California companies have been required to reconsider their use of independent contractors since the state’s Supreme Court outlined the new ABC test in Dynamex Operations West, Inc. v. Superior Court. Unlike the prior Borello test, which involved the balancing of numerous factors, the ABC test requires that a company establish all of the following: (A) the worker is free from the control and direction of the company; (B) the work is outside the company’s usual course of business; and (C) the worker is customarily engaged in an independent established business in the same line of work.
In the transportation industry, however, the ABC test may be preempted by the Federal Aviation Administration Authorization Act (the FAAAA). The FAAAA preempts all state laws that “relate to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” The United States Supreme Court has held that preemption may occur “even if a state law’s effect on rates, routes, or services is only indirect” and applies “at least where state laws have a significant impact related to Congress’ deregulatory and pre-emption-related objectives.”
Because the ABC test is new, there is no binding authority in California on the question of whether it is preempted by the FAAAA. Given this fact, Western States Trucking Association filed a lawsuit against the Acting Director of the California Department of Industrial Relations (Andre Schoorl) and the California Attorney General (Xavier Becerra) seeking a finding that the FAAAA preempts the ABC test.
In Western States Trucking Association v. Schoorl, the United States District Court for the Eastern District of California (“E.D. CA”) recently found that the ABC test was not preempted by the FAAAA. On April 17, 2019, the Western States Trucking Association appealed this decision to the 9th Circuit. Accordingly, companies in the transportation industry may soon have much needed clarity as to whether the ABC test applies to truck drivers.
Previous authority on California’s ABC test and FAAAA preemption
Prior to the E.D. CA’s decision in Western States Trucking, the United States District Court for the Central District of California (“C.D. CA”) in Alvarez v. XPO Logistics Cartage LLC ruled that the ABC test was preempted by the FAAAA for transportation workers. The court in Alvarez focused on the categorical nature of part B (the work being within the company’s usual course of business) of the ABC test. This decision was in line with recent dicta in the 9th Circuit’s opinion in California Trucking Association v. Su, which included the following:
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. . . . For a motor carrier company, this means it may be difficult to classify drivers providing carriage services as independent contractors. . . . But California’s common law test – as embodied in the Borello standard – is to the contrary. Whether the work fits within the usual course of an employer’s business is one factor among many – and not even the most important one.
Contrary to this clear language from the 9th Circuit, the court in Western States Trucking instead stated: “Nothing in either Dynamex or Wage Order No. 9 precludes a motor carrier from hiring an independent contractor for individual jobs or assignments; instead, all that is required if a carrier chooses to so hire is that the wage order’s requirements be satisfied.”
Therefore, it appears that the 9th Circuit may have reason to disagree with the E.D. CA’s decision in Western States Trucking.
What this means for companies in the transportation industry
Although it is difficult to determine how the 9th Circuit will ultimately view the pending appeal by Western States Trucking Association, there is reason to believe that the 9th Circuit may find the ABC test preempted by the FAAAA, thus placing companies in the transportation industry contracting with truck drivers back under the traditional Borello test for independent contractor classification.
Of course, even under the Borello test, care must be taken to ensure that independent contractors are properly classified. The plaintiffs’ bar and the state agencies enforcing labor laws look carefully at independent contractor classification issues because the damages and penalties that accrue when an individual is misclassified are substantial. Indeed, the California Labor Commissioner recently awarded 10 California port drivers over $1.2 million for wage and hour violations related to the drivers’ misclassification as independent contractors.
In this rapidly changing area of the law, it is of utmost importance to continually reevaluate and review worker classifications.