What Does The Supreme Court Denial to Review California’s AB5 Mean For Trucking?

What Does Supreme Court's Denial to Review California’s AB5 Mean For Trucking?

On Thursday, June 30, the U.S. Supreme Court will not hear California Trucking Association’s case against its state’s controversial worker classification law, AB5.

The decision to not hear the case means that a previous ruling from the U.S. Court of Appeals for the Ninth Circuit stands and that a preliminary injunction preventing AB5 from being enforced on motor carriers will end.

Before we dive into the legal matter, let us quickly review the AB5 law, see where we are at today, and what happens next.

What is California’s AB5 independent contractor law?

On Sept. 18, 2019, California Governor Gavin Newsom signed bill AB5 into law that will make it more difficult for companies to classify people who work for them as independent contractors with the new ABC test.

Under the ABC Test, a worker is presumed to be an employee unless the employer can show that all three of the following “prongs” or conditions are satisfied:

  • A. the worker is free from the control and direction of the hiring entity in connection with the performance of the work,
  • B. the worker performs work that is outside the usual course of the hiring entity’s business, and
  • C. the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The ABC is problematic for the trucking industry because of prong “B”, or whether a worker performs an activity that is at the core of the business’ mission. For example, a trucking company hiring a landscaper to take care of the grounds around a headquarters would not meet that test but hiring an independent owner-operator would.

What will change in California moving forward?

While lawyers are trying to figure out what to do next, California can immediately enforce AB5 as early as next week.

So, what is the likely outcome now that the Supreme Court denied hearing the last-ditch effort to get an exemption for the trucking industry?

  1. For independent owner-operators that are not leased to a company, nothing will change.
  2. However, most immediately, motor carriers will evaluate and adopt new operating models to limit risk if they intend to continue to do business in California. This includes reconfiguring or eliminating some routes and potentially cease operating in the State altogether. If a lot of carriers follow this route, this would leave the remaining carriers in the state to offer diminished services.
  3. Companies using leased on independent owner-operators need to figure out how they should proceed with turning drivers into employees, and what to do with the driver equipment. For example, drayage drivers should now be looking at what company they want to work for, as port companies that utilize independent drayage drivers will most likely turn to an employee model. In general, this could increase equipment and labor costs by as much as 150% or more, according to the CTA, because the law requires these companies to pay health insurance and other employee benefits.
  4. If they don’t employ the drivers, then tens of thousands of truckers will be driven out of established business relationships within a week. No doubt this will further stress the supply chain and rates.
  5. If the leased owner-operators goes on their own, they may have to learn a whole new world of the trucking business that they are not use to. For example, they will need to figure out commercial trucking insurance and a way to pay for it, as they most likely used the leasing company’s insurance. The problem here is that these drivers do not have their own safety history under their own authority. So, they are basically starting over unless an underwriter can get the data from that motor carrier, with all the claims, by driver. This is critical to help these drivers get more affordable insurance. Additionally, these drivers may have to figure out their own routes, schedule, customer contacts or use load boards, and what to charge for their services.
  6. Lastly, while there may be other issues I haven’t addressed, the long-term problem to consider is if other state follow California’s AB5 law. Then, trucking companies across the U.S. will have to deal with all of these issues down the road. It’s something to consider.

No matter what, the industry will adapt, but it might be a painful process, especially with recession concerns, in the short term.

If you are one these leased-on independent owner-operators in California, or a company that has to make these big decisions, and you have more questions, please reach out to us. We can help you save costs from your safety department, help you with licensing changes, help you figure out trucking insurance, and more.

Give us a call at 888.260.9448 or email us at info@cnsprotects.com.

Why did SCOTUS not hear the case?

It may have to deal with the Solicitor General’s brief. Anytime the solicitor general recommends denial, it hurts the chances the court will take the case, though ultimately it is up to the Supreme Court.

The brief outlined the case and detailed reasons why the case should be denied in the Supreme Court.

While there is a lot of legalese here, I will try to sum it up quickly. Ultimately, the court of appeals held that petitioners (CTA) were unlikely to succeed on the FAAAA preemption issue. While this gets complicated, here is the basic rundown.

The appeals court explained that:

  • “A generally applicable state law is not ‘related to a price, route, or service of any motor carrier’ for purposes of the FAAAA unless the state law ‘binds the carrier to a particular price, route or service’ or otherwise freezes them into place or determines them to a significant degree.” The court explained that the ABC test “does not have the sort of binding or freezing effect” because the ABC test affects only “a motor carrier’s relationship with its workforce,” not its “relationship with consumers.”
  • Application of the ABC test to motor carriers would have an “impact [that] is so significant that it indirectly determines prices, routes, or services.” Petitioners (CTA) alleged that application of the ABC test would increase equipment and labor costs “by as much as 150% or more,” which would cause carriers to reconfigure or eliminate some routes and potentially cease operating in the State altogether, leaving the remaining carriers to offer only diminished services. While the appeals court agreed, the court observed that it had previously rejected preemption claims based on predicted incidental effects. The court also noted that petitioners’ allegations of increased costs relied heavily on their contention that motor carriers would be forced to buy a fleet of trucks, but that the CTA had conceded that carriers could avoid those costs by hiring drivers who own their own trucks, rendering any impact on prices, routes, or services speculative given the underdeveloped state of the record.

According to the Solicitor General, further review is unwarranted.

This is because they believe the “court of appeals correctly determined that petitioners were unlikely to succeed on their claim that the FAAAA preempts applying the ABC test as codified under California law to owner-operators, and the court’s decision does not conflict with any decision of this Court.”

Although the circuits have reached differing outcomes with respect to FAAAA preemption of the ABC test as codified under the laws of various States, those case-specific decisions do not create a conflict warranting this Court’s review.

Moreover, the need to resolve a threshold issue of state law make this case a poor vehicle in which to address the question presented, “Not just because of its interlocutory posture, but also because whether owner-operators could be covered by the business-to-business exemption remains a substantial and unresolved question of state law.”

CNS can help fleets with our new driver hire program

If AB5 does not include a trucking exemption, then there will be a flood of independent carriers going through a new hire process. There are a lot of rules around the hiring process, not limited to drug testing, CDL Clearinghouse queries, compliant DQ file process, and more.

To get these drivers on the road fast, Compliance Navigation Specialists has developed a new hire program that will streamline your hiring process.

Our New Hire service includes the following:

  • Tailor Drive Qualification file (paper) or Online Tailored Driver Qualification File (Paperless)
  • Initial Audit
  • Previous employer inquires completed on your behalf
  • Initial Motor Vehicle Report (MVR)
  • Pre-Screening program report (PSP)
  • Online Record Retention
  • Pre-employment drug screening verification
  • Doctor on medical card verification
  • FMCSA clearinghouse full query
  • Driver Qualification
  • New Hire phone support
  • and more

Accuracy, organization and diligence are crucial to keeping your files in order and ready for an audit at a moment’s notice. Our DQF Management System is completely customizable to your individual needs. The consultants at CNS stay in communication with you regarding document updating, as well as offering comprehensive reports upon request, and reports of routine audits by our own DQF Auditors.

Our driver management and new hire management services will exceed your expectations. You focus on trucking, and let us focus on your driver file management. If you have a fleet of drivers, we assure you that you can’t do this cheaper in-house.

Eliminate the administration cost and have Compliance Navigation Specialists manage your files.

We will ensure that your information is collected, current, and complete. In addition, we will continue to update your files as required, and let you know when an updated piece of information is needed.

For more information, contact us at 888.260.9448 or info@cnsprotects.com.

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