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Transportation Brief: AB 5 Petition Denied by U.S. Supreme Court

by Shannon M. Cohen, Gregory M. Feary, Prasad Sharma

September 14, 2022

On June 30, the U.S. Supreme Court refused the California Trucking Association’s (CTA) appeal to maintain an injunction prohibiting enforcement of California’s AB 5 (the strict ABC worker status test used in California). On August 29, the injunction was lifted. AB 5 can now be enforced by state officials against the trucking industry.

CTA announced that it will pursue a new injunction, arguing that federal law preempts the stricter standard required by the Ninth Circuit or that AB 5 creates an unconstitutional burden under the dormant commerce clause. Regardless of the legal arguments, the CTA has signaled that it will continue pursuing (perhaps uphill) efforts for legislative relief. Independent trucker protests disrupting traffic at California’s ports and AB 5 pressure on an already stressed supply chain will keep the issue in the public eye.

Although AB 5’s ABC test may prove difficult for the traditional owner-operator relationship, the U.S. Solicitor General and at least one state appellate court (in a case involving Cal Cartage) have suggested the business-to-business (B2B) exemption could be satisfied (resulting in application of the longstanding Borello test).

The exemption requires a contractor to act as a business entity and to meet the elements in Cal. Labor Code § 2776(a), including one that requires a business license and another requiring a distinction between customers served by the contractor and those of the alleged employer. Although only of persuasive value, the Cal Cartage court indicated the business license requirement refers to local business licenses and not to motor carrier authority. The court also indicated an owner-operator could be viewed as providing services directly to the motor carrier and not to the carrier’s customers, satisfying the “customer” element. The case law may develop unevenly with respect to these and other required elements.

Transportation businesses may use various strategies in an effort to comply with AB 5, but a clear solution remains unknown. Such strategies may range from relying on a broker-carrier model where owner-operators obtain motor carrier authority, to dispatch management, to converting to an employee model (assuming owner-operators are willing to abandon their businesses), or even shuttering California operations. Thoughtful and informed implementation is just as important to a defensible model as selecting the best options. The legal developments to come will require thoughtful reactions.

 


Scopelitis’ Transportation Brief® is intended as a report to our clients and friends on developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.

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