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On June 30, the U.S. Supreme Court declined to hear a&nbsp;<a href="https://www.supremecourt.gov/search.aspx?filename=/docket/DocketFiles/html/Public/21-194.html" target="_blank" rel="noopener">case</a> about whether federal law preempts a California law that effectively requires motor carriers to classify owner-operator drivers as employees. With other states considering similar laws, this decision leaves for-hire and private motor carriers that rely on owner-operators at risk that multiple jurisdictions may require them to treat these drivers as employees, which could strain truck capacity as owner-operators try to avoid being classified as employees. It also could potentially lead to higher prices, less efficient routing, and reduced service levels for shippers.

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Owner-operators, independent contractors who typically use their own trucks to haul loads for one or more motor carriers, enable many carriers to provide services efficiently and meet shippers’ diverse needs. They provide carriers flexibility to scale their operations to meet seasonal demand for trucking services, to access specialized equipment and drivers that a carrier may need infrequently, and to provide services beyond the carrier’s normal geographic footprint. Many owner-operators actively choose to be independent contractors because it affords them flexibility and allows them to operate as their own business without becoming a motor carrier.

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In 2019, the California Legislature enacted Assembly Bill 5 (AB-5), which effectively precludes motor carriers from using owner-operators in California unless they classify them as employees. While AB-5 contains a business-to-business exemption that arguably would exempt owner-operators, California has not clearly indicated whether the exemption applies to them.

The California Trucking Association (CTA) and two individual owner-operator plaintiffs challenged AB-5 in federal district court, claiming that it is preempted by the Federal Aviation Administration Authorization Act of 1994 (F4A), which preempts state law “related to a price, route, or service of any motor carrier … with respect to the transportation of property.” CTA asserted that requiring motor carriers to use only employee drivers would increase carrier rates significantly, force carriers to reconfigure and consolidate routes, and reduce available services by forcing some carriers out of the market. At CTA’s request, the district court issued a preliminary injunction preventing enforcement of AB-5 against motor carriers pending resolution of the case, finding that the F4A was likely to preempt AB-5.

California appealed the decision to the Ninth Circuit Court of Appeals, which reversed the district court, finding that the F4A does not preempt AB-5 since it is “a generally applicable labor law that affects a motor carrier’s relationship with its workforce and does not bind, compel, or otherwise freeze into place prices, routes, or services of motor carriers.”

In August 2021, CTA asked the Supreme Court to determine whether the Ninth Circuit correctly held that the F4A is unlikely to preempt AB-5. Multiple groups representing shippers, owner-operators, transportation intermediaries, and the trucking industry filed amicus briefs in support of CTA. The U.S. government, however, filed a brief opposing CTA’s request, asserting that the Ninth Circuit correctly concluded that the F4A does not preempt AB-5 since the record did not indicate a significant impact on prices, routes, or services. The government also asserted that reviewing the preemption issue is inappropriate because the case sought a pre-enforcement review of AB-5 and it was unclear whether AB-5’s business-to-business exemption would apply. Shortly after receiving the government’s brief, the court declined CTA’s request without explanation, as is typical with these decisions.

Although the Supreme Court declined to decide whether the F4A preempts AB-5, this is not the end of the road for the trucking industry. The case now proceeds back to the district court, where additional facts warranting preemption could be uncovered. Additionally, if California decides to apply AB-5 to owner-operators, the trucking industry could resurrect its F4A claim. In this situation, the Supreme Court might be more inclined to review whether the F4A preempts AB-5 since there would be less uncertainty about whether AB-5 would be applied to owner-operators.

Since the application of the F4A preemption to AB-5 and similar laws remains unresolved, a patchwork of state laws requiring the employee classification of owner-operators could develop, creating challenges for motor carriers and shippers. For example, carriers could have trouble finding equipment and drivers for routes through states with these laws and might need to reroute shipments. Shippers that use trucking services in California should discuss with their motor carriers the implications of AB-5 on their operations. And shippers and carriers that rely on owner-operators thus should be prepared to adjust their operations and logistics networks should other states begin adopting laws like AB-5.

https://admin.thompsonhine.com/wp-content/uploads/2022/08/Transportation_Update_-_Supreme_Court_Declines_Review_of_Trucking_Industry_Challenge_to_California_AB-5-1.pdf

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Karyn A. Booth 202.263.4108 <a href="mailto:Karyn.Booth@ThompsonHine.com">Karyn.Booth@ThompsonHine.com</a>

Jason D. Tutrone 202.263.4143 <a href="mailto:Jason.Tutrone@ThompsonHine.com">Jason.Tutrone@ThompsonHine.com</a>

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

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Supreme Court Declines Review of Trucking Industry Challenge to California AB-5

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