Posted on 05/09/2021 5:47:33 AM PDT by EBH
Appeals court panel says interstate haulers are not exempt from AB 5 law.
Interstate truckers could soon come under California’s highly restrictive independent contractor law because of a recent federal appeals court decision.
A three-judge panel for the U.S. Ninth Circuit Court of Appeals voted 2-1 that a federal law called the Federal Aviation Administration Authorization Act (FAAAA) does not preclude application of the state’s AB 5 contractor law to trucking companies operating in interstate commerce.
In early 2020, before the new law went into effect, a federal district court judge granted an injunction barring the state from enforcing it against interstate truckers while the court heard the case they were making that federal law pre-empted the state statute.
Because of the Ninth Circuit action, parties on the other side are expected to ask the district court to vacate the stay, although that had not yet happened at the time this was written.
Trucking interests are expected to appeal the three-judge decision to the full Ninth Circuit, and if the court chooses to uphold it, to the U.S. Supreme Court. The issues arising from how to define and apply the FAAAA to freight transportation have inspired skirmishes, pitched legal battles and seeming last stands over interpretations of the law’s somewhat imprecise language and uneven application.
The nub of the controversy stems from the AB 5 law’s three-part criteria for determining who can be defined as an independent contractor and who must be considered an employee for legal purposes. The “ABC test,” as it has been termed, consists of three criteria, all of which must be present if the person is to be considered a contractor:
• 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.
• The person performs work that is outside the usual course of the hiring entity’s business.
• The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
As you can see, the second criterion would be devastating to the trucking industry, which since its founding in the early part of the last century has depended on drivers who choose to lease their trucks and their driving services to other trucking companies. Of course, organized labor, including the Teamsters Union, has been seeking this outcome for decades since they began shedding dues-paying members after the advent of economic deregulation in 1980.
The California law proved to be so controversial that it has been rewritten by the state legislature after a public uproar arose from various types of freelance workers. The law also resulted in the passage of a referendum last year in which voters excluded ride share drivers who work for Uber and Lyft, and drivers for home delivery services like DoorDash.
However, the law continues to pose an even more ominous threat for truckers and other companies that use independent contractors. AB 5 was passed in 2019 by the state legislature to engrave into law a decision handed down in 2018 by the California Supreme Court creating the same ABC test. In January 2020, the same court ruled that the standard would be applied retroactively.
To make matters more complicated, the Ninth Circuit Appeals Court also has held previously that the California Supreme Court’s original decision that established the ABC test also should be applied retroactively to employers.
However, the same law could be coming soon to where you work if Congress succeeds in passing the Protecting the Right to Organize Act (PRO Act), a bill favored by labor unions and strongly supported by Democrat legislators that would outlaw right-to-work laws in states, authorize secondary boycotts, institute card check and subject management to personal civil liability for labor law violations.
Among the other provisions boosting the interests of organized labor, it also would apply the same California ABC test for contractors nationwide. That legislation has already been approved by the U.S. House of Representatives and now is undergoing consideration by the Senate.
Legislative efforts seeking to replicate California’s law have been mounted in other states, and federal agencies like the Department of Labor have grappled with the issue over the years. One thing is certain—it’s not going away anytime soon.
Yes. This is all about everyone being required to have a w2 which requires worker taxes be paid as withholding. The government wants it’s money as you are paid.
As opposed to 1099 which requires taxes to be settled only once a year as income tax.
The gov doesn’t trust you to settle up one a year.
Most 1099 folks pay quarterly.
...once a year
Works for me.
Imagine the impact on human trafficking and the drug trade.....
But estimated taxes (quarterly)are voluntary. The actual money does not have to be paid until yearly income taxes are filed. Even though you may have to pay a penalty for not paying quarterly.
I get 1099 forms every year. I have a home office with a separate phone number, a business checking account, a state issued resale card, and liability insurance in the name of my DBA entity. I work for multiple clients. I even do business with the state of California. I am a sole proprietorship, but a legit business since and no law is going to stop me. Even when I do work for other companies in my same field.
If a driver owns his own vehicle, and works for different clients then that driver is as much a legit business as a firm with a fleet of trucks. I’m thinking the problem arises when the driver is using another entity’s truck and he’s just selling his own time. It still sucks but for many, but not all, there’s a work around.
One last thought. How are these draconian laws like this that are applied to some groups of people but not others not considered a bill of attainder?
>> “I get 1099 forms every year. I have a home office with a separate phone number, a business checking account, a state issued resale card, and liability insurance in the name of my DBA entity. I work for multiple clients.”
Problem is most clients will not be allowed to send you a 1099 if you don’t meet the contractor test.
I’m not worried in the least. Most of my clients are not in the same business. I’m no different than the single worker plumber going to someone’s house to unclog the kitchen sink. Occasionally I do work for other design companies but haven’t done so for years.
The problem is that single plumber who needs an extra worker to handle a big job and it is prohibitive to make that extra set of hands an employee. He’ll probably wind up paying people under the table.
The US Constitution gives the federal government the power to regulate interstate commerce. Yet the 9th Circuit 9surprise!) thinks that union-serving California state laws contravene federal laws regarding interstate commerce. Let’s hope this goes before the US Supreme Court where it should be struck down.
A trucking company domiciled outside CA that makes deliveries to or from CA would not be covered by this law. It’s the local trucking contractors who never cross a state line who have the most exposure here.
At the moment the state of California has a $15 billion dollar budget surplus.
Looks like east coast and gulf ports are going to be busy. Ditto Oregon and Washington. Might even see a significant uptick in trucks coming from Mexico via AZ and NM.
Interstate Commerce clause, anyone?
Yes - if you can pick up loads any where else - no need to go to California. Unfortunately the majority of our stuff comes through the Port of LA - Long Beach that provides millions of loads to truckers.
This is the first time I have read the language of the ABC test to define a contractor.
A question I have is if there is any profession limitation to this law? If not then many if not all industries will have their models messed up.
As a start, an example would temp agencies that would cover everything from laborers to white collar professionals.
This describes to me as applying to individuals as opposed to business entities. If this is correct then could a simple LLC incorporation bypass the contractor status? If not then many business to business relationships are screwed as well.
Now shut up and eat your dirt pies...
>>> A trucking company domiciled outside CA that makes deliveries to or from CA would not be covered by this law.
AHHH... then it’s not really a ban on independents.
It’s a ban on free enterprise within the state.
Problem will solve itself.
Unions will choke on their own vomit.
All those crops in the Central Valley will be rotting because there are no truckers to move them
HA! And you should see the truckers who have relocated here in N’western Az as a result of this.
I can think of abt ten in my small area of the neighborhood right now. And thats been since a year ago. Most of the lots sold here are no smaller than 2 and a third acres.
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