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Second California court rules key federal law doesn’t preempt AB5

Trucking sector awaits federal appellate court rule on keeping its injunction but if it goes, state precedents won’t block the law on independent contractors

Photo: Jim Allen/FreightWaves

There is now a second state court decision in California ruling that a federal law known as F4A would not preclude the state’s AB5 law from setting the definition of independent contractors. 

The ruling has no immediate impact. The federal injunction handed down in early 2020 that blocked implementation of AB 5 in the state’s trucking sector, because of F4A, remains in place and supersedes any state court decisions. 

It’s now been seven months since a federal appeals court heard arguments on whether that injunction should stay in place. And in that time, two state courts have ruled that the legal reasoning behind the injunction–that F4A precluded AB 5–is faulty.

If the injunction is lifted, and if the lawsuit by the California Trucking Association that spurred it is ultimately unsuccessful, it means that if the trucking industry looks to state courts for relief, it’s not likely to find it. 

The latest decision was in a suit brought by a group of drivers for drayage company East Coast Transport. The claims in the original suit brought by the drivers are similar to so many other driver classification cases: they signed up as independent contractors but they were effectively employees, but given that they were considered independent contractors by East Coast, they didn’t get a wide range of benefits that employees did, such as rest periods and reimbursement of expenses.

In the initial ruling in the case, the court held that the East Coast drivers were independent contractors. But part of the court’s rationale in making its finding was that the April 2018 Dynamex state court decision that created the ABC test to guide litigation regarding independent contractor status was not retroactive, and the employment of the drivers suing East Coast took place before the ABC test laid down in Dynamex. Therefore, the provisions of the ABC test that might otherwise support the idea that the drivers were employees could not be invoked.

But earlier this year, the California Supreme Court ruled that the provisions of Dynamex can be implemented retroactively. That decision is known as the Vazquez case, and the unanimous three-judge panel in the East Coast Transport case said Vazquez “controls here.” As a result, the ruling of the lower court against the East Coast drivers “may not be affirmed.”

That allows the ABC test to be brought into the East Coast case when it goes back to the lower court on remand. 

East Coast argued that the F4A law, known more formally as the Federal Aviation Administration Authorization Act, precludes any state law that could impact “motor carrier routes, rates and prices.” That is the same argument that the CTA used in successfully obtaining the prevailing injunction against AB 5 implementation against the trucking sector. 

Cal Cartage also made that case as well in its lawsuit against the state of California, and was successful at trial. But in November, an appeals court rejected the idea that F4A precluded AB5. 

And now, a second court has rejected the F4A preemption argument. The three-judge panel in the East Coast case addressed the question of whether AB 5 is a “law of general applicability,” or whether it was targeted at certain industries, like trucking. The suggestion that AB 5 was primarily directed at two groups of employees–first, truck drivers and second, gig drivers like those at Uber and Lyft–and was therefore not a law of general applicability was made by attorneys for the CTA in its lawsuit. 

But now two state courts have concluded that AB 5 is a law of general applicability. It is that finding that then led to the conclusion that provisions in F4A that are directed specifically at motor carriers–those regarding routes, rates and prices–can’t preclude a law of general applicability.

The judges in the East Coast case went back to an earlier decision, known as Pac Anchor, which took up the issue of another California law that impacted motor carriers and whether that law was preempted by F4A. In that case, the court ruled that the law Pac Anchor was suing over, the state’s Unfair Competition Law, was a law of general applicability and therefore not able to be preempted by F4A. 

“We agree with the conclusion that Pac Anchor is ‘dispositive’ on the question whether the FAAAA preempts a claim against a motor carrier seeking to enforce the ABC test,” the court in the East Coast case wrote. 

With that settled, the court wrote that with the East Coast case being remanded back to the lower court, it was “unlikely” that East Coast could meet “its burden under the ABC test” given that the ABC test can now be applied retroactively.

The issue for East Coast is the same as for the rest of the trucking industry: the B prong of the ABC test in AB 5. It defines an employee as a person hired to perform a task that is identical or near-identical to the company’s primary business. A trucking company hiring an accounting company to do its books has no issue, but a trucking company hiring independent owner operators to move freight likely would. 

With the East Coast case and the Cal Cartage decisions now both in the books on the state level, it leaves that federal injunction in the CTA lawsuit as the primary block on implementation of AB 5 in California’s trucking sector. 

The East Coast Transport decision was cited by lawyers for the International Brotherhood of Teamsters who are one of the parties in the CTA lawsuit. They sent a letter to the U.S. Court of Appeals for the Ninth Circuit on Friday, pointing out the East Coast case. That decision, the attorneys for the Teamsters wrote, “supports (the union’s) arguments in this case that AB5 is not preempted because the FAAAA does not preempt generally applicable laws like AB 5.”

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  1. Stephen Webster

    Good maybe truck drivers will be paid fairly
    If truck drivers made $21.00 U S per hour plus overtime on payroll we would have a surplus of truck drivers

    1. Former driver

      I am not opposed to drivers making a fair wage. Although I see California’s AB5 law as something that is being applied against people in industries that the government wants to target.

      A few examples: Hair Stylists are exempt from AB 5 but nail salons with the same business model of a licensed person renting space to perform the service is subject to AB 5. Real Estate sales are exempt and yet agents can only work for one broker, so are they really independent? Writers for media were only allowed to write 35 articles a year for one publication until former California politician Willie Brown was no longer able to write his column for the San Francisco Chronicle, then Gavin Newsom introduced an exemption for writers.

      Personally, I don’t want to be an employee, I am at a point in my life where I want to work when I want to work not when someone tells me to work. As you can see in the paragraph above this law is not applied fairly to all people. It is being applied to people in industries that the government wants to target for tax revenue.

      As an owner-operator, you have numerous deductions to take advantage of. As an employee, those deductions are eliminated. Therefore business mileage, cell phone service, accounting services all vanish. Carriers will be forced to have fewer employees due to greater costs of employment and the driver will be under greater pressure to do more for less. After all, an employer has to pay about 30% of the driver’s wages to Workers Comp.

      THis social experiment in California is going to have far reaching negative effects.

      1. Stephen Webster

        In Ontario Canada I see a lot of former truck drivers most were least ops in the homeless shelters when they get sick or injured. The cost is being paid for by mostly small church run nonprofit groups in Ontario. Maybe in the U S a better model exists for paying for their food and housing.

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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.