California Trucking Association Ends Legal Challenge to Worker Reclassification Law
After four and a half years of litigation, the California Trucking Association (CTA) has declined to appeal a recent decision that blocked its request for a preliminary injunction stopping the AB5 from going into effect. In 2019, California Governor Gavin Newsom signed into law the controversial AB5 bill, which regulates independent contractors operating in the state and codifies into statute the “ABC Test.” Under the ABC Test, a worker could only be found to be an independent contractor if they met all three conditions of the test:
- Condition A: The individual is free from control and direction, both under contract and in fact.
- Condition B: The individual performs work that is outside the usual course of the hiring entity’s business.
- Condition C: The individual has their own independently established business of the same type as the work performed.
Although the bill’s stated purpose was to regulate ridesharing companies and other “gig economy” jobs, the CTA and others reasonably feared that the broad language of AB5 could affect their own contractors. Condition B is the particular concern of motor carriers operating in California, as owner-operators generally perform the same type of work—moving freight by truck—as the motor carrier on whose behalf they operate.
In essence, AB5 threatens the status of California’s 70,000 owner-operators. Although there has not yet been a push by California regulatory agencies to apply AB5 to the trucking industry, the potential that all owner-operators could be found to be misclassified looms heavily over the industry nonetheless. Some motor carriers have had to leave the California market entirely, while others have had to curtail the range of services offered.
The California Attorney General, in its own filings, has argued that “[m]otor carriers can continue working with owner operators – drivers who own their own trucks – much as they did before AB5’s enactment,” the state wrote. “To the extent that the ABC test requires carriers to classify owner-operators as employees, the only legal consequence is that owner-operators are now entitled to receive a minimum wage, workers’ compensation and other employment protections and benefits.”
However, the Owner-Operator Independent Drivers Association (“OOIDA”) has continued to appeal its own legal challenge to the AB5 law, arguing that AB5 “effectively prohibits an entire sector of small business truckers from operating in California” in violation of the dormant commerce clause, a prohibition against states placing unreasonable burdens on out-of-state or interstate commerce even in the absence of federal legislation on the same topic.
Courts and the CTA have suggested that owner-operators can avail themselves of the business-to-business exception to AB5, a narrow exception carved out for “bona fide business-to-business contracting relationship[s].” However, the business-to-business exception is highly factually specific and businesses must continue to carefully examine their independent contractor/owner-operator relationships to ensure that they actually meet the criteria of the exception, which includes but is not limited to the owner-operator being “free from the control and direction” of the motor carrier and a requirement that the owner-operator “advertises and holds itself out to the public” as providing the same services. Due to these requirements, the classification status of many California owner-operators remains up for debate and will likely not be settled anytime soon.
Written by Dillon A. Swensen, Esq.
