CA: Ninth Circuit Applies AB 5 Against Interstate Motor Carriers

Synopsis: Back in January 2020, a federal district court enjoined the State of California from enforcing AB 5 against interstate motor carriers. Now, in a split 2-1 decision, a Ninth Circuit panel has reversed the district court, on the rationale that AB 5 is just another generally applicable labor law that affects all businesses regardless of industry and is no different from many prior state laws the Ninth Circuit has upheld. Casting aside the dissent’s description of the wide-ranging impact that AB 5 would have on motor carriers, the panel majority held that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) does not preempt AB 5. The district court’s injunction is expected to be lifted in the coming weeks. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually, the U.S. Supreme Court will likely be asked to address the circuit split on whether the FAAAA preempts “all or nothing” state laws like AB 5. 

The District Court’s Injunction Prohibiting Enforcement

On January 16, 2020, a federal judge in the Southern District of California, following up on a temporary restraining order issued on December 31, 2019, granted the California Trucking Association’s request for a preliminary injunction blocking enforcement of AB 5 against interstate motor carriers. The district court found that AB 5’s ABC test destroys the historical owner-operator model, in direct contravention of the FAAAA, a 1994 deregulation measure that forbids any state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” The district court concluded that the FAAAA “likely preempts ‘an all or nothing’ state law like AB 5 that categorically prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.”

The Ninth Circuit’s Decision

A 2-1 panel decision overturned the district court’s decision, effectively permitting the State of California to enforce AB 5 against interstate motor carriers who have long contracted with truck drivers who are owner-operators. The panel majority rejected the district court’s analysis, reasoning that AB 5 is like other state laws (such as those regarding meal and rest periods) that the Ninth Circuit has upheld as generally applying to all industries as opposed to a targeted group. The panel majority concluded that AB 5 is a generally applicable labor law that, while affecting a motor carrier’s relationship with its workforce, is not aimed specifically at the trucking industry.

The panel majority threw out the district court’s finding that the FAAAA preempted AB 5’s enforcement against interstate motor carriers, because AB 5 does not “bind, compel, or otherwise freeze into place the prices, routes, or otherwise freeze into place the prices, routes, or services of motor carriers,” as required for FAAAA preemption.

Motor Carriers Should Examine Current Practices While Keeping A Close Eye on Further Developments

The Ninth Circuit did not immediately lift the injunction, but one can expect the injunction to be lifted by court order in the coming weeks, which would permit California agencies to enforce AB 5 against motor carriers. The panel’s decision could be subject to a rehearing en banc by the full Ninth Circuit, and eventually one might expect that the Supreme Court will be asked to weigh in on the issues raised by the appeal, especially in light of dissenting Judge Bennett’s characterization of a circuit split on “all or nothing” rules.

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