Leased owner-operators are an essential part of the trucking industry, and forcing them to relinquish their business model presents an excessive burden.
That was the Owner-Operator Independent Drivers Association’s message to the U.S. Court of Appeals for the Ninth Circuit during oral arguments on Wednesday, April 9.
OOIDA contends that California’s worker classification law, Assembly Bill 5, violates the dormant Commerce Clause of the U.S. Constitution and that the district court failed to apply Pike’s balancing standards. The Commerce Clause prevents states from imposing regulations that place an undue burden on interstate commerce, and the Pike Balancing Test says that the burdens a state or local law imposes on out-of-state commerce must not clearly exceed the local benefits.
“The Pike balancing test has allowed state laws to burden and raise the cost of doing business, but there is no cost or burden that leased owner-operators can pay to keep their small business as a leased owner-operator in California,” said Paul Cullen Jr., attorney for OOIDA.
What does AB5 do?
California signed AB5 into law in 2019. The law is based on the ABC Test and requires a business to demonstrate three factors are established before a worker can be considered an independent contractor. The law was purportedly aimed at tackling the state’s misclassification problem, but opponents argued that it was too rigid.
The B prong of the ABC Test requires the worker being used as an independent contractor to provide a service that is outside the company’s usual course of business.
OOIDA said the B prong effectively ends the leased owner-operator model in the trucking industry.
Interstate owner-operators with their own authority can continue to deliver freight in California, and California intrastate leased owner-operators can qualify under the state’s business-to-business exemption. However, OOIDA told the court that out-of-state interstate owner-operators who are leased to a motor carrier can’t meet the exemption standard because it conflicts with federal regulations.
“Leased owner-operators in interstate commerce must comply with federal regulations called the Truth in Leasing regulations, which require the motor carrier to have exclusive possession and control of the vehicle and the operation of that vehicle in interstate commerce,” Cullen said. “Whatever the scope of that control is, it can’t be squared with the B2B requirement that the worker be free of control. It’s irreconcilable.”
State responds
Samuel Thomas Harbourt, attorney for the state, told the court that truckers could still haul freight in California by either becoming an employee or obtaining their authority as a motor carrier.
“One of the key problems with OOIDA’s legal theory is that it depends on the assertion that the ABC Test … categorically bars owner-operators from California’s market,” Cullen said. “That’s simply not true as a matter of law. What the ABC Test requires at most is that owner-operators be classified as employees.”
In his rebuttal, Cullen argued that point.
“I’d like to clarify opposing counsel’s descriptions that you could just be an employee or a motor carrier,” Cullen said. “As we described, these are very different entities. They try to conflate the three as just truck driving jobs. But an employee is not a small-business employer, and becoming a motor carrier … AB5 to trucking is like a law that would tell a lawyer you can’t be a lawyer any more but you can be a paralegal.”
What’s next?
Now that oral arguments have concluded, the Ninth Circuit panel will likely make its decision in the coming months. LL
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