Federal Court Finds California Dynamex Decision Not Preempted by FAAAA

07.01.2019

WESTERN STATES TRUCKING ASSOC. v. SCHOORL, 2019 WL 1426304

CASE SUMMARY

Western States, a trade group, brought suit against the California Department of Industrial Relations (“Department”) and the California Attorney General in the United States District Court for the Eastern District of California.  The Department was charged with enforcement of the Dynamex decision recently decided by the California Supreme Court. This case is of high importance to the trucking industry because it expands the definition of “employed” for purposes of California wage and hour laws.  As a result of the scope of the Dynamex decision, independent contractors could be considered employees.  

By way of background, in Dynamex, the California Supreme Court adopted the “ABC” test to determine whether a worker is an employee or independent contractor for purposes of California’s wage orders.  As a preliminary matter, while Dynamex has spurred much litigation in regard to the way independent contractors are characterized, the federal court allowed Western States to bring suit as all of Western States’ members use independent contractors to provide transportation services and “have a concrete interest in knowing whether their employee classification must be fundamentally changed.” 

Western States claimed the new test precluded independent contractors from being engaged in the same work as the hiring entity and limits Western States’ members’ ability to hire small independent carriers to provide transportation services as independent contractors on a short-term basis—a reality that is common in the industry due to fluctuations in demand. Western States claimed the Dynamex test discards settled, previous precedent for determining whether an individual is an employee or independent contractor. Western States contended that because the trucking industry developed according to that now discarded precedent, the new test “throws into question the legality of the entire trucking industry in California.” The federal court decided it would not disturb the ABC test and found it does not preclude the hiring of independent contractors by a motor carrier. 

DISCUSSION

The government moved to dismiss the complaint.  In response to the motion to dismiss, Western States first claimed the Federal Aviation Administration Act of 1994 ("FAAAA") preempted the Dynamex “ABC” test by prohibiting a state, or a political division thereof, from enacting or enforcing a law or regulation “related to a price, route or service of any motor carrier…with regard to the transportation of property.” The federal court stated that although this provision should be “interpreted quite broadly,” the key question is congressional intent behind the FAAAA. The federal court noted “the FAAAA was intended to prevent state regulatory practices . . . and “preempts state laws that . . . have a ‘significant impact’ on carrier rates, routes or services, while at the same time not disturbing laws with only a “tenuous, remote or peripheral” connection to rates, routes, or services.” The federal court agreed with the Defendants’ argument that wage orders are only “remote[ly], tenuous[ly], or peripheral[ly]” related to rates, services or routes. The federal court noted that while the wage orders provide how an employee of the transportation industry shall be paid, the Dynamex test applies to all California wage orders and does not specifically relate to the transportation industry.

The federal court found that Dynamex is generally applicable to labor regulations and cannot be avoided by arguing it specifically targets the transportation industry. The federal court compared this case to another case where it was argued that compliance with a prevailing wage law was preempted by the FAAAA because such compliance would lead to an increase in labor costs and, thus, prices, to compensate for lost revenue. Following the reasoning in that case, the court here, held that any such effects of costs “did not rise to the level of triggering preemption given their only indirect impact on prices, routes and services.” The court also relied on another decision which concluded that prevailing wage laws are several steps removed from prices, routes or services, “even if employers must factor [such] provisions into their decisions about the prices that they set, the routes that they use, or the services that they provide; and even if state laws

increase or change a motor carriers' operating costs, broad laws applying to hundreds of different industries with no other forbidden connection with prices, routes, and services -- that is, those that do not directly or indirectly mandate, prohibit, or otherwise regulate certain prices, routes, or services—are not preempted by the FAAAA.

The court also rejected the argument that Dynamex was preempted by the Federal Motor Carrier Safety Regulations (“FMCSRs”). Western States contended that because “[a]n agency regulation with the force of law can pre-empt conflicting state requirements,” the FMCSRs, which, they argued, completely and thoroughly address in detail every aspect of the trucking industry, preempts Dynamex. The court stated the fact that an agency’s regulations are “comprehensive” does not infer they are preemptive. Holding that the wage orders did not conflict with the FMCSRs, the court found that preemption under the FMCSRs was not comprehensive, but limited to conflicting state regulations on commercial vehicle safety.

Finally, Western States argued the ABC test “on its face discriminates against out of state and interstate trucking companies,” violating the Dormant Commerce Clause. The court noted such clause is concerned about “economic protectionism that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” The court stated that under the Dormant Clause, a law “will be upheld unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits.” However, the court ultimately concluded no plausible Dormant Clause argument existed here as neither the wage orders nor Dynamex differentiates between in-state and out-of-state employers, the wage orders apply only to work performed in California, and secure benefits for California employees without impeding interstate commerce.

Western States has filed an appeal to the U.S. Court of Appeals for the Ninth Circuit. However, the parties have been ordered by the court to participate in the Mediation Program of the Ninth Circuit Court of Appeals and attempt to mediate the case while the appeal is pending. In short, continue to monitor this website for further developments before the Ninth Circuit.

Contact John F. Fatino for more information about trucking and transportation matters at 515-288-6041.  Jennifer Chavez-Rivera, J.D. candidate, Drake University Law School, assisted in the preparation of these materials.  

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