Fall 2022

Another Threat to the Independent Contractor Status of Truck Drivers

Truck drivers are the sinews of interstate commerce. Uniformity and predictability of legal standards governing their operations are critical. The constitutionality of worker classification laws that clamp down on the independent contractor status of truck drivers is no exception. That issue will remain uncertain, however, for the foreseeable future. The United States Supreme Court’s recent decision to deny a petition for certiorari in California Trucking Association v. Bonta leaves a division between federal courts interpreting worker classification laws bearing on motor carriers unresolved. See generally 433 F. Supp. 3d 1154 (S.D. Cal. 2020), rev’d 996 F.3d 644 (9th Cir. 2021), cert. denied, 142 S. Ct. 2903 (2022).

The plaintiffs included two truck drivers who epitomized the constitutional concerns raised by the dispute: Ravinder Singh and Thomas Odom. Motor carriers commonly provide interstate freight transportation services in the United States through independent contractors who drive their own trucks, known as “owner-operators.”  There are over 350,000 owner-operators in the United States. Mr. Singh and Mr. Odom, for example, are owner-operators in the state of California and haul their loads across state lines. They filed suit because California has a worker classification law that is uniquely harsh toward the independent contractor status of owner-operators.

The Federal Labor Standards Act of 1938 considers the relationship between a worker’s services and a principal’s ordinary course of business as only one of many factors for determining whether the worker is an independent contractor. Pub. L. 75-718, 52 Stat. 1070 (codified as amended at 29 U.S.C. §§ 201 et seq.). So it is with laws of several other jurisdictions. But California is different.

The California Supreme Court established a framework for classifying workers as independent contractors in 1989  S.G. Borello & Sons, Inc. v. Dep’t of Indus. Re., 48 Cal.. 3d, 341, 256 Cal. Rptr. 543, 769 P.2d 399 (1989). Independent contractor status based on that framework, the so-called “ABC test,” turned on three prongs: the right to control work, the extent to which the work is outside the principal’s regular course of business, and the right to discharge at will without cause. These prongs controlled independent contractor status for years.

The California Supreme Court revisited the Borello-ABC test in Dynamex Operations W. v. Sup. Ct., 4 Cal. 5th 903, 912, 957, 232 Cal. Rptr. 3d 1, 416 P.3d 1 (2018). The California Supreme Court changed the ABC test by transforming the second prong—“Prong B”—into a rebuttable presumption: now, a worker is an employee in California unless he can show that his work is not a part of his principal’s regular course of business. The California State Legislature enacted a law named “AB-5” codifying the Dynamex-ABC test. AB-5 contains several exemptions. The Borrello-ABC test still notably applies if a worker falls within one of those exemptions.

AB-5 raises constitutional concerns. The Supremacy Clause of Article VI of the United States Constitution provides that federal law generally takes precedence over state law. The Commerce Clause of Article I, Section 8 of the United States Constitution, authorizes the United States Congress to regulate interstate commerce, including interstate freight transportation services. The Federal Aviation Administration Authorization Act (“F4A”) of 1994, for example, prohibits states from enforcing laws “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” Pub. L. 104-88, 109 Stat. 899 (codified as amended at 49 U.S.C. § 14501(c)(1)).

Mr. Sing and Mr. Odom galvanized constitutional concerns with AB-5 by joining the California Trucking Association (“CTA”) in filing a civil complaint against the Attorney General of California, Rob Bonta, and the heads of other relevant California agencies in the United States District Court for the Southern District of California. The nutshell of their claim was that  AB-5’s impact on the decisions of motor carriers to hire employees or independent contractors sufficiently related motor carriers’ rates, routes, and services to trigger preemption under F4A Section 14501(c)(1).

Two federal courts of appeals addressed similar concerns with worker classification laws in the past decade. The United States Court of Appeals for the First Circuit considered the same challenge to the state of Massachusetts’ independent contractor statute in Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429 (1st. Cir. 2016). The equivalent of Prong B in the Massachusetts independent contractor statute classified anyone who performed work within a principal’s regular course of business as an independent contractor. The First Circuit held in favor of  preemption because Massachusetts’s independent contractor statute’s interference with motor carriers’ decisions about hiring employees or independent contractors could impact motor carriers’ rates, routes, and services. The United States Court of Appeals for the Third Circuit upheld the state of New Jersey’s worker classification law against a preemption challenge because it was more liberal than its California and Massachusetts counterparts. Bedoya v. Am. Eagle Exp., Inc., 914 F.3d 812 (3d Cir. 2019).

The upshot of both Schwann and Bedoya appears to be that a harsher standard for determining independent contractor status can impose a significant enough burden on services, rates, and costs of motor carriers to trigger federal preemption. The Southern District of California concurred and ruled on April 28, 2021, that the F4A did preempt AB-5. “[T]here is little question,” wrote United States District Judge Roger T. Benitez, “that the State of California has encroached on Congress’ territory by eliminating motor carriers’ choice to use independent contractor drivers, a choice at the very heart of interstate trucking.” On appeal, however, the United States Court of Appeals for the Ninth Circuit disagreed. The panel voted 2-1 in favor of reversing the Southern District of California for abusing its discretion and upheld AB-5.

United States Circuit Judge Sandra Segal Ikuta wrote for the majority. She rejected the reasoning of the First and Third Circuits in Schwann and Bedoya and, in doing so, created a circuit split. The “indirect consequences” of AB-5 bearing on the hiring of independent contractors vis-à-vis employees, in her view, were too attenuated from rates, routes, and services to warrant preemption.

The dissenting opinion of United States Circuit Judge Mark J. Bennett contended to the contrary that  Ninth Circuit precedent is compatible with Schwann and Bedoya. He pointed out that AB-5 significantly affects motor carrier services for the purposes of preemption in at least two ways. First, AB-5 diminishes motor carriers’ services provided through independent contractor drivers by making that status less accessible. Second, AB-5’s harsher stance toward independent contractor status diminishes the flexibility of motor carriers’ responses to supply and demand because of the more onerous requirements for supplying employees with tools and equipment under California law.

Judge Bennett did not like the majority’s characterization of the impacts he emphasized as “indirect;” he preferred to use the term “effective.” The question presented in Mr. Sing, Mr. Odom, and CTA’s petition to the Supreme Court followed a similar convention: “whether the [F4A] preempts the application to motor carriers of a state worker-classification law that effectively precludes motor carriers from using independent owner-operators to provide trucking services.” The heart of the matter is a threshold issue. Whether one uses the term “indirect” or “effective” is a matter of opinion. The ultimate issue at stake is that laws like AB-5 could constitute a de facto state ban against owner-operators because motor carriers may be unwilling to absorb additional liabilities and regulatory responsibilities.

The Supreme Court denied the petition for certiorari on June 30, 2022. The circuit split on whether F4A preempts independent contractor statutes with language like Prong B in AB-5 will persist for the foreseeable future. The division among federal jurisdictions may even grow to the extent that the Ninth Circuit’s decision emboldens state legislatures to imitate AB-5. Given the legal uncertainty imposed by the Supreme Court’s denial of certiorari and the harshness of Prong B, owner-operators in California are undoubtedly the losers in this case. This is a concerning matter that should have the entire trucking industry’s attention.

Written by associate Joshua T. Carback, Esq.