Appeals Court Clears The Way For Enforcement of California’s I/C Wipeout Law

San Francisco, CA – The U.S. Court of Appeals for the 9th Circuit has cleared the way for enforcement of a controversial California labor law most trucking groups say will wipe out the owner-operator model within the state.

In a 2-1 decision that will send shockwaves throughout the trucking industry, the U.S. Court of Appeals for the 9th Circuit issued a decision on Wednesday to overturn an injunction which specifically prevented the state from enforcing its Assembly Bill 5 law, known as AB-5, for motor carriers.




 

A U.S. District Court judge blocked enforcement of AB-5 in January of 2020 until arguments could be heard in a lawsuit brought by the California Trucking Association (CTA) against California Attorney General Xavier Becerra challenging the law.

Oral arguments in the case were heard in September of last year.

At the heart of CTA’s argument is that the 1994 Federal Aviation Administration Authorization Act (F4A) blocks states from enacting a “patchwork of labor laws” in which the impact would effectively be “so significant that it indirectly determines price, routes, or services” interstate trucking companies can provide its customers.

Additionally, the CTA argued if AB-5’s controversial “ABC Test” to determine if a worker is an independent contractor was enforced, it would harm as many as 70,000 independent contractors within the state and all but eliminate trucking’s long-established owner-operator model in California.




 

Most at issue for motor carriers is the the so-called “B prong,” which classifies a worker as an “employee” of the company unless that worker “performs work that is outside the usual course of the hiring entity’s business.”

Before the law was set to take effect in January of 2020, major carriers such as Landstar and Prime notified its owner-operators they would have to leave the state if they wished to continue working with the companies.

Majority Opinion

In the 9th Circuit’s majority opinion, the panel ruled the district court “abused its discretion by enjoining the State of California from enforcing AB-5 against motor carriers doing business in California on the ground that such enforcement is preempted by the F4A.”

“Because AB-5 is a generally applicable law that impacts a motor carrier’s business at the point where the motor carrier interacts with its workers, and the law affects motor carriers’ relationship with their workers in a manner analogous to the worker classification laws we have previously upheld… AB-5 is not significantly related to rates, routes, or services. Therefore, we conclude that the F4A does not preempt AB-5 as applied to motor carriers,” the majority opinion stated.

 

Dissenting Opinion

In the lone dissenting opinion, Circuit Judge Mark Bennett wrote, “The majority’s rule ignores the possibility that a state law might affect a motor carrier’s relationship with its workforce and have a significant impact on that motor carrier’s prices, routes, or services, which would mandate F4A preemption under Supreme Court precedent.”

He continued, “The obvious conclusion is that AB-5 will significantly impact motor carriers’ services by mandating the means by which they are provided,” Judge Bennett wrote. “The increased labor costs caused by AB-5 would likely put small motor carriers out of business and force other motor carriers to leave California. The remaining motor carriers would therefore offer ‘diminished services.'”




 

Further, Judge Bennett rejected the notion the lower district court “abused its discretion” in blocking enforcement of AB-5 and lamented, “CTA’s members will now suffer irreparable injury” and the damage will “likely be profound.”

“California will now be free to enforce its preempted law,” he concluded.


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Appeal Is Likely

In an email to clients, leading transportation law firm Scopelitis, Garvin, Light, Hanson & Feary assessed that CTA will have “several options available” for appealing the decision and believes “an appeal is likely.”

“The parties have 14 days to seek rehearing and up to 150 days to petition for certiorari with the U.S. Supreme Court pursuant to special rules in place as a result of the COVID-19 pandemic,” Scopelitis said.




 

According to the firm, the injunction will be lifted seven days following the expiration of time to request a rehearing or following a denial of a request for rehearing, or may be stayed upon further petition of the parties (for example, if the parties are seeking review by the U.S. Supreme Court).

“Therefore, it is difficult to predict the precise date when the injunction will be lifted and AB-5 can be enforced against motor carriers, although this date could be as early as May 19,” Scopelitis informed.

Stay with TransportationNation.com for more reporting and analysis on the fallout over today’s decision.

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