We at TopMark Funding have written about the AB-5 bill before. In the last article covering the bill, we talked about how U.S. District Judge Roger Benitez issued a preliminary junction against it, meaning that until the lawsuit between the State of California and the California Trucking Association (CTA) is resolved, the default position is that AB-5 does not apply to owner-operators working under contract with a larger carrier, such as Landstar. The session was on Tuesday, September 1st.
A Refresher on AB-5
It is hard to argue against the purpose of AB-5, which is to prevent worker exploitation by labeling workers as independent contractors rather than employees to skirt around workplace laws.
Before AB-5, the method to determine an independent contractor from an employee was the Borello test. The Borello test is very flexible and complicated. In contrast, AB-5 has only three outlined rules, and breaking even one of them makes the person an employee:
- Is the person hired given extensive freedom in how about they go accomplishing the task?
- Is the work performed done outside of the hiring company’s normal business operations?
- Is the person hired a member of an established business for the line of work they are doing?
The simple case often cited is food delivery services such as DoorDash. Delivery of food is the company’s primary business operations, not to mention done by individuals rather than another business, and as such is an employee under the rule.
The law may have had the unintended consequence of affecting owner-operators working alongside a greater logistics company, and that is where the lawsuit from the CTA comes in.
On September 1st, 2020, a three-judge panel from the Ninth Circuit heard arguments from the CTA as to why the injunction should remain. They then heard from the State of California and the Teamsters Union as to why the injunction should be revoked. The hearing was conducted virtually via video conference, due to the present coronavirus pandemic.
The Ninth Circuit is the second-highest court in the United States, so whatever the result, the only real method of reversing it is taking it to the Supreme Court, where having a case heard is unlikely.
The CTA argues that AB-5’s application towards truckers violates the Federal Aviation Administration Authorization Act (F4A or FAAAA). Essentially, they assert that the state government cannot interfere with the workings of interstate carriers. F4A derives its power from the Commerce Clause of the United States Constitution, saying that the U.S. Congress alone has the power to regulate international and interstate commerce.
Just as it was a few months from the injunction to the session, it may be another few months before we hear the results of the session from the Ninth Circuit. Until then, the injunction still stands and owner-operators can work under larger carriers as independent contractors.
Whatever the outcome, there is a strong chance the losing party will appeal to the Supreme Court. Beyond that, the CTA is working with the U.S. District Court in Southern California to make the injunction a permanent exception.
It will certainly be interesting to see how the AB-5 injunction ends. For the time being, however, AB-5 is not quite solving what it was intended to solve: like the CTA, companies such as Uber, Lyft, and Instacart are fighting tooth and nail to work around it.