California Trucking Association tears down Solicitor General’s AB 5 argument

The California Trucking Association, in response to a brief filed May 24 by the Solicitor General on behalf of the U.S. government, said the government’s stance laid out in the brief on California’s AB 5 law “is head-scratchingly wrong.”

CTA filed a supplemental brief on Friday, June 3, in response to the Solicitor General's brief. The Solicitor had argued last month that the Supreme Court should deny CTA’s request to review its case challenging AB 5, which would effectively ban the traditional leased owner-operator model in the state. CTA’s case claims that AB 5 is preempted by the 1994 Federal Aviation Administration Authorization Act (FAAAA or F4A), which bars states from enacting laws that interfere with “routes, prices and services” of motor carriers.

The Solicitor General claimed that AB 5’s requirements are easily avoided, that the law may have no impact at all on carriers or owner-operators, and that there is no conflict in other circuit courts.

California’s Ninth Circuit Court reversed an injunction that exempted the trucking industry from AB 5, and CTA said the Ninth Circuit “affirmatively embraced its conflict with the First Circuit, acknowledging that” a statute in Massachusetts was “identical” to AB 5 but rejected a First Circuit ruling that the Ninth acknowledged was “contrary to our precedent.”

With respect to the Solicitor's claims that there is no conflict between the Ninth Circuit and other circuits' decisions, CTA said, “the government barely even attempts to deny the existence of a conflict between the Ninth and First Circuits. It asserts without explanation that the conflicting decisions are ‘case-specific,’ but it is hard to see much space between rulings that reach opposite conclusions about the validity of ‘identical’ state statutes.”

In debunking the government’s claims that AB 5’s requirements can be easily avoided and that there may be little impact on carriers and owner-operators, CTA cited the Owner-Operator Independent Drivers Association, which said AB 5 “would cause motor carriers and owner-operators to bear the substantial, if not insurmountable, costs and burdens associated with shifting to an employer/employee business model.” To back up this point by OOIDA, CTA also cited Overdrive reporting from May 2021 that found even the prospect of AB 5 taking effect was already causing carriers to limit or abandon operations in California.

The Solicitor’s first point -- that carriers can easily comply with AB 5 by hiring owner-operators as part-time employee drivers and require them to supply their own trucks with no noticeable change in operations -- “is not a real possibility, for several reasons,” CTA said.

CTA argued that the proposed workaround “assumes that owner-operators will give up their independent businesses and become employees of carriers. But in fact, a great many owner-operators would not respond to AB 5 by becoming employees.” The group cited American Transportation Research Institute's study that found owner-operators value their independence and flexibility “as far more important than do employee drivers.”

“It therefore can be expected that numerous owner-operators would retire, leave California to work as owner-operators in other states, or seek work opportunities in other industries, rather than become employees of carriers,” CTA said in its brief.

CTA also said that even if owner-operators were willing to become employees, the government’s proposal still wouldn’t be workable due to California’s complicated wage-and-hour requirements.

Additionally, classifying owner-operators as part-time employees in California wouldn’t necessarily mean those operators aren’t still classified as independent contractors in other states, CTA said. Therefore, for a carrier moving freight into or out of California from another state to comply with AB 5, it would have to either use an employee driver for the entire trip or incur the expense and delay of transferring the freight to a truck driven by an employee when the freight enters California, or to a truck owned by an owner-operator when the freight leaves California, CTA said. “The government makes no attempt to explain how this problem could be addressed.”

Finally, requiring that current owner-operators become employees and provide their own trucks -- a model often referred to as the two-check system -- would not work as a permanent solution, CTA added. Even if this worked to begin with, “as trucks become obsolete over time existing trucks will have to be replaced with new ones,” the group said. “Carriers would be responsible for that replacement, as employees could hardly be expected to purchase and maintain vehicles that cost well in excess of $100,000 (new trucks can cost up to $240,000) simply so that the vehicles could be leased to their employers.”

The Solicitor General also asserted that trucking companies and owner-operators could use a business-to-business (B2B) exemption that is included in the AB 5 law that allows independent businesses set up as sole proprietorships, LLCs or other business models to contract with other businesses. This exemption, however, is narrow in scope and requires businesses to meet 12 criteria to operate under the exemption.

CTA contended that one of the prerequisites -- that an owner-operator “advertises and holds itself out to the public as available to supply the same or similar services” it offers to carriers -- cannot be realistically met, a point also addressed in Overdrive reporting referenced in CTA's supplemental filing.

“As a practical matter, [leased] owner-operators do not advertise to the public at all because that is not how they obtain business; and as a legal matter, truck drivers may not provide services to the general public without holding a motor carrier license, which would place them outside the owner-operator context,” CTA said.

The association added that, even if this and the other B2B exemption requirements were met to legitimize an leased owner-operator's relationship with a larger motor carrier, meeting the requirements “would obligate carriers and owner-operators to restructure their operations in significant ways,” CTA added. “Requiring owner-operators to maintain business locations they do not need, or run advertisements and cultivate categories of customers that are unnecessary for their businesses, would force them” to offer services they don’t currently provide and that they would prefer not to provide. The existence and practical outcomes of meeting the B2B exemption thus stood as further evidence in CTA's case that AB 5 directly impacts "prices, routes and services" of carriers and should be pre-empted by FAAAA for trucking.

Finally, on a practical basis, CTA said carriers and owner-operators would not try to invoke the B2B exemption because, to benefit from it, a carrier would have to separately establish a “bona fide business-to-business contracting relationship” with each owner-operator it deals with -- “a fact-specific showing that would require the restructuring of the businesses involved with no assurance of success and no mechanism for obtaining advance approval of business-to-business status.”

Truckload Carriers Association Vice President for Government Affairs Dave Heller believed the prospects for the Supreme Court taking up the CTA challenge to AB 5 remained good. The Solicitor’s opinion “doesn’t meant the game is over,” Heller said. “Things still look good for [the Court] reviewing this case.”

Next steps in the case could include filings by the state of California responding to the Solicitor General’s brief. The CTA case is expected to be considered by the Supreme Court possibly as soon as Thursday at its next conference. SCOTUS has three conference days remaining on its schedule -- June 9, 16 and 23 -- before its summer recess.

As transportation attorney Greg Feary and his Scopelitus firm noted in prior reporting, given the timing for supplemental filings to come in, “it is possible that the petition will not be considered before the Court recesses for the summer at the end of June, in which case the next currently scheduled conference is Oct. 6."

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