-or-nothing test. Bennett said they failed to do so.  

Bennett asked attorney Jose Zelidon-Zepeda, representing California Attorney General Xavier Becerra, whether AB5 is effectively an all-or-nothing test and also why the “B prong” of AB5 — and the Dynamex decision upon which AB5 is based — wouldn’t effectively preclude a California trucking company from ever hiring an independent owner-operator. 

Zepeda responded that given the way the CTA was describing the impact of the case, it would be “very difficult” to hire an independent contractor. But Zepeda added that this is not the review that Judge Benitez engaged in while handing down the temporary injunction. The lower court judge did not review whether AB5 would affect prices or services of motor carriers, which is the test that F4A requires.  

The B prong of AB5 and Dynamex allows independent contractors to be hired if the contractor is engaged in activities that aren’t what the business normally does. So a trucking company can hire an independent contractor as an accountant. The question is whether it can hire an independent owner-operator truck driver under AB5.

Another issue that arose was whether AB5 is a law of “general applicability,” meaning it applies to all. Such a finding could impact whether an appellate court would uphold the law. 

AB5 specifically targets the trucking industry, Tauber said, and is not a law of general applicability. He pointed to specific statements made by AB5 sponsor Assemblywoman Lorena Gonazles, who described the independent owner-operator model as “outdated.” Tauber also noted the lengthy list of specific exemptions from the law in AB5, from surgeons to travel agents.

Tauber said the CTA has presented evidence that AB5 will have a “significant effect” on motor-carrier operations like routes and prices, and trucking companies would be “compelled” to reclassify drivers. “That is a sea shift of major proportions,” Tauber said.

But attorney Andrew Kushner, representing the Teamsters, noted that AB5 contained a business-to-business exception that provides for ways in which a business can hire an independent contractor if certain tests are met. 

That test has 12 criteria. Zepeda and Kushner invoked the business-to-business exception multiple times in their arguments. 

The CTA, they said, has said there is “no way” trucking companies can comply with AB5 through the business-to-business exception, “but we have no particular fact pattern” that proves that so far in the litigation, the lawyers said. 

According to Scopelitis, which wants to see AB5 kept out of the state, summed up some of the debate: “The lawyers for the state and Teamsters would not articulate a single situation in which a motor carrier could satisfy the ABC test with respect to owner-operators.”

Some of the dialogue that appears to concern Scopelitis could be seen in statements of U.S. District Judge Douglas P. Woodlock. At one point, Woodlock said of the lower court decision by Judge Benitez: “He really didn’t make a factual determination, did he?”

Judge Woodlock said that Congress, in passing F4A, was trying to “balance two things”: allowing states to continue to be used as “laboratories” for various policy measures while still establishing a “uniform standard” for economic competition. The debate in the courtroom is “to begin the conversation, not to end the conversation. That is why I keep focusing on fact-finding as necessary.”

The judge and Tauber then engaged in a discussion about whether AB5 and F4A could co-exist. Judge Woodcock, downplaying the all-or-nothing argument and the idea that F4A precludes AB5 on that basis, said the court “simply looks to see whether there is a fair balance of the two competing considerations (which are) the background principles and competition.”

Tauber replied that AB5 is “striking at the heart of competition” by significantly hindering or even eliminating the owner-operator model from California’s trucking sector. 

More articles by John Kingston

Second court puts a bit hit on imposing AB5 against the California trucking sector 

Drilling Deep: sticking a stake into the heart of California’s AB5 so far

CTA makes its case to keep injunction against AB5 in California

John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.