Employee or Independent Contractor?

9th Circuit says AB5 is Not Preempted by the Federal Aviation Administration Authorization Act (FAAAA)

18 wheeler truck

In CTA V. Rob Bonta, No. 20-55107, D.C. No.3:18-cv-02458- BEN-BLM, the Ninth Circuit Court of Appeals reversed a District Court’s order that prohibited the enforcement of California’s Assembly Bill 5 (AB5) , which codified the “ABC test” for classifying workers as either employees or independent contractors, relying on the opinion that the application of AB5 to motor carriers was preempted by the Federal Aviation Administration Authorization Act of 1994 (“FAAAA” or “F4A “). The Ninth Circuit said that the FAAAA did not preempt AB5. The Ninth Circuit concluded that AB5 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 the prices, routes, or services.” The court review previous cases in which it had concluded that the classification of workers under previous standard was a generally applicable law and not preempted by the FAAAA. Because AB% was similarly a generally applicable law, the FAAAA did not preempt it. The court said:

The Federal Aviation Administration Authorization Act of 1994 (F4A or 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). California’s Assembly Bill 5 (AB-5) codified a judge-made test (referred to as the “ABC test”) for classifying workers as either employees or independent contractors.  This appeal raises the question whether application of AB-5 to motor carriers is preempted by the F4A.  Because AB-5 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 the prices, routes, or services of motor carriers, we conclude that it is not preempted by the F4A.  See, e.g., Dilts v. Penske Logistics, LLC, 769 F.3d 637, 647 (9th Cir. 2014).

I

We first provide the context for this challenge.  Before 2018, the California Supreme Court’s framework for classifying workers as either employees or independent contractors was set forth in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989). Borello set out indicia of an employer-employee relationship as opposed to an independent-contractor relationship.  Id. at 350–51.  The indicia included “the right to control work,” “the right to discharge at will, without cause,” and, most important here, “whether or not the work is a part of the regular business of the principal.”  Id.1

Almost thirty years after Borello, the California Supreme Court revisited the framework for classifying workers as employees or independent contractors for purposes of California’s Industrial Welfare Commission (IWC) Wage Orders.2See Dynamex Operations W. v. Superior Ct., 4 Cal. 5th 903, 912, 957 (2018).  Dynamex adopted a standard commonly referred to as the “ABC” test.  Id. at 957.  Under Prong B of that test, a worker is presumed to be an employee and may be classified as an independent contractor only if “the worker performs work that is outside the usual course of the hiring entity’s business. Id.4 The ABC test was thus significantly different from the Borello test:  while Borello considered “whether or not the work is a part of the regular business of the principal” as only one factor in the classification analysis, 48 Cal. 3d at 351, the ABC test presumed a worker was an employee unless the worker met that condition, Dynamex, 4 Cal. 5th at 957.

In September 2019, the California legislature enacted AB5, which codified the ABC test and expanded its applicability. See Cal. Lab. Code § 2775.[1]  The statutory text of AB-5 classifies certain workers as employees, stating that a person “shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied”:

(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.  (B) The person performs work that is outside the usual course of the hiring entity’s business.  (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Id. § 2775(b)(1)(A)–(C).

IV

We now turn to the question whether the F4A preempts the ABC test, as codified in AB-5 and applied to motor carriers. This requires us to determine whether AB-5 is “significantly related to rates, routes, or services . . . and thus [is] preempted,” or whether it has “only a tenuous, remote, or peripheral connection to rates, routes, or services” and therefore is not preempted.  Id. at 643 (cleaned up).

A

We first consider whether AB-5 is generally applicable, because this determination “will likely influence whether the effect on prices, routes, and services is tenuous or significant.”  Su, 903 F.3d at 966.  Under our precedent, AB-5 is a generally applicable law because it applies to employers generally; it does not single out motor carriers but instead affects them solely in their capacity as employers.  Cf. Rowe, 552 U.S. at 375.  Even if some businesses are exempt from AB-5, it certainly applies “to hundreds of different industries.”[1]  Dilts, 769 F.3d at 647.

We next consider where in the chain of a motor carrier’s business AB-5 is acting to compel a certain result, and the result it is compelling.  Su, 903 F.3d at 966AB-5 affects the way motor carriers must classify their workers, and therefore compels a particular result at the level of a motor carrier’s relationship with its workforce.  It does not compel a result in a motor carrier’s relationship with consumers, such as freezing into place a particular price, route or service that a carrier would otherwise not provide.  See Dilts, 769 F.3d at 646–47.  Indeed, CTA does not argue that AB-5 does so. Therefore, it does not have the sort of binding or freezing effect on prices, routes, or services that are preempted under the F4A.

Because AB-5 is a generally applicable law that impacts a motor carrier’s business at the point where the motor carrier interacts with its workers, and the law affects motor carriers’ relationship with their workers in a manner analogous to the worker classification laws we have previously upheld in Su, AB-5 is not significantly related to rates, routes, or services. Therefore, we conclude that the F4A does not preempt AB-5 as applied to motor carriers.


See California Trucking Association v. Bonta

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