The two sides in the federal court case that for now is keeping California law AB5 from being enforced against the trucking sector are taking a recent state court decision and urging completely different interpretations.
Following a recent state court ruling in a case involving drayage provider Cal Cartage that a key federal law does not preclude allowing AB5 to be enforced against trucking, attorneys for both the California Trucking Association and the International Brotherhood of Teamsters sent letters to the U.S. Court of Appeals for the 9th Circuit, spelling out how they think the decision should affect their ongoing federal case.
AB5 is the name of the law that codifies the 2018 landmark Dynamex decision. While complex, the key issue for the trucking industry is the so-called “B prong,” which on the surface would seem to require that a business entity hiring an independent contractor to perform an activity that is at the heart of the business’ role — like a trucking company hiring an independent truck driver — must consider that person to be an employee rather than an arm’s-length independent contractor.
Not surprisingly, the two attorneys took very different approaches in their letters. The more forceful missive comes from the Teamsters attorneys. That is not surprising given the fact that if the three-judge federal panel reviewing the earlier injunctions against imposition of AB5 agree with the state court in the Cal Cartage case, it is likely that the injunction would be lifted and AB5 could become the law of the trucking world in California. .
What the state court ruled in the Cal Cartage case is that the Federal Aviation Administration Authorization Act, the so-called F4A, does not preclude imposition of AB5. The finding that the federal law precluded the state law was at the heart of the injunctions handed down by a lower federal court in the suit brought by the CTA, first on Dec. 31 and then reaffirmed a few weeks later. (An earlier decision this year in the Cal Cartage case also held that F4A effectively blocked AB5 in California.)
The Teamsters letter was sent by Stacy Leyton and Andrew Kushner, attorneys for Altshuler Berzon, the law firm representing the Teamsters. (The case filed by the CTA was against the state of California, but the Teamsters are intervenors on behalf of the state.)
One of the disputes over AB5 is whether the law is a “law of general application.” The Teamsters attorneys noted that the judges in the Cal Cartage case concluded that it was, swatting back the argument that the lengthy list of exemptions for certain industries effectively rendered AB5 not a general law of applicability. But the judges in the Cal Cartage case said there was nothing in the history of F4A that “suggests Congress intended to preempt a worker-classification test applicable to all employers in the state.”
“The decision supports the arguments of the IBT in this case,” the Teamsters lawyers wrote.
A letter sent this week by Andrew Tauber, an attorney with the firm of Meyer Brown and outside counsel for the CTA, seeks to rebut several of the conclusions the Teamsters are arguing that the federal judges should take away. He reiterated his point sent in an earlier letter that AB5 was not a law of general applicability. Tauber has cited the many exemptions to AB5 in both that law and a subsequent law as showing that it is targeting specific industries, like trucking, and therefore doesn’t have the protections that a law of general applicability would otherwise have. Tauber has noted separately that with driver services like Uber getting out from under AB5 through the Proposition 22 vote on Election Day, AB5 is more targeted at trucking than ever.
Tauber’s letter also brings up the question of the “business-to-business exemption,” and that is part of the discussion that the trucking industry is probably going to need to keep its eye on if the federal court overturns the injunctions protecting the industry from AB5.
AB5’s B2B exemption theoretically would allow a company to hire workers who performed the duties of the hiring company (like a trucking company hiring an independent owner-operator) if certain standards were met.
In the arguments before the appeals court in early September, there was debate over whether AB5 would have an effect on “prices, routes or services,” the language in F4A that blocks state action if those market features are affected by a state law. The injunction decisions held that they would be impacted. But questioning by at least two of the judges on that panel indicated skepticism about whether AB5 did have the potential to affect prices, routes or services.
If that leads the judges to conclude that AB5 and F4A can co-exist — as the Cal Cartage decision states — then the focus may turn to the B2B exemption. (For now, the federal injunction takes precedence over the Cal Cartage decision.)
Statements by some of the judges in the September hearing seemed to suggest that they viewed the B2B exemption as being a way in which independent owner-operators could be hired, thereby minimizing the impact on “prices, routes or services.” The judicial panel in the Cal Cartage decision wrote that it was “unpersuaded … that independent owner-operators can never meet … the business-to-business exemption.”
CTA attorney Tauber wrote in his most recent letter to the federal court that “notably, the state … has never endorsed the view that motor carriers can satisfy the business-to-business exemption.”
But if the AB5 injunction is overturned by a federal court, it is going to send companies and their attorneys scrambling to interpret that exemption. Last year, Brigham Cheney, an attorney with the firm of Atkinson, Andelson, Loya, Ruud & Romo, penned a blog posting on the B2B exemption to try to make sense of it. He called the B2B exemption “perhaps the narrowest AB5 exemption” in contrast to other waivers in which entire professions were given a pass from the law.
The exemption sets out criteria that would allow an independent contractor to be hired by a company in the same line of work. But there can’t be any “misses”; as Cheney noted, all of the criteria must be met.
It’s a long list. Some would presumably be easy to meet for an independent owner-operator being hired by a trucking company, such as a requirement for all needed licenses and that the contractor needs to have separate offices from the hiring entity.
But it also involves less clear requirements, such as “control,” in which the contractor must be free from the control and direction of the contracting company. Additionally, the services of the contractor must be directed at the contractor, not its customers.
For trucking, that would seem to raise the question: If an independent owner-operator is hired by a trucking company to deliver a truckload of freight to a customer, is it serving the trucking company or the customer?
Cheney cited a trucking example to demonstrate how complex the issues might become. He pointed to a case in which a moving truck would be hired to haul waste even if most of the time it hauled furniture. Citing language in the law, Cheney asked: “Does the ‘usual course of business’ mean transportation services generally? Or only transportation of furniture? AB5 provides no clarity on these nuances.”
It may take trial and error to figure it all out, Cheney wrote: “Plaintiffs will try to take advantage of these ambiguities.”