The California contractor conundrum: 'It’s a waiting game, with a lot at stake'

Two days after the California Trucking Association filed its AB 5 case petition with the U.S. Supreme Court, truckers can't be 100% confident the court will take up the association's request. It was filed late in the day Monday, August 9, for reconsideration of the Ninth Circuit's Spring ruling on California's AB 5 contractor law. Speaking at the annual CCJ Symposium event in Birmingham, Alabama, Wednesday, Yadon and attorney Greg Feary, President and managing partner of Scopelitis, Garvin, Light, Hansen and Feary, underscored the odds the CTA is up against.

Of a rough average of 2,000 petitions to the high court in any given year, Feary said, the Supreme Court only addresses "90 to 100 in [the court's] session, and if there are 100 more compelling issues than this" in the view of the court this year, truckers may be "out of luck."

It's hard to be confident presented with such odds, though Yadon underscored the importance of the issue at hand by illustrating his belief that, if taken up by the high court, CTA's argument is likely to prevail. "We feel strongly that we are protected by federal preemption and [AB 5] should not apply to the trucking industry," he said. "This is of such significance to this industry and independent business owners right now."

As has been previously reported in more places than one, CTA is fundamentally asking the court to rule that the Federal Aviation Administration Authorization Act's prohibition on state laws that impact "prices, routes or services" of motor carriers should preempt application of the ABC contractor test that AB 5 codified in 2019.

Multifactor tests used in most analyses of independent contractor relationships today, Feary noted, weigh a number of different factors and make the IC/employee determination based on the number of factors on either side of the equation.

With the ABC test, however, all three parts of the test must be satisfied in order for independent contractor status to be supported. The B prong, according to most interpretations, is "the highest hurdle" for carriers to jump, Feary said, given they have to "prove that the owner-operator is not in the same business as the motor carrier" if examined by state agencies or in suits where plaintiffs allege improper classification.

The move toward passage of AB 5 in 2019, Yadon noted, prompted a groundswell of advocacy in California not only from business associations like CTA but up from the grassroots. As deliberations in the state legislature "went on over the course of 2019," he said, "there was no stronger voice than that of independent owner-operators" in the state capitol of Sacramento, far and above contractors in other industries.

"There was no larger group than independent owner-operators who traveled to Sacramento," Yadon said. "They attended those hearings and told their stories about why they wanted to continue to independently operate and not be shoved into an employee status mode." The majority of owner-operators, whether leased to a motor carrier or not, he added, "have been employees in the past" and know what that involves. "We're trying to protect that."

Though AB 5 was determined by the Ninth Circuit in its ruling to be generally applicable to all businesses across a variety of industries, part of that court's reasoning in ruling against CTA, Feary cited a laundry list of carve-outs that got through the legislative process for "doctors, lawyers, architects ... newspaper delivery services ...professional services of all kinds" ... the list went on. In didn't, of course, include owner-operators, despite the advocacy Yadon detailed.

Nontheless, those carveouts are one of the reasons confidence levels around the Supreme Court case are higher if it jumps the current hurdle – being accepted for hearing by the court.

Fortunately, Yadon pointed out, a preliminary injunction against state enforcement of AB 5 remains in place at least until the Supreme Court makes that decision. Feary speculated that decision could be four-six months out.

If the Supreme Court doesn't take up the case, that preliminary injunction would be lifted. Feary worried that, over time, the California precedent would influence other state governments around the nation. He guessed states with left-leaning governments on both coasts, and potentially Illinois, might be next to pursue similar laws.

A question inevitably arose: What practically can be done to preserve operations with as little disruption as possible? Feary pitched to the regional carriers in the audience initially.

"I think if you’re a regional operator in the Southeast," he said, "I’m not sure I’d be pressing the panic button and saying, 'I’ve got to change my model and do it now.' On the flipside, if you’re dependent on operating to, through or from some of these blue states, you have to think, 'Can I pivot to a brokerage model, or change to an employment model. There’s the two-check system," a hybrid employee/contractor system explored at this link in more detail.

As he noted, workarounds for dealing with such an outcome for motor carriers could be to establish independent brokerages or forwarder companies to preserve the relationship with a formerly leased owner-operator, though costs to establish motor carrier authority for contractors are of course high on the insurance side.

Though some have speculated the B portion of the ABC test might even be problematic for owner-op/broker relationships, Feary threw cold water on the notion with this example of ABC test application in a court of law. "The argument is: 'Judge, I’m in a different business model. I’m a broker, I can’t move freight under a broker authority.' It's compelling to say that a property brokerage is a different occupation than a motor carrier with authority."

In any shift to a new entity model, whether broker or forwarder, "anything you do first starts with the customer," he told the carriers in attendance. "You have to go to your customer to sign a shipper contract that makes me a broker and not a motor carrier.... You have to socialize that idea with the shipping public" to make certain it's acceptable.

Ultimately, it's the traditional independent contractor agreement between a leased owner and a carrier that "is challenged by AB 5" and its ABC test, he underscored.

If the Supreme Court does in fact decide in the affirmative that it will take the case, though, it could be yet another year before a decision one way or another.

Said Yadon, "It's a waiting game, with a lot at stake."

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