April 28, 2021

Ninth Circuit Joins California Court of Appeal in Rejecting FAAAA Preemption of AB 5 as Applied to Motor Carriers

The Ninth Circuit Court of Appeals held today that the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) does not preempt application of California’s Assembly Bill 5 (“AB 5”), codified as amended at Labor Code section 2775, against motor carriers. See Cal. Trucking Ass’n v. Bonta, No. 20-55106. This decision reverses a preliminary injunction against enforcement of AB 5 against motor carriers that a federal district court granted early last year.  Employers in the transportation industry should take notice and review their independent contractor practices immediately.  

The Facts
In September 2019, following the California Supreme Court’s decision in Dynamex Operations W. v. Superior Court, 4 Cal. 5th 903 (2018), California enacted AB 5, which codified the so-called “ABC test” for classifying workers as either employees or independent contractors.  Subject to various exceptions, the ABC test generally supplants the so-called Borello test as the primary test for classifying workers. 

In November 2019, the California Trucking Association (“CTA”), a trade association representing motor carriers that hire independent contractors to transport property throughout California, moved to enjoin enforcement of AB 5 against motor carriers on the basis of FAAAA preemption. The FAAAA preempts any state 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). 

The district court granted the motion, found AB 5 preempted by the FAAAA, and enjoined California from enforcing AB 5 against any motor carrier doing business in California.  An appeal followed shortly thereafter.

The Ninth Circuit’s Decision

In a 2-1 decision, the Ninth Circuit reversed. The court began with a lengthy discussion of the history of the FAAAA and relevant Ninth Circuit precedent, noting in particular its holding in California Trucking Association v. Su, 903 F.3d 953 (9th Cir. 2018), that the FAAAA does not preempt the Borello test as applied to motor carriers. 

Relying heavily on this precedent, the court concluded: “Because AB-5 is a generally applicable labor law that impacts the relationship between a motor carrier and its workforce, and does not bind, compel, or otherwise freeze into place a particular price, route, or service of a motor carrier at the level of its customers, it is not preempted by the [FAAAA].”    

What Employers Should Know

This is not the first, nor will it be the last, case addressing FAAAA preemption of the ABC test.  In the last few months, the California Court of Appeal has twice reached the same conclusion as the Ninth Circuit did today. See People v. Super. Ct. (Cal Cartage Transp. Express, LLC), 57 Cal. App. 5th 619 (2020); Parada v. E. Coast Transp. Inc., 62 Cal. App. 5th 692 (2021).

The issue of FAAAA preemption of the ABC test (or similar laws from other states) has a decent shot of ending up in the United States Supreme Court (a petition for a writ of certiorari is already pending in the Cal Cartage case). There is a split in authority across the nation’s state and federal courts, and the Ninth Circuit’s decision today adds one more decision to the split. 

That said, counting on a grant of review by the Supreme Court is risky, and employers in the transportation industry, if they have not done so already, should evaluate their use of independent owner-operators through the lens of AB 5. In particular, employers should carefully consider whether their business models might satisfy the Business-to-Business exception to AB 5.

Disclaimer: Please contact your Payne & Fears attorney for current guidance on the subject matter of this article.