U.S. Court of Appeals decision puts independent contractor designation in question

A recent ruling by the U.S. Court of Appeals Ninth Circuit has put the trucking industry’s use of owner-operators in limbo, according to legal experts.

The April 29 ruling by the Ninth Circuit ruled against the California Trucking Association (CTA) in a cased that argued California’s restrictive ABC test to classify a worker as an independent contractor was preempted by the Federal Aviation Administration Authorization Act of 1994.

The CTA and trucking interests say the ABC test is overly restrictive and discourages owner-operators from operating under normal business practices.

As a result, the injunction CTA had obtained from the district court against enforcement of California’s AB-5 against motor carriers is overturned and will be dissolved.

Attorneys on both sides of the case say the matter could end up in the U.S. Supreme Court.

In September 2019, California put into place AB-5. That law stated a worker should be considered an independent contractor only if they met each of these three criteria:

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

The AB-5 law already is having an impact on trucking capacity and rates in the Golden State. Schneider, the nation’s second-largest truckload carrier, stopped using owner-operators domiciled in California about two years ago because of confusion over the new law. Schneider is not alone.

“There are a group of carriers not making decisions to do anything and are waiting to see if this (preemption ruling) is reversed,” said James Hanson, partner in Scopelitis, Garvin, Light, Hanson & Feary, Indianapolis, a top law firm that handles many trucking labor issues. “People are hesitant to make any large shifts in their operations until this is resolved,” he added in a report on LogisticsManagement.com.”

Insiders say that while large TL carriers such as Schneider have done away with using owner-operators in California, there are other methods for filling truck capacity. One is by using a broker-carrier model where the trucking company obtains broker authority from the Federal Motor Carrier Safety Administration (FMCSA) and then brokers loads to other authorized drivers.

CTA CEO Shawn Yadon issued a statement that reviewed the decision but then looked toward the future. “We continue to stand by our initial claim that the implementation of AB-5’s classification test is preempted by federal law and is clearly detrimental to the long-standing and historical place California’s 70,000 owner-operators have had in the transportation industry,” Yadon said. “The California Trucking Association will take any and all legal steps necessary to continue this fight on behalf of independent owner-operators and motor carriers operating in California.”

The Teamsters is an intervenor-defendant in the case and issued a statement on the decision. “Today’s ruling from the Ninth Circuit is a massive victory for California’s truck drivers, who for far too long have faced exploitation and misclassification at the hands of trucking companies that place corporate profit ahead of drivers’ safety and well-being,” the union said in the statement. “The court’s ruling confirms that California’s AB-5 law can be enforced against trucking companies that misclassify their workers — and it should be obvious to everyone that drivers who perform work for a trucking company are employees of that company, not independent contractors. The Teamsters are proud to support drivers in their fight for their basic rights as employees, including sick leave, health insurance, and worker’s compensation.”

The Ninth Circuit’s ruling threatens a decades-old practice of motor carriers hiring a workforce of independent-owner operators and classifying them as independent contractors.