For decades, the practice of motor carriers arranging for freight to be transported by independent owner-operators—i.e., independent contractors who drive their own trucks—has been ubiquitous. However, this practice is now under threat in California because of a recent court decision.

On April 28, 2021, in California Trucking Ass’n v. Bonta, No. 20-55106 (9th Cir. 2021) (“CTA v. Bonta”), the United States Court of Appeals for the Ninth Circuit addressed whether the broad preemption language of the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) precludes enforcement of California’s Assembly Bill 5 (“AB-5”) against motor carriers operating in California. (AB-5 is discussed here.) In a split 2-to-1 decision that may have enormous (adverse) implications for motor carriers operating in California, the Ninth Circuit held that the California Trucking Association (“CTA”) was unlikely to succeed on the merits of its lawsuit challenging AB-5 because it concluded that the FAAAA does not preempt AB-5.

By way of background, the FAAAA expressly preempts any state “law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier  . . with respect to the transportation of property.”  49 U.S.C. § 14501(c)(1). This broad preemption serves the FAAAA’s “overarching goal”—i.e., to “ensure transportation rates, routes, and services that reflect ‘maximum reliance on competitive market forces,’ thereby stimulating ‘efficiency, innovation, and low prices,’ as well as ‘variety’ and ‘quality.’” Rowe v. N.H. Motor Transp. Ass’n, 552 U.S. 364, 378 (1992). In short, Congress enacted the FAAAA to “prevent States from undermining federal regulation of interstate trucking through a patchwork of state regulations.” Cal. Tow Truck Ass’n v. City & City. of San Francisco, 807 F.3d 1008, 1018 (9th Cir. 2015).

In Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903 (2018), the California Supreme Court adopted the so-called “ABC test” for determining whether a worker is an employee or an independent contractor, which AB-5 subsequently codified.  (The Dynamex decision is discussed here.) Under this test, a worker is presumed to be an employee rather than an independent contractor unless all three of the following requirements are satisfied:

1. The person is free from the control and direction of the hiring entity in connection with the performance of the work, but under the contract for the performance of the work and in fact.
2. The person performs work that is outside the usual course of the hiring entity’s business.
3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Cal. Lab. Code § 2775(b)(1).

In the CTA v. Bonta case, the district court held that AB-5’s “Prong B” is likely preempted by the FAAAA because AB-5 effectively mandates that motor carriers treat owner-operators as employees, rather than as independent contractors. Cal. Trucking Ass’n v. Becerra, 433 F. Supp. 3d 1154, 1165 (S.D. Cal. 2020). In other words, the district court reasoned that the FAAAA pre-empts AB-5 because under AB-5 “drivers who may own and operate their own rigs will never be considered independent contractors under California law.” Id. It therefore issued a preliminary injunction enjoining California from enforcing AB-5 against any motor carrier doing business in California.

The district court’s reasoning dovetails with other decisional law. In Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429, 437 (1st Cir. 2016), the Court of Appeals for the First Circuit found that the FAAAA preempts the “B” prong of Massachusetts’s materially identical ABC test. The Court reasoned that because the ABC test “makes any person who performs a service within the usual course of the enterprise’s business an employee,” it “runs counter to Congress’s purpose to avoid ‘a patchwork of state service-determining laws, rules, and regulations” that the FAAAA was designed to preempt.  Id. at 438 (quoting Rowe, 552 U.S. at 373). Indeed, the Ninth Circuit had previously observed that “an ‘all or nothing’ rule requiring services to be performed by certain types of employee drivers” would “likely” be preempted by the FAAAA. Cal. Trucking Ass’n v. Su, 903 F.3d 953, 964 (9th Cir. 2018).

Nonetheless, the majority in CTA v. Bonta reversed the district court and held that the FAAAA did not preempt AB-5. The majority framed the inquiry as whether AB-5 “significantly related to rates, routes, or services . . . and thus [is] preempted,” or whether it has “only a tenuous, remote, or peripheral connection to rates, routes, or services” and therefore is not preempted. In finding that AB-5 fell within the latter category, the majority reasoned that while AB-5 may compel “a particular result at the level of a motor carrier’s relationship with its workforce”—i.e., the use of employees as opposed to independent contractors—“[i]t does not compel a result in a motor carrier’s relationship with consumers, such as freezing into place a particular price, route or service that a carrier would otherwise not provide.”

The majority’s holding seems to imply that, unless a law explicitly forces a motor carrier to charge a certain price, take a certain route, or perform a certain service, it will fall outside the FAAAA’s broad preemptive scope. The majority’s reasoning is questionable. If this ruling stands, AB-5 may compel California motor carriers to, among other things, reimburse drivers for any cost incurred in operating and maintaining vehicles, track and supervise drivers’ workings hours and meal and rest periods, pay drivers as employees (as opposed to bargained-for rates), and institute and supervise worker-safety programs.  See Cal. Lab. Code §§ 204, 226, 246, 1174(d), 2802(a), 6401.7. Surely this will “compel a result in the motor carrier’s relationship with consumers” in the form of increased costs. Rowe, 552 U.S. at 371 (“pre-emption occurs at least where state laws have a ‘significant impact’—specifically on prices, routes, or services”).

Moreover, as the dissent in CTA v. Bonta pointed out, because AB-5, in effect, mandates the use of employees, “the obvious conclusion is that AB-5 will significantly impact motor carriers’ services by mandating the means by which they are provided.” And, “[w]hether to provide a service directly through employees or indirectly through independent contractors is a significant decision in designing and running a business[.]”

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If CTA v. Bonta stands, California motor carriers will likely have to restructure their relationships with owner-operators.  However, it is possible that the CTA will ask the full Ninth Circuit court to hear the case, which seems likely as the opinion produced a powerful dissent. Alternatively, CTA may petition the Supreme Court to hear the case, which may decide to grant such a petition because the Ninth Circuit’s opinion appears to conflict with the First Circuit’s opinion in Schwann v. FedEx Ground Package Sys., Inc.

We will track the progress of this case, and provide updates as they come in.