California’s AB 5 legislation requires applying the “ABC test” to determine if workers in the state are employees or independent contractors for purposes of the Labor Code. Under the ABC test, a worker is considered an employee and not an independent contractor unless the hiring entity satisfies all three of the following conditions:
- Free from control and direction by the hiring entity;
- Performing work outside the usual course of the hiring entity’s business; and
- Being independently established in their trade
The Owner-Operator Independent Drivers Association (OOIDA) challenged the independent contractor rule, arguing that it imposes an undue burden on interstate commerce. On May 16, the Ninth Circuit U.S. Court of Appeals ruled against OOIDA.
OOIDA represents the interests of independent owner-operators and professional drivers on all issues that affect truckers. More than 150,000 members of OOIDA are men and women in all 50 states and Canada who collectively own and/or operate more than 240,000 individual heavy-duty trucks and small truck fleets.
OOIDA’s Case Against AB 5
OOIDA and the California Trucking Association (CTA) collaborated with the Labor Secretary’s office to clarify how the Business-to-Business (B2B) exemption applies to motor carriers. In March, the Labor Secretary released a chart outlining how motor carriers can comply with the 12-point B2B exemption criteria. The chart explains how both the hiring entity and owner-operators can meet these requirements to ensure the Borello test, rather than the more restrictive ABC test, is used to determine independent contractor status.
In its challenge, OOIDA said that AB 5 violates the U.S. Constitution’s dormant Commerce Clause and that the business-to-business (B2B) exemption in AB 5 violates the dormant Commerce Clause and the Equal Protection Clause.
The B2B exemption under AB 5 requires, among other conditions, that a contractor must be “free from the control and direction” of the business that hires them. However, federal Truth-in-Leasing regulations, which govern relationships between leased owner-operators and the motor carriers they contract with, mandate that carriers maintain “exclusive possession, control, and use” of, and “complete responsibility for the operation of,” the leased vehicle. This creates a potential conflict between state and federal requirements regarding control.
OOIDA argued that the level of control federal law requires motor carriers to have over-leased owner-operators, which makes it impossible for those operators to meet the “free from control or direction” standard of the B2B exemption. As a result, OOIDA contends that AB 5 and its B2B exemption place an undue burden on interstate commerce in violation of the dormant Commerce Clause, with any claimed benefits outweighed by the law’s impact.
Additionally, OOIDA asserted that the B2B exemption unlawfully discriminates against interstate commerce and violates the Equal Protection Clause by treating intrastate and interstate drivers differently. It argued that there is no rational justification for this unequal treatment.
The court claimed that OOIDA failed to make its case and upheld the rule.
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