CALIFORNIA TRUCKING ASSOCIATION; RAVINDER SINGH; THOMAS ODOM, Plaintiffs-Appellees, v. ROB BONTA, in his official capacity as the Attorney General of the State of California; ANDRE SCHOORL, in his official capacity as the Acting Director of the Department of Industrial Relations of the State of California; JULIE A. SU, in her official capacity as Secretary of the California Labor Workforce and Development Agency; PATRICK W. HENNING, in his official capacity as the Director of the Employment Development Department; LILIA GARCIA-BROWER, in her official capacity as Labor Commissioner of the State of California, Division of Labor Standards Enforcement, Defendants-Appellants,
No. 20-55106
No. 20-55107
United States Court of Appeals for the Ninth Circuit
Filed April 28, 2021
D.C. No. 3:18-cv-02458-BEN-BLM. Argued and Submitted September 1, 2020 Pasadena, California. Before: Sandra S. Ikuta and Mark J. Bennett, Circuit Judges, and Douglas P. Woodlock, District
and
INTERNATIONAL BROTHERHOOD OF TEAMSTERS, Intervenor-Defendant.
CALIFORNIA TRUCKING ASSOCIATION; RAVINDER SINGH; THOMAS ODOM, Plaintiffs-Appellees, v. ROB BONTA, in his official capacity as the Attorney General of the State of California; ANDRE SCHOORL, in his official capacity as the Acting Director of the Department of Industrial Relations of the State of California; JULIE A. SU, in her official capacity as Secretary of the California Labor Workforce and Development Agency; PATRICK W. HENNING, in his official capacity as the Director of the Employment Development Department; LILIA GARCIA-BROWER, in her official capacity as Labor Commissioner of the State of California, Division of Labor Standards Enforcement, Defendants,
and
INTERNATIONAL BROTHERHOOD OF TEAMSTERS, Intervenor-Defendant-Appellant.
Appeal from the United States District Court for the Southern District of California Roger T. Benitez, District Judge, Presiding
SUMMARY***
Federal Aviation Administration Authorization Act Preemption
Reversing the district court‘s order preliminarily enjoining enforcement, against any motor carrier doing business in California, of California‘s Assembly Bill 5, which codified the judge-made “ABC test” for classifying workers as either employees or independent contractors, the panel held that application of AB-5 to motor carriers is not preempted by the Federal Aviation Administration Authorization Act of 1994.
In Dynamex Operations W. v. Superior Ct., 4 Cal. 5th 903 (2018), the California Supreme Court adopted the ABC test. The California legislature enacted AB-5, codifying the ABC test, in September 2019. California Trucking Association, a trade association representing motor carriers that hire independent contractors who own their own trucks, and two independent owner-operators filed suit, seeking to enjoin enforcement of AB-5. The district court granted a preliminary injunction against enforcement of AB-5 against any motor carrier doing business in California.
The panel held that California Trucking Association and its members had standing to bring this suit because they demonstrated that their policies were presently in conflict with the challenged provision, and they had a concrete plan to violate AB-5. In addition, CTA established that there was a threat to initiate proceedings against its members.
The panel held that the district court abused its discretion by enjoining the State of California from enforcing AB-5 against motor carriers doing business in California on the ground that such enforcement is preempted by the FAAAA. The panel held that because AB-5 is a generally applicable labor law that affects a motor carrier‘s relationship with its workforce and does not bind, compel, or otherwise freeze into place the prices, routes, or services of motor carriers, it is not preempted by the FAAAA.
Dissenting, Judge Bennett wrote that AB-5 both affects motor carriers’ relationship with their workers and significantly impacts the services motor carriers are able to provide to their customers, and it therefore is preempted as applied to California Trucking Association‘s members.
COUNSEL
Jose A. Zelidon-Zepeda (argued), Deputy Attorney General; Tamar Pachter and Benjamin M. Glickman, Supervising Deputy Attorneys General; Thomas S. Patterson, Senior Assistant Attorney General; Attorney General‘s Office, San Francisco, California; for Defendants-Appellants.
Andrew Kushner (argued) and Stacey M. Leyton, Altshuler Berzon LLP, San Francisco, California, for Intervenor-Defendant-Appellant.
Andrew E. Tauber (argued), Miriam R. Nemetz, and Evan M. Tager, Mayer Brown LLP, Washington, D.C.; Robert R. Roginson and Alexander M. Chemers, Ogletree Deakins Nash Smoak & Stewart P.C., Los Angeles, California; for Plaintiffs-Appellees.
David A. Rosenfeld, Weinberg Roger & Rosenfeld, Alameda, California, for Amicus Curiae California Labor Federation AFL-CIO.
Michael N. Feuer, City Attorney; Kathleen A. Kenealy, Chief Assistant City Attorney; Michael J. Bostrom, Assistant City Attorney; Danielle L. Goldstein and Christopher S. Munsey, Deputy City Attorneys; Office of the City Attorney, Los Angeles, California; Barbara J. Parker, City Attorney; Maria Bee, Erin Bernstein, Malia McPherson, Caroline Wilson, and Nicholas DeFiesta, Attorneys; Office of the City Attorney, Oakland, California; for Amici Curiae Office of the Los Angeles City Attorney and the City of Oakland.
Shannon Liss-Riordan and Harold Lichten, Lichten & Liss-Riordan P.C., Boston, Massachusetts, for Amicus Curiae California Employment Lawyers Association (CELA).
Patrick J. Whalen, Ellison Whalen & Blackburn, Sacramento, California, for Amici Curiae American Dream Coalition and Western States Trucking Association.
Karen A. Booth and Jason D. Tutrone, Thompson Hine LLP, Washington, D.C., for Amici Curiae American Chemistry Council, Consumer Brands Association, Institute of Scrap Recycling Industries Inc., National Industrial Transportation League, National Shippers Strategic Transportation Council, and Fertilizer Institute.
Theane Evangelis, Blaine H. Evanson, and Max E. Schulman, Gibson Dunn & Crutcher LLP, Los Angeles, California; Steven P. Lehotsky and Emily J. Kennedy, U.S. Chamber Litigation Center, Washington, D.C.; Deborah White and Kathleen McGuigan, Retail Litigation Center Inc., Washington, D.C.; Stephanie Martz, National Retail Federation, Washington, D.C.; for Amici Curiae Chamber of Commerce of the United States of America, Retail Litigation Center Inc., and National Retail Federation.
Richard Pianka, ATA Litigation Center, Arlington, Virginia, for Amici Curiae American Trucking Associations Inc., Arizona Trucking Association, Nevada Trucking Association, Oregon Trucking Association, Washington Trucking Associations, Intermodal Association of North America, National Tank Truck Carriers, and Truckload Carriers Association.
Paul D. Cullen Sr., Paul D. Cullen Jr., Gregory R. Reed, and Daniel E. Cohen, The Cullen Law Firm PLLC, Washington, D.C., for Amicus Curiae Owner-Operator Independent Drivers Association Inc.
OPINION
IKUTA, Circuit Judge:
The Federal Aviation Administration Authorization Act of 1994 (F4A or FAAAA) preempts any state law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”
I
We first provide the context for this challenge. Before 2018, the California Supreme
Almost thirty years after Borello, the California Supreme Court revisited the framework for classifying workers as employees or independent contractors for purposes of California‘s Industrial Welfare Commission (IWC) Wage Orders.2 See Dynamex Operations W. v. Superior Ct., 4 Cal. 5th 903, 912, 957 (2018). Dynamex adopted a standard commonly referred to as the “ABC” test. Id. at 957. Under Prong B of that test, a worker is presumed to be an employee and may be classified as an independent contractor only if
“the worker performs work that is outside the usual course of the hiring entity‘s business.” Id.3 The ABC test was thus significantly different from the Borello test: while Borello considered “whether or not the work is a part of the regular business of the principal” as only one factor in the classification analysis, 48 Cal. 3d at 351, the ABC test presumed a worker was an employee unless the worker met that condition, Dynamex, 4 Cal. 5th at 957.
In September 2019, the California legislature enacted AB-5, which codified the ABC test and expanded its applicability. See
(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.
AB-5 exempts certain occupations and services.
California Trucking Association (CTA) is a trade association representing motor carriers that hire independent contractors who own their own trucks (referred to as “independent owner-operators“) to transport property throughout California. The change from the Borello test to Dynamex and then to AB-5 concerned CTA. It viewed the new rule statutorily classifying a worker as an employee unless the hiring entity demonstrates that the worker performs “work that is outside the usual course of the hiring entity‘s business,”
A
In October 2018, after Dynamex was decided, CTA, along with Ravinder Singh and Thomas Odom, two independent owner-operators (the plaintiffs), filed this lawsuit against Xavier Becerra, the Attorney General of California; Julie Su, Secretary of the California Labor Workforce; and several other California officials (collectively referred to as “California” or “the state“), seeking a declaration that the F4A preempted the ABC test as applied to motor carriers. The district court allowed the International Brotherhood of Teamsters (IBT), a labor union that represents owner-operators classified as employees, to intervene. Dist Ct. Dkt. No. 31. In February 2019, IBT and California filed motions to dismiss. Dist. Ct. Dkt. No. 28, 29.
On September 24, 2019, about a week after the California legislature enacted AB-5, the district court dismissed CTA‘s amended complaint with leave to amend, explaining that it was unclear whether the state would enforce Dynamex now that AB-5 had been enacted. On November 12, 2019, the plaintiffs filed the now-operative Second Amended Complaint, raising their
The district court held that CTA had standing and was likely to succeed on the merits of its claim. It therefore enjoined the state from enforcing AB-5 against any motor carrier doing business in California. The state and IBT timely appealed.
B
The district court had jurisdiction under
court abuses its discretion when it “base[s] its decision on an erroneous legal standard.” Puente Arizona v. Arpaio, 821 F.3d 1098, 1103 (9th Cir. 2016) (citation omitted). Thus, the district court‘s “legal conclusions, such as whether a statute is preempted, are reviewed de novo.” Id.
II
Before reaching the merits, we must determine whether any plaintiff has standing to bring this pre-enforcement challenge. We focus on the associational standing of CTA.7 To have standing, CTA must allege “a case or controversy within the meaning of Art. III of the Constitution,” and not just “abstract questions not currently justiciable by a federal court.” Babbitt v. United Farm Workers Nat‘l Union, 442 U.S. 289, 297 (1979). There needs to be “a realistic danger of sustaining a direct injury as a result of the statute‘s operation or enforcement.” Id. at 298. We have listed three factors for evaluating “the genuineness of a claimed threat of prosecution“: “[1] whether the plaintiffs have articulated a ‘concrete plan’ to violate the law in question, [2] whether the prosecuting authorities have communicated a specific
warning or threat to initiate proceedings, and [3] the history of past prosecution or enforcement under the challenged statute.” Thomas v. Anchorage Equal Rights Comm‘n, 220 F.3d 1134, 1139 (9th Cir. 2000). “At this very preliminary stage, plaintiffs may rely on the allegations
Applying these factors, we conclude that CTA has standing to bring this complaint. Based on the allegations in its complaint, CTA and its members have “demonstrated that their policies are presently in conflict with” the challenged provision, City & County of San Francisco v. Trump, 897 F.3d 1225, 1237 (9th Cir. 2018), and they have a concrete plan to violate AB-5. The complaint alleges that CTA and its members currently contract with independent owner-operators, rather than employees. CTA alleges that this is permissible under the Borello test but not under AB-5. The complaint further alleges that AB-5 requires CTA to terminate its independent-contractor arrangements and instead hire only employees, which (according to CTA) would require “an immediate and significant change in the plaintiffs’ conduct of their affairs.” Abbott Lab‘ys v. Gardner, 387 U.S. 136, 153 (1967). CTA‘s members are continuing with their current business practices, and thus CTA alleges that if not for the district court‘s injunction, its members would be in violation of AB-5. Because CTA‘s members are maintaining policies that “are presently in conflict with” AB-5, according to the allegations in the complaint, they are deemed to have articulated a concrete plan to violate it. See Trump, 897 F.3d at 1237.
Second, CTA has established that there is a threat to initiate proceedings against its members. Here, the state‘s refusal to disavow enforcement of AB-5 against motor carriers during this litigation is strong evidence that the state intends to enforce the law and that CTA‘s members face a credible threat. See LSO, Ltd. v. Stroh, 205 F.3d 1146, 1154–56 (9th Cir. 2000) (holding that “the Government‘s failure to disavow application of the challenged provision [is] a factor in favor of a finding of standing“). Plaintiffs are also deemed to have established that there is a realistic threat to initiate proceedings against them if the government has declared its “intention to enforce” the new law. Pierce v. Soc‘y of the Sisters of the Holy Names of Jesus & Mary, 268 U.S. 510, 533 (1925). In this case, the state has notified the regulated community that it intends to enforce AB-5. On December 13, 2019, several weeks before AB-5 took effect, the state sent letters to businesses notifying them that, under AB-5, the ABC test “must be used to determine the appropriate classification of workers in most occupations.” And after AB-5 took effect, California began “moving aggressively to enforce” it. Carolyn Siad, AB5 Gig Law Enforced: California Sues Uber and Lyft to Make Drivers Employees, San Francisco Chronicle (May 5, 2020). The state has commenced a number of prosecutions against companies for misclassifying workers under AB-5. See, e.g., Complaint, People v. Uber Techs., Inc., No. CGC-20-584402 (Cal. Super. May 5, 2020).
As to the history of enforcement, this factor has “little weight” when the challenged law is “relatively new and the record contains little information as to enforcement or interpretation.” Wolfson v. Brammer, 616 F.3d 1045, 1060 (9th Cir. 2010). CTA filed its operative complaint several weeks before AB-5‘s effective date, and thus it was not
possible for the state to have enforced AB-5 before that date. See Sacks v. Off. of Foreign Assets Control, 466 F.3d 764, 774 (9th Cir. 2006) (explaining that standing is determined “as of the date the complaint was filed“). Nonetheless, in September 2019, before AB-5 became effective and before CTA filed its operative complaint, the state sued Instacart and sought civil penalties based on allegations that Instacart misclassified its workers under Dynamex. See Complaint, State v. Maplebear Inc. et al., No. 37-2019-00048731-CU-MC-CTL (Cal. Super. Ct. Sept. 13, 2019). Given that AB-5 codified Dynamex‘s ruling regarding the ABC test, this “history of past enforcement against parties similarly situated to the plaintiffs cuts in favor of a conclusion that a threat is specific and credible.” Lopez v. Candaele, 630 F.3d 775, 786–87 (9th Cir. 2010).
Because our three-factor test, as applied to the enactment of a new law, establishes that the plaintiffs face “a realistic danger of sustaining a direct injury as a result of the statute‘s operation or enforcement,” Babbitt, 442 U.S. at 298, we hold that CTA and its members have standing to bring this complaint.
III
We next consider whether the district court abused its discretion by enjoining the state from enforcing AB-5 against motor carriers doing business in California on the ground that such enforcement is preempted by the F4A.
A
The Supremacy Clause of the United States Constitution provides that federal law “shall be the supreme Law of the
Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”
We begin with the plain language of the statute. The F4A expressly preempts any state law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”
Before 1978, the trucking and airline industries were extensively regulated. See Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378 (1992). In 1978, Congress concluded
that “maximum reliance on competitive market forces” would favor lower airline
Congress then focused its deregulatory efforts on the trucking industry. It engaged in a two-step process. First, Congress enacted the Motor Carrier Act of 1980 (MCA), which extended federal deregulation to the trucking industry but “explicitly preserved state authority to regulate intrastate trucking.” Jill E. Fisch, How Do Corporations Play Politics?: The Fedex Story, 58 Vand. L. Rev. 1495, 1528–29 (2005). For this reason, state economic regulation of trucking continued to be a “huge problem for national and regional carriers attempting to conduct a standard way of doing business.” City of Columbus v. Ours Garage & Wrecker Serv., Inc., 536 U.S. 424, 440 (1994) (citation omitted). For instance, although the ADA preempted state regulation of FedEx‘s trucking operations because FedEx was organized as an air carrier, Fed. Exp. Corp. v. Cal. Pub. Utilities Comm‘n, 936 F.2d 1075, 1078–79 (9th Cir. 1991), many of FedEx‘s competitors, which were organized as motor carriers, did not receive similar protection from state regulation.
In 1994, Congress enacted the F4A, which preempted state authority to regulate intrastate trucking and created a level playing field so that all companies using motor carriers and air carriers received the same protections, regardless of
how they were organized. See H.R. Conf. Rep. No. 103-677, at 87 (1994). Adopting language from the ADA‘s preemption clause, the F4A states: “[A] State . . . may not enact or enforce a law . . . related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”
Because the F4A uses “text nearly identical” to the ADA‘s, we have held that analysis of the ADA‘s preemption clause “is instructive for our FAAAA analysis as well.” Dilts, 769 F.3d at 644. There is one difference between the preemption provisions of the ADA and the F4A, however: the latter “contains one conspicuous alteration—the addition of the words ‘with respect to the transportation of property,‘” a phrase that “massively limits the scope of preemption ordered by the FAAAA” compared to the ADA. Dan‘s City, 569 U.S. at 261 (cleaned up).8 In sum, the state law at issue is preempted to the extent it relates to the price, route, or service of a motor carrier in its operations involving the transportation of property.
B
The interpretation of the words “related to a price, route, or service of any motor carrier” likewise has a long history.
The Supreme Court first interpreted similar language in the
In subsequent cases, the Supreme Court refined its interpretation of “related to.” As the Court has explained, “the breadth of the words ‘related to’ does not mean the sky is the limit.” Dan’s City, 569 U.S. at 260. A court cannot take an uncritically literal reading of “related to,” otherwise “for all practical purposes pre-emption would never run its course.” Id. Perhaps the author of Morales said it best: “applying the ‘relate to’ provision according to its terms was a project doomed to failure, since, as many a curbstone philosopher has observed, everything is related to everything else.” Cal. Div. of Lab. Standards Enf’t v. Dillingham Const., N.A., Inc., 519 U.S. 316, 335 (1997) (Scalia, J., concurring). Further, the “related to” language “provides an illusory test, unless the Court is willing to decree a degree of pre-emption that no sensible person could have intended—which it is not.” Id. at 335–36. In this vein, the Supreme Court’s decisions about F4A preemption after Morales have tended to construe the F4A narrowly, holding, for instance, that a state law is “related to” prices, routes, and services if it “aim[s] directly at the carriage of goods” and requires motor carriers “to offer a system of services that the market does not now provide,” or “freeze[s] into place services that carriers might prefer to discontinue in the future.” Rowe, 552 U.S. at 372, 376.
In light of this guidance, we have attempted to “draw a line between laws that are significantly related to rates, routes, or services, even indirectly, and thus are preempted, and those that have only a tenuous, remote, or peripheral connection to rates, routes, or services, and thus are not preempted.” Dilts, 769 F.3d at 643 (citation omitted). A law’s general applicability, while not dispositive, “will likely influence whether the effect on prices, routes, and services is tenuous or significant.” Cal. Trucking Ass’n v. Su, 903 F.3d 953, 966 (9th Cir. 2018), cert. denied, 139 S. Ct. 1331 (2019). “What matters is not solely that the law is generally applicable, but where in the chain of a motor carrier’s business it is acting to compel a certain result . . . and what result it is compelling.” Id.
When a generally applicable law compels a motor carrier to a certain result in its relationship with consumers,
By contrast, laws of general applicability that affect a motor carrier’s relationship with its workforce, and compel a certain wage or preclude discrimination in hiring or firing decisions, are not significantly related to rates, routes or services. See Su, 903 F.3d at 966. Therefore, enforcement of California’s prevailing wage law against motor carriers, the application of California’s meal and rest break laws, and “the use of California’s common-law test for determining whether a motor carrier has properly classified its drivers as independent contractors” are not preempted, because they impact motor carriers’ business at the point where the motor carriers interact with their workers. Miller, 976 F.3d at 1023.
A generally applicable law is one that affects individuals “solely in their capacity as members of the general public,” Rowe, 552 U.S. at 375, and applies “to hundreds of different industries,” Dilts, 769 F.3d at 647 (citation omitted). When such generally applicable laws impact motor carriers’ relationship with their workforce, they are not “related to a price, route or service” “even if they raise the overall cost of doing business,” or “shift[] incentives and make[] it more costly for motor carriers to choose some routes or services relative to others, leading the carriers to reallocate resources or make different business decisions.” Dilts, 769 F.3d at 646–47 (emphasis omitted); see also Ridgeway v. Walmart Inc., 946 F.3d 1066, 1083 (9th Cir. 2020) (holding that a law was not preempted, even if employers had to factor the law “into their decisions about the prices they set, the routes that they use, or the services that they provide, because the law did not “set prices, mandate or prohibit certain routes, or tell motor carriers what services that they may or may not provide, either directly or indirectly” (cleaned up)).
In Dilts we applied these principles and determined that California’s meal and rest break laws, as applied to motor carriers, are not preempted by the F4A. See 769 F.3d at 640. The state laws at issue, which required “a 30-minute meal break for every five hours worked, and a paid 10-minute rest break for every four hours worked,” might have increased the costs of doing business, because they might have required motor carriers to hire more drivers, change their current schedules, and make “minor deviations” from their routes. Id. at 640, 649 (citations omitted). But because these generally applicable labor laws did not bind motor carriers to specific rates or services, meaningfully interfere with the ability of motor carriers
Four years after Dilts, we concluded that the F4A does not preempt the Borello test for classifying California workers as either employees or independent contractors. See Su, 903 F.3d at 957. We rejected the plaintiff’s contentions that application of the Borello standard to its workforce bound or compelled it to certain prices, routes, or services. Id. at 964–65. Rather, consistent with Dilts and Californians for Safe & Competitive Dump Truck Transportation v. Mendonca, 152 F.3d 1184 (9th Cir. 1998), we held that “[a]t most, carriers will face modest increases in business costs, or will have to take the Borello standard and its impact on labor laws into account when arranging operations.” Id. at 965. The Borello test was not preempted by the F4A, we held, because it was “a generally applicable background regulation in an area of traditional state power” that merely affected the relationship “between a carrier and its workforce,” where “the impact is on the protections afforded to that workforce.” Id. at 961–62. In reaching this conclusion, we rejected the plaintiff’s contentions that the Borello standard improperly compelled motor carriers to use employees, but we did not decide whether such compulsion would cause a law to be preempted by the F4A. Id. at 959 n.4.
Based on Dilts, Su, and related precedent, a generally applicable state law is not “related to a price, route, or service of any motor carrier” for purposes of the F4A unless the state law “binds the carrier to a particular price, route or service” or otherwise freezes them into place or determines them to a significant degree. Dilts, 769 F.3d at 646. We have generally held that the state law at issue does not have such a binding or freezing effect unless it compels a result at the level of the motor carrier’s relationship with its customers or consumers. See id. at 640, 646; Su, 903 F.3d at 966. Such a law does not have a binding or freezing effect, and thus is not preempted, merely because a motor carrier must take the law into account when making business decisions, or merely because the law increases a motor carrier’s operating costs. See Dilts, 769 F.3d at 646–47.
IV
We now turn to the question whether the F4A preempts the ABC test, as codified in
A
We first consider whether
We next consider where in the chain of a motor carrier’s business
Because
B
CTA raises two main arguments in support of its claim that the F4A preempts
The first is that
Moreover, CTA contends that its members would have to “reconfigure and consolidate routes” to offset increased costs. Its members might eliminate certain routes all together and might have to reconfigure routes to ensure their drivers can take meal and rest breaks. All of this
And finally, CTA contends that the increased labor costs caused by
We have routinely rejected similar arguments that the F4A preempts California labor laws that impose such indirect effects. See, e.g., Dilts, 769 F.3d at 646 (holding that California’s meal-and-rest-break laws “are not preempted even if they raise the overall cost of doing business or require a carrier to re-direct or reroute some equipment“).
In Mendonca, for example, the plaintiffs argued before the district court that California’s prevailing wage law would increase motor carriers’ costs by 75%, and this increase in costs would increase prices by 25% because wages constituted 33% of the eventual price charged by motor carriers. Californians For Safe & Competitive Dump Truck Transp. v. Mendonca, 957 F. Supp. 1121, 1127 & n. 11 (N.D. Cal. 1997). This price increase would, the plaintiffs alleged, require the motor carriers to use independent owner-operators and compel them “to redirect and reroute equipment to compensate for the additional costs imposed on them by the Prevailing Wage Law,” and it would “interfere[] with their California segment of operations, which in turn [would disrupt] their interstate services.” Id. Despite the motor carriers’ dire predictions about increased costs leading to changes in routes and services, we concluded that California’s prevailing wage law was not the sort of law that Congress intended to preempt. Mendonca, 152 F.3d at 1189. As the district court explained, “if preemption was based on percentages of price, then numerous areas of state regulation would be preempted based solely on their percentage effect on motor carrier prices,” contrary to “the Supreme Court’s requirement of ‘clear and manifest’ Congressional intent to preempt.” Mendonca, 957 F. Supp. at 1127 n.11. We affirmed the district court, holding that the law’s effect “is no more than indirect, remote, and tenuous” and did not fall “into the ‘field of laws’ regulating prices, routes, or services.” Mendonca, 152 F.3d at 1189; see also Ridgeway, 946 F.3d at 1083.
Our decision in California Trucking Association v. Su supports this conclusion. In that case, the plaintiff argued that the Borello worker-classification test would impact its prices, routes, and services. 903 F.3d at 958. But we held that the test would at most impose “modest increases in business costs” or require motor carriers “to take the Borello standard and its impact on labor laws into account when arranging operations.” Id. at 965. Because the state worker-classification law would not “have an impermissible effect, such as binding motor carriers to specific services, making the continued provision of particular services essential to compliance with the law, or interfering at the point that a carrier provides services to its customers,” the law was not preempted. Id. The same analysis applies to the impact of
The dissent argues that we have given insufficient weight to the effect that
C
Second, CTA and the dissent argue that because the ABC test requires an employer to hire employees, rather than independent contractors, language in American Trucking Associations v. City of Los Angeles and Su compels us to conclude that
American Trucking Associations involved a challenge to city ordinances requiring that trucks providing drayage services to the Port of Los Angeles and the Port of Long Beach enter into mandatory concession agreements. See generally 559 F.3d at 1046. The Ports acknowledged that the principal purpose of the concession agreements was to reduce truck emissions and address other environmental concerns. Id. at 1055. A provision in the Port of Los Angeles’s concession agreement required motor carriers operating at the Port of Los Angeles to “transition over the course of five years from independent-contractor drivers to employees.” Id. at 1049. The district court held that the plaintiff demonstrated a likelihood of success in showing that the agreements were preempted by the F4A, because the agreements “directly regulate[d] the carriers themselves” and might have “force[d] motor carriers to change their prices, routes, or services in a way that the market would not otherwise dictate.” Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 577 F. Supp. 2d 1110, 1117 (C.D. Cal. 2008), rev’d, 559 F.3d at 1046. According to the district court, defendants did “not seem to dispute this,” but rather argued that the concession agreements were exempted from preemption because, among other things, the F4A’s safety exemption likely applied. See id.; see also
On appeal, we likewise focused on the F4A’s safety exemption. Although we agreed that it “can hardly be doubted” that the concession agreements “relate[d] to prices, routes or services of motor carriers,” we noted that the defendants did not “actually dispute that on appeal.” Am. Trucking Ass’ns, 559 F.3d at 1053; see also id. at 1051 (noting that the district court’s ruling that the plaintiff could likely demonstrate that the concession agreements “related to a price, route, or service” of motor carriers was “a ruling left unchallenged” on appeal). We reversed the district court on the ground that the concession agreements were aimed at environmental and economic concerns, not safety concerns, and so the concession agreements did not qualify for the safety exemption from preemption. Id. at 1056, 1060–61. We remanded so that the district court could determine whether, absent the safety exemption, the “specific terms of each agreement” were likely to be preempted. Id.
CTA focuses on our passing statement that it “can hardly be doubted” that the concession agreements “relate to prices, routes or services of motor carriers.” Id. at 1053. According to CTA, this language compels us to hold that
CTA also argues that our discussion of American Trucking Associations in Su compels the conclusion that a state law that requires a motor carrier to employ only independent contractors must be deemed to relate to the prices, routes, and services or motor carriers for purposes of F4A preemption. For several reasons, we do not read Su as going that far.
CTA relies on a portion of Su discussing the plaintiff’s claim that the Borello test imposed an “improper compulsion” of the sort preempted by the F4A, because it compelled the use of independent contractors. 903 F.3d at 964. Su rejected that argument. Rather than determine whether such compulsion is preempted by the F4A, however, Su instead concluded that the Borello test “does not, by its terms, compel a carrier to use an employee or an independent contractor.” Id. Distinguishing American Trucking Associations, we stated that the case “stands for the obvious proposition that an ‘all or nothing’ rule requiring services be performed by certain types of employee drivers and motivated by a State’s own efficiency and environmental goals was likely preempted.” Id.
Despite our passing characterization of American Trucking Associations, we recognized that the question whether the F4A preempted a labor law like the ABC test was not before us, and we expressly left that question open: after recognizing that Dynamex had adopted the ABC test while the appeal in Su was pending, we clarified that “we need not and do not decide whether the FAAAA would preempt using the ‘ABC’ test to enforce labor protections under California law.” Id. at 964 n.4, 964 n.9. Because Su “did not make a deliberate decision to adopt” a rule regarding the ABC test—and indeed expressly disclaimed doing so—we are neither bound nor meaningfully assisted for analytical purposes by its statements made without reasoned consideration. Seven Up Pete Venture v. Schweitzer, 523 F.3d 948, 953 (9th Cir. 2008). Given that the issue was not on appeal, it is not surprising that Su provided no reasoning as to why a state
Finally, the dissent argues that Miller supports CTA’s position. Dissent at 44. We disagree. Miller held that a common-law negligence cause of action, not a generally applicable labor law, was preempted by the F4A. See 976 F.3d at 1023–24. In reaching this conclusion, Miller reaffirmed that the F4A does not prohibit California from enforcing normal background rules applying to employers doing business in California, which are not “related to” carrier prices, routes, or services. Id. Rather, Miller held that common law negligence was distinguishable from laws governing employment relations, because negligence claims sought to hold a company “liable at the point at which it provides a ‘service’ to its customers,” which is “directly connected with” services “in a manner that was lacking in Mendonca, Dilts, and Su.” Id. at 1024 (cleaned up). Here, of course,
D
We likewise reject the arguments made by CTA and the dissent based on Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429, 437–40 (1st Cir. 2016) and Bedoya v. Am. Eagle Express Inc., 914 F.3d 812, 816 (3d Cir. 2019), cert. denied, 140 S. Ct. 102 (2019). The language relied upon is contrary to our precedent.
In Schwann, the First Circuit determined that Prong 2 of Massachusetts’ ABC test (which is identical to Prong B of the California ABC test codified in
Because
REVERSED.
BENNETT, Circuit Judge, dissenting:
I agree with the majority that for purposes of F4A preemption, we “draw a line between laws that are significantly related to rates, routes, or services, even indirectly, and thus are preempted, and those that have only a tenuous, remote, or peripheral connection to rates, routes, or services, and thus are not preempted.” Majority Opinion at 22 (quoting Dilts v. Penske Logistics, LLC, 769 F.3d 637, 643 (9th Cir. 2014)). I also agree that “laws of general applicability that affect a motor carrier’s relationship with its workforce . . . are not significantly related to rates, routes or services,” Majority Opinion at 23—if those laws significantly affect only a motor carrier’s relationship with its workforce. I do not agree, however, that a law like
We review the grant of a preliminary injunction for abuse of discretion. Am. Trucking Ass’ns, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th Cir. 2009). “Our review is limited and deferential, and we do not review the underlying merits of the case.” Id. (quotation marks, citation, and alteration omitted). There are four factors we must consider: (1) the likelihood of success on the merits, (2) the likelihood of irreparable harm, (3) the balance of equities, and (4) the public interest. Short v. Brown, 893 F.3d 671, 675 (9th Cir. 2018). The majority reverses the district court under the first prong, concluding that CTA is “unlikely to succeed” in proving that
“[T]he [F4A’s] central objective is to avoid frustrating the statute’s deregulatory purpose by preventing states from imposing a patchwork of state service-determining laws.” Bedoya v. Am. Eagle Express Inc., 914 F.3d 812, 818 (3d Cir. 2019) (quotation marks and citation omitted). Thus, the F4A preempts any state law that is “related to” a motor carrier’s prices, routes, or services.
peripheral.” Id. at 390 (citation omitted). But Morales also made clear that “pre-emption occurs at least where state laws have a ‘significant impact‘“—specifically on prices, routes, or services in the context of the F4A. Rowe v. New Hampshire Motor Transp. Ass‘n, 552 U.S. 364, 371 (2008) (emphasis added) (quoting Morales, 504 U.S. at 390). This rule applies both to laws that target motor carriers and to laws of general applicability.
Applying this critical distinction, our court has repeatedly held that state employment laws with a significant impact on motor carriers’ relationships to their workforces, but only a tenuous, remote, and peripheral effect on their prices, routes, and services, are not preempted by the F4A. In Californians for Safe and Competitive Dump Truck Transportation v. Mendonca, 152 F.3d 1184 (9th Cir. 1998), we considered California‘s Prevailing Wage Law that required contractors who were awarded public works contracts to pay their workers “not less than the general prevailing rate.” Id. at 1186. The motor carriers argued that the law was “related to” prices, routes, and services because, among other things, it forced them to increase prices and redirect and reroute equipment to compensate for lost revenue. Id. at 1189. We held that the law was not “related to” the carriers’ prices, routes, or services because it did not “acutely interfer[e]” with them. Id.
In Dilts, we considered California labor laws requiring “a 30-minute meal break for every five hours worked, and a paid 10-minute rest break for every four hours worked.” 769 F.3d at 640 (citation omitted). We held that the laws were not preempted because they “[did] not bind motor carriers to specific prices, routes, or services,” would cause “nothing more than a modestly increased cost of doing business” and “minor deviations” in drivers’ routes, and would not “meaningfully decrease the availability of routes to motor carriers.” Id. at 647–49 (emphasis added) (quotation marks and citation omitted). In accord with Morales, we reaffirmed that “state laws like California‘s, which do not directly regulate prices, routes, or services, are not preempted by the [F4A] unless they have a ‘significant effect’ on prices, routes, or services.” Id. at 649–50. Thus, because “there [was] no showing of an actual or likely significant effect on prices, routes, or services,” we concluded that “the California laws at issue [were] not preempted.” Id. at 650.
Finally, in California Trucking Association v. Su, 903 F.3d 953 (9th Cir. 2018), we considered the Borello test, which used to be California‘s common law test for determining whether someone was an employee or independent contractor. Id. at 957. The Borello test was essentially a totality of the circumstances balancing analysis: there were eight to ten factors, and no factor was dispositive. See S.G. Borello & Sons, Inc. v. Dep‘t of Indus. Rels., 769 P.2d 399, 407 (Cal. 1989). We held that the Borello test was not preempted by the F4A because “[a]t most, carriers [would] face modest increases in business costs, or [would] have to take the Borello standard and its impact on labor laws into account when arranging operations.” Su, 903 F.3d at 965 (emphasis added). Such impacts were “not significant, and so [did] not warrant preemption.” Id. at 964.
Out of these cases, the majority crafts the general rule that “laws of general applicability that affect a motor carrier‘s relationship with its workforce . . . are not significantly related to rates, routes or services.” Majority Opinion at 23. But the majority‘s rule ignores the possibility that a state law might affect a motor carrier‘s relationship with its workforce and have a significant impact on that motor carrier‘s prices, routes, or services, which would mandate F4A preemption under Supreme Court precedent. See Rowe, 552 U.S. at 371 (“[P]re-emption occurs at least where state laws have a significant impact [on prices, routes, or services].” (emphasis added) (quotation marks and citation omitted)).
Our prior F4A preemption decisions did not overlook this point. In Mendonca, we stated that “state regulation in an area of traditional state power having no more than an indirect, remote, or tenuous effect on a motor carrier[‘s] prices, routes, and services [is] not preempted“—not that any regulation in an area of traditional state power, such as employment, is not preempted. 152 F.3d at 1188 (emphasis added). In Dilts, we similarly stated that in enacting the F4A, “Congress did not intend to preempt generally applicable state transportation, safety, welfare, or business rules that do not otherwise regulate prices, routes, or services.” 769 F.3d at 644 (emphasis added). And in Su, we stated that “Congress did not intend to preempt laws that implement California‘s traditional labor protection powers, and which affect carriers’ rates, routes, or services in only tenuous ways.” 903 F.3d at 961 (emphasis added). We clarified that “[w]hat matters is . . . where in the chain of a motor carrier‘s business it is acting to compel a certain result . . . and what result it is compelling.” Id. at 966. We thus held that the Borello test was not preempted precisely “because the Borello standard [did] not compel the use of employees or independent contractors; instead, at most, it impact[ed motor carriers] in ways that . . . [were] not significant.” Id. at 964.
Despite that holding, the majority mischaracterizes dicta in Miller v. C.H. Robinson Worldwide, Inc., 976 F.3d 1016 (9th Cir. 2020), as reaffirming that “the F4A does not prohibit California from enforcing normal background rules applying to employers doing business in California.” Majority Opinion at 35. But Miller did not embrace such a categorical rule, which would have been at odds with Morales. Instead, Miller reaffirmed that “[t]he phrase ‘related to’ in the [F4A] embraces state laws having a connection with or reference to . . . rates, routes, or services, whether directly or indirectly.” 976 F.3d at 1022 (ellipsis in original) (quotation marks and citation omitted). Miller then held that when a generally applicable state law “seeks to hold [a motor carrier] liable at the point at which it provides a ‘service’ to its customers,” the state law is “directly connected with” a motor carrier‘s service (and thus preempted) “in a manner that was lacking in Mendonca, Dilts, and Su.” Id. at 1024 (quotation marks, citation, and alteration omitted).
AB-5 seeks to interfere with motor carriers’ operations at the point at which they provide a service to their customers, like the common law of negligence at issue in Miller and unlike the employment regulations at issue in Mendonca, Dilts, and Su. Whereas the wage law in Mendonca did not require motor carriers to raise their prices, the meal and rest break laws in Dilts caused only “modestly increased cost[s]” and “minor deviations” in routes, and the Borello test “[did] not compel the use of employees or independent contractors,” AB-5 mandates the very means by which CTA members must provide transportation services to their customers. It requires them to use employees rather than independent contractors as drivers, thereby significantly impacting CTA members’ relationships with their workers and the services that CTA members are able to provide to their customers.
AB-5‘s ABC test includes three factors. If the employer fails to establish all three, then the worker ”shall be considered an employee rather than an independent contractor.”
The appellants do not present any arguments to the contrary. In fact, the district court “repeatedly invited [the state] to explain how the ABC test was not an ‘all or nothing test’ “—specifically “how a motor carrier could contract with an independent owner-operator as an independent contractor, rather than as an employee“—and neither the State Defendants nor Intervenor-Appellant International Brotherhood of Teamsters did so. Id. at 1165 n.9. These same parties were just as stumped when asked the same question during oral argument. Though they insisted that we were asking the wrong question, they did not dispute that the ABC test would automatically characterize as employees all those with whom CTA members contracted to haul goods.
In the absence of any dispute that AB-5 will “categorically prevent[] motor carriers from exercising their freedom to choose between using independent contractors or employees,” id. at 1165, the obvious conclusion is that AB-5 will significantly impact motor carriers’ services by mandating the means by which they are provided. At the very least, the district court did not abuse its discretion in so concluding, especially given that the differences between transportation services provided by independent contractor drivers and those provided by employee drivers are neither superficial nor “peripheral.” Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429, 438 (1st Cir. 2016). Whether to provide a service directly through employees or indirectly through independent contractors “is a significant decision in designing and running a business. . . . [T]hat decision implicates the way in which a company chooses to allocate its resources and incentivize those persons providing the service.” Id.
First, the record demonstrates that in addition to altering motor carriers’ relationships to their workers, AB-5 will significantly impact motor carriers’ services to their customers by diminishing the specialized transportation services that motor carriers are able to provide through independent contractor drivers. As the declaration of Greg Stefflre, an officer of one of CTA‘s members, explains in great detail:
Many individual owner-operators have invested in specialized equipment and have obtained the skills to operate that equipment efficiently. Some of these owner-operators have unique and expensive
equipment not available in the fleet of other trucking companies. Therefore, an owner-operator fleet by definition consists of a variety of specialists who can bring on their specialized equipment as needed and, when the need abates, the owner-operator can move to another motor carrier where the equipment is needed. In contrast, employee fleets cannot keep infrequently used, specialized equipment on hand because of the capital costs associated with acquiring this equipment. As a result, employee-based motor carriers will be unable to offer services requiring such equipment—services currently available through owner-operator based motor carriers.
Dist. Ct. Dkt. No. 54-2 at 8. This lack of specialization will deprive motor carriers’ consumers of particular services—consumers who depend on motor carriers to hire independent contractors to transport unwieldy, hazardous, or otherwise unusual goods that could not be transported with typical trucks and equipment.
Second, the record also demonstrates that by requiring motor carriers to hire employee drivers, AB-5 will eliminate motor carriers’ flexibility to accommodate fluctuations in supply and demand, given that California‘s IWC Wage Order No. 4-2001(9)(B) requires employers to supply their employees’ tools and equipment. Stefflre‘s declaration also elaborates on this predictable outcome:
The use of owner-operators permits expansion in times of plenty and contraction during shortages in business. Employee driver fleets cannot expand and contract as easily and certainly not as inexpensively as independent contractor fleets. To use employee drivers, one needs to acquire trucks. Even if leased, such leases require fixed terms when establishing price so the size of the fleet cannot be lowered without incurring penalties. In owned fleets, the unused tractors become a completely non-productive asset and a drain on profitability. Owner-operator fleets can relatively easily expand and contract. When existing business goes to a competitor, the owner-operators working with the incumbent simply move to the successful bidder eliminating the drain that would occur with an employee fleet.
Dist. Ct. Dkt. No. 54-2 at 7–8. Thus, as further explained by the declaration of Shawn Yadon, the CEO of CTA, hiring only employee drivers will limit motor carriers to “obtaining just enough equipment and employee drivers to meet the typical demand,” so that they “[can]not provide additional resources to provide truck services during times of peak demand.” Dist. Ct. Dkt. No. 54-3 at 6. Again, this inability to meet temporary rises in demand will deprive motor carriers’ consumers of particular services—consumers such as farmers and retail sellers who depend on motor carriers to seasonally hire independent contractors during harvests and peak retail seasons, respectively. Dist. Ct. Dkt. No. 54-3 at 6; Dist. Ct. Dkt. No. 54-5, Ex. B at 12.
The majority mischaracterizes my argument as suggesting “that AB-5‘s impact is so significant that it indirectly determines . . . services,” Majority Opinion at 28 (emphasis added), an argument that the majority then brushes aside because “[w]e have routinely rejected similar arguments that the F4A preempts California labor laws that impose such indirect effects,” Majority Opinion at 29. However, rather than suggesting that AB-5 determines services, I argue that AB-5 determines the means of providing said services, thereby significantly impacting them—which is enough to trigger F4A preemption. Cf. Miller, 976 F.3d at 1024–25 (“We have occasionally suggested that preemption occurs
The majority concedes that “our precedents do not rule out the possibility that a generally applicable law could so significantly impact the employment relationship between motor carriers and their employees that it effectively binds motor carriers to specific prices, routes, or services at the consumer level.” Majority Opinion at 31. In fact, this court has twice endorsed my position that “all or nothing” rules requiring the use of employee rather than independent contractor drivers are preempted by the F4A. In American Trucking Associations v. City of Los Angeles, 559 F.3d 1046 (9th Cir. 2009), we considered a city-imposed concession agreement requiring that motor carriers transition from using independent contractors to employees in order to operate at the Port of Los Angeles. Id. at 1049. We made clear at the outset: “That the Concession agreements relate to prices, routes or services of motor carriers can hardly be doubted. Thus, we fully agree with the district court that it is likely that ATA will establish that proposition.” Id. at 1053 (emphasis added). The district court had concluded that preemption was likely because the “concession agreements [would possibly] force motor carriers to change their prices, routes, or services in a way that the market would not otherwise dictate.” Am. Trucking Ass‘ns, Inc. v. City of L.A., 577 F. Supp. 2d 1110, 1117 (C.D. Cal. 2008).
In Su, we considered the ABC test at issue here, as a counterpoint to Borello‘s totality of the circumstances test. We began by characterizing American Trucking Associations as “stand[ing] for the obvious proposition that an ‘all or nothing’ rule requiring services be performed by certain types of employee drivers . . . was likely preempted.” 903 F.3d at 964. We then explained: “Like American Trucking, the ‘ABC’ test may effectively compel a motor carrier to use employees for certain services because, under the ‘ABC’ test, a worker providing a service within an employer‘s usual course of business will never be considered an independent contractor.” Id.
Two other circuits have also held or signaled that all or nothing rules like California‘s ABC test are or should be preempted. In Schwann, the First Circuit held that the F4A preempts Prong 2 of Massachusetts‘s 1-2-3 test.3 See 813 F.3d at 442. The First Circuit recognized the obvious reality that “Prong 2 would significantly affect how [motor carriers] provide[] good and efficient service” by
In Bedoya, the Third Circuit upheld New Jersey‘s ABC test against an F4A preemption defense. 914 F.3d at 824. New Jersey‘s test is identical to California‘s and Massachusetts‘s tests with one key difference: the New Jersey test does not “categorically prevent[] carriers from using independent contractors” because its Prong B includes an “alternative method for reaching independent contractor status . . . by demonstrating that the worker provides services outside of the putative employer‘s places of business.” Id.; see id. at 816–17. The Third Circuit thus held that New Jersey‘s ABC test was not preempted because it “[did] not have a significant effect on prices, routes, or services,” “[did] not bind [motor carriers] to a particular method of providing services,” and “[did] not mandate a particular course of action“—”unlike the preempted Massachusetts law at issue in Schwann.” Id. at 824–25 (emphasis added).
The majority brushes all of these cases aside: “We did not have occasion in American Trucking Associations to address the question whether the concession agreements related to the motor carrier‘s prices, routes, or services, because that issue was not on appeal.” Majority Opinion at 33. And “[b]ecause Su did not make a deliberate decision to adopt a rule regarding the ABC test—and indeed expressly disclaimed doing so—we are neither bound nor meaningfully assisted for analytical purposes by its statements made without reasoned consideration.” Majority Opinion at 35 (quotation marks and citation omitted). As for Schwann and Bedoya, the majority claims that they are “contrary to our precedent,” citing Dilts. Majority Opinion at 36. But Dilts did not address an “all or nothing rule” like California‘s ABC test, and even if the majority is correct as to the cases’ precedential value, the majority understates or ignores each case‘s persuasive value. I agree that it can “hardly be doubted” that an “all or nothing” rule requiring motor carriers to hire employees rather than independent contractors relates to motor carriers’ services and is thus preempted. No one—not even the majority—argues that AB-5 will not compel motor carriers to use employees rather than independent contractors.
The majority‘s holding undermines the balance of state and federal power contemplated by the F4A and in doing so, unnecessarily creates a circuit split.4 AB-5 is preempted as applied to CTA‘s members,
The majority concludes that “[b]y failing to follow our precedent regarding labor laws of general applicability, the district court committed a legal error to which we cannot defer, even at the preliminary-injunction stage.” Majority Opinion at 39. But as I have shown, none of the cases on which the majority relies dealt with a law like AB-5, which affects motor carriers’ relationships with their workers and significantly impacts their services. In the absence of directly applicable precedent, I do not see how the district court could have abused its discretion after thoroughly analyzing our F4A precedent and applying the exact standard the majority adopts to the facts of this case.7 See Am. Trucking, 559 F.3d at 1052 (“As long as the district
Nonetheless, California will now be free to enforce its preempted law. CTA‘s members will now suffer irreparable injury. And the damage to the policies mandated by Congress will likely be profound. Thus, I respectfully dissent.
Notes
Id. at 1168–69.[T]he present case concerns the test used to classify workers for the purpose of determining whether all of California employment laws do or do not apply, rather than a small group of those laws, such as the meal break regulations in Dilts. Thus, the combined effect of all such laws has a significant impact on motor carriers’ prices, routes, or services. Accordingly, Dilts and other similar cases are distinguishable because they focus on whether discrete wage-and-hour laws and regulations had more than a tenuous impact on motor carriers’ prices, routes, or services, not whether the combined impact of applying all of California‘s employment laws to independent owner-operators had more than a tenuous impact on motor carries’ prices, routes, or services.