The Ninth Circuit ruled Friday that California’s Assembly Bill 5 (“AB 5”), a classification law generally considered favorable to workers, does not violate the dormant commerce or equal protection clauses of the U.S. Constitution. The Court’s ruling affirmed a lower court’s decision to deny a preliminary injunction in the matter.
AB 5, which took effect in 2020, enshrined into law a three-prong test for determining whether a worker is considered an employee. The test was previously established in the California Supreme Court’s 2018 decision in Dynamex Operations West v. Superior Court. Under this test, a worker is considered an employee unless the hiring entity can prove the worker is free from its control, performs work outside the company’s usual course of business, and operates an independent business. See Labor Code Section 2750.3 (a)(1) for full text of AB5.
In a unanimous opinion, the appellate panel rejected a challenge brought by the Owner-Operator Independent Drivers Association (“OOIDA”), which argued that AB 5 unfairly burdens interstate commerce and discriminates against out-of-state truck drivers. The court found that the organization failed to support its claims: “OOIDA failed to present evidence in support of its argument that AB 5 places a substantial burden on interstate commerce.” The Court had previously in April stated its skepticism regarding the argument that A.B. 5 will lead to increased costs, in view of the standards long established by the U.S. Supreme Court. In a 1970 ruling in Pike v. Bruce Church, the Supreme Court had established guidance for commerce clause disputes, in which the Courts examine whether the burden on interstate commerce is “clearly excessive” when weighed against the potential local benefits. In April, U.S. Circuit Judge Daniel Bress had stated, “Well […]I think your arguments were better before,” Judge Callahan said. “They’re putting more nails in this coffin.”
OOIDA had also sought to prevent the law from applying to motor carriers and owner-operator truck drivers, contending that it effectively barred independent drivers from operating in California. However, the court definitively stated, “AB 5 does not preclude out-of-state drivers from working in California.” The opinion continued, “nor does it favor in-state drivers at the expense of out-of-state drivers.”
OOIDA also claimed that AB 5’s business-to-business exemption violates the equal protection clause by treating intrastate and interstate drivers differently. But the court dismissed this as well, noting that the exemption is based on business relationships, not geography. The Court wrote, “The California Legislature may have concluded that the risk of worker misclassification was diminished when the contracting parties were sophisticated and had nearly commensurate bargaining power.”
The opinion added that the business-to-business exception “treats businesses differently than individual workers,” but “doesn’t distinguish between intrastate and interstate drivers.”
Employers seeking guidance on how best to approach AB5 within their business may contact the experienced employment law counsel at MNK Law APC by emailing info@mnklawyers.com or calling 562.362.6437.
