On April 28, 2021, the Ninth Circuit Court of Appeals in California Trucking Association v. Bonta, issued a decision that California’s AB-5 law, now Labor Code Section 2775, is not preempted by federal law. The three-judge panel ruled that the District Court was wrong when it granted a preliminary injunction that prohibited the application of Labor Code Section 2775 to motor carriers and independent owner operators including those providing services to the Construction Industry.

What does this mean? AB-5 restricts most workers from being independent contractors and with its 3-prong, hard to satisfy test, in California, almost everyone now is an employee. The injunction had basically created an exception for trucking, construction and other industries that rely heavily on Owner/ operators of trucks and other vehicles. Now this means that all those drivers who owned their own trucks and other vehicles and basically operated their own business, would be considered employees.

This decision has been referred to as “disappointing” to many in the transportation industry who have also called it “strained” and “lacking significant analysis”. Unfortunately, the trucking industry will now be faced with legal challenges and difficulties in complying with Labor Code Section 2775.

The decision, if it stands, will have a large impact beyond the trucking industry. Construction is one of those industries that will feel its crunch as well as many other California businesses across many industries that will be impacted with increased driver costs and increases in the cost of owning equipment. Of course, these increased costs will ultimately be passed on to consumers.

One possible solution is for drivers to be paid wages for their driving as employees but also be paid a rental fee for their equipment as business owners. This blended practice used to be common in the trucking industry and could be coming back into practice depending on how subsequent rulings play out. Stay tuned for more updates!