The United States Supreme Court’s recent decision not to hear the California Trucking Association’s request for review of the U.S. Court of Appeals for the 9^th Circuit’s decision in CTA v. Bonta—which upheld California’s AB5 law governing the use of independent contractors— is going to have incredibly broad sweeping ramifications for the trucking industry as a whole, as well as further exacerbate the nation’s already tenuous supply chain shortage. Not only will this decision affect trucking companies that have their operations based in California, but also any trucking company that intends to do business in the state of California.

Enacted in 2019, AB5 creates a presumption that any worker who performs services for an employer is an employee for purposes of claims for wages, taxes, and benefits.The law lays out a three-part test that requires a worker to be considered an employee rather than an independent contractor unless the following conditions are met:

“(A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

(B) The person performs work that is outside the usual course of the hiring entity’s business.

(C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

When enacted, AB5 exempted several categories of work from its scope—mostly professions requiring a professional licensure like real estate agents, lawyers, dentists, doctors, accountants, etc. However, the trucking industry was not so fortunate.

While trucking carriers will have to show their business operations satisfy all three parts of the test—commonly referred to as the “ABC” test—the B prong is the most problematic for the trucking industry, which allows a worker to be considered an independent contractor rather than an employee if they perform “work that is outside the usual course of the hiring entity’s business.” Trucking companies, many of which hire independent contractors to move freight, will not be able to demonstrate that sort of work is outside the usual course of their business. Furthermore, AB5 does not differentiate among carriers, brokers, or shippers operating in California, nor does it exclude owner-operators from its scope. All entities must satisfy the “ABC” test.

As Joe Rajkovacz from the Western States Trucking Association explained to the online publication, HDT, “This rejection by the Supreme Court means any motor carrier leasing an owner-operator under federal leasing regulations in California is severely at risk — they cannot pass the A-B-C test. Relationships involving carriers and brokers contracting with single-truck operators that have incorporated and have their own operating authority will come under the microscope, too.”

In response to the Supreme Court’s decision to deny hearing the CTA v. Bonta case, the California Trucking Association released the following statement:

“Gasoline has been poured on the fire that is our ongoing supply chain crisis.

In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation.

We are disappointed the Court does not recognize the irrevocable damage eliminating independent truckers will have on interstate commerce and communities across the state. The Legislature and Newsom Administration must immediately take action to avoid worsening the supply chain crisis and inflation.”

What remains to be seen is whether similar legislation in other states will render operations more taxing for the hundreds of thousands independent contractors employed by trucking companies throughout the country. For now, it is clear the impacts of AB5 will be profound on the trucking industry in California, and any trucking company who does business in California. If you have any questions about the impacts of AB5 on your business or employment regulations in general, please contact Steve Setliff at ssetliff@setlifflaw.com.