The Grawe Gazette – General Counsel
No AB5 News Yet…
By The Grawe Group, June 2022
Last week the U.S. Supreme Court conferred for the last time in their current term. (They recess July-September usually.) Today we should have heard whether the Supreme Court would take the California Trucking Association’s challenge to California’s AB5 independent contractor status test. But the AB5 case was not on the list of accepted or denied cases, meaning AB5 remains on pause (“stayed”), and is still not enforceable against trucking companies. What does that mean? What should you do next? What happened to the other Supreme Court transportation case about broker liability? Comments to the questions are below.
The Supreme Court does nothing yet. What does that mean?
After California passed its version of the ABC test to define independent contractors in legislation called AB5, the California Trucking Association, its members, and a host of other industry associations and carriers sued the state, arguing among other things that California’s strict ABC test is pre-empted by federal law. The 9th Circuit Court of Appeals ruled federal law did not pre-empt AB5 in trucking, but that decision was stayed, while the industry appealed the decision to the U.S. Supreme Court. The U.S. Supreme Court has the opportunity to either take the case or reject it. If the Supreme Court takes the case, the Supreme Court can rule whether federal law pre-empts states from enacting independent contractor definitions that largely eliminate the traditional independent contractor model in trucking.
If the Supreme Court rejects the case the 9th Circuit’s decision would stand. To use a sports analogy, if the Supreme Court rejects the case, they would be saying they are not going to look at a video replay of the call on the field so the call on the field stands, and AB5 would be enforceable pretty much immediately.
The Supreme Court did neither today. And the term is wrapping up. It is possible the court could accept or reject the case later this week or over the summer, but that would be out of their ordinary practice. More likely, we now will not hear whether the Supreme Court will accept or reject the case until the fall, meaning AB5 remains stayed, but we are now out of ordinary territory.
That brings up more questions for many carriers, including:
- If the court rejects the case, would AB5 only apply to carriers that are headquartered in California, or have facilities in California? Not necessarily. It would apply to those carriers, but it also would apply to some drivers driving in California. There is a lot of grey when it comes to drivers living outside the state but operating in the state. It is fair to say California will likely aggressively enforce AB5 if the stay is lifted, arguing AB5 applies to any drivers that ever operate in California. They probably will not win that argument against a driver that only occasionally operates in the state, but drivers with regular runs in or through CA, are likely subject to AB5. What is “regular” will be a tough call and likely litigated many times. You will want to consult with your attorney to determine the extent of AB5’s reach into your operations if AB5 becomes law.
- When will we know something? Likely the fall. The Supreme Court’s past practices suggested we would have heard today whether they were rejecting or accepting the case. Because they did neither today, we can only assume the Court punted their decision until they come back from recess in the fall. It is possible the Court could accept or reject the case between now and then, but that would be abnormal.
- When would AB5 go into effect? Quickly. If the Court rejects the case, the stay would be lifted, and CA will be able to start enforcing AB5 virtually immediately. It is likely safe to presume CA would be aggressive, and this would be a relatively high priority for the state. There is no doubt trucking has been one of the state’s targets for years.
- If the case is rejected would the fight be over? No, not necessarily. There is more litigation that could occur in this case even if the Court rejects it. Even if they reject it, the Could would not be saying AB5 is not pre-empted by federal law. By rejecting the case the Supreme Court would let the 9th Circuit’s ruling stand, and that 9th Circuit ruling actually allows the industry to continue the litigation, do more fact finding, and keep the fight going. The problem is that litigation would be long and expensive. In the meantime, CA would be able to enforce AB5. The ongoing litigation might slow other states from adopting similar language, but carriers would need to contend with CA.
What should you do now?
Remember, nothing changes right now. The Court’s inaction means AB5 remains stayed (on pause) and is not enforceable in trucking. But if you do not have a plan already, get your advisors together to prepare for the Supreme Court taking or rejecting the case. Include feedback from all the disciplines in your business because the paths you choose will likely impact each area. Evaluate how much of your existing operation and near-term plans would be impacted by CA’s freedom to enforce AB5, or the threat of AB5 going away. Do you have no activity in CA, a little, or a lot? Could you make minor changes to the way you use ICs to serve CA and avoid using ICs in CA if you were forced? Would you stick with your current model, use more employee drivers, or create a new IC model? Would you need to adjust your business nationwide, or could you regionalize any changes? Are there technology solutions, or other third-party businesses out there that can help you build a better IC program?
The answers you come up with could impact your recruiting, your freight network, your dispatching, your insurance programs, your customer contracts, the way you sell yourself to your customers, your permit and plate program, and much more. Make sure you evaluate your business with all these aspects in mind. Listen to the lawyers yes, but do not shut out other considerations as you develop and implement plans for any Supreme Court contingency.
Wasn’t there another transportation case the Supreme Court was considering?
The AB5 case got most of the attention, but there is another significant case to the industry called Miller v C.H. Robinson. That case’s key issue is whether federal law pre-empts state laws that hold a broker liable for motor vehicle accidents involving a carrier hauling the broker’s brokered load. The nuclear verdict trend has hit brokers as well as carriers even when brokers do not choose drivers, do not train drivers, do not dispatch drivers, etc., making brokers another pocket. The Supreme Court declined to take this broker case, leaving existing law intact, meaning in some circumstances in some parts of the country brokers can be held liable for motor vehicle accidents under some state laws.
What does this mean to you? The AB5 litigation is about trying to prevent a new law from going into effect. This Miller litigation is about trying to overturn some existing bad law. By declining the case the Supreme Court leaves that existing law in place, meaning you do not necessarily need to change your existing business to comply with a new law. However, you should take this as an opportunity to review your broker practices to make sure you not acting as a carrier and giving yourself extra liability exposure.
Whether you want to review your independent contractor program or your brokerage, we have the legal, operational, and financial expertise to help you create strong programs. Contact us if you would like to discuss.
Two New Podcasts
We have two new podcasts episodes out. In the first episode we exchange stories and tips for handling the one-offs and emergencies that seem to find trucking companies. We talk about driver emergencies out on the road, buildings catching fire, and law enforcement requests among other things. In the second, we dig into business development best practices. We cover the importance of everyone on your team knowing your differentiators and the difference between being just a vendor versus being a trusted resource.
The Grawe Group, LLC is here to bring peace of mind to you and your business. We are a professional services firm focused on the transportation industry. With a team of experienced executives, we provide general counsel, executive leadership, and special project services for trucking and logistics companies. From legal and risk management matters, to operational, financial, and leadership challenges, the Grawe Group has the practical expertise in trucking and logistics to help you build sustainable success. www.thegrawegroup.com.
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