Transportation Law Update: Supreme Court Allows Ninth Circuit Decision to Stand Regarding Independent Contractors
California Trucking Ass’n v. Su, 903 F.3d 953 (9th Cir. 2018)
On September 10, 2018, the United States Court of Appeals for the Ninth Circuit ruled on a case involving whether the Federal Aviation Administration Authorization Act (“FAAAA”) preempts the California Labor Commissioner’s use of a common law test “to determine whether a motor carrier has properly classified its drivers as independent contractors.” The common law test, “often referred to as the Borello standard,” uses classifications that “impact what benefits workers are entitled to under the State’s labor laws and the corresponding burdens placed on the entities that hire them.” In this case, the Ninth Circuit affirmed the district court, holding that the Borello standard is not related to prices, routes, or services, and, as such, is not preempted by the FAAAA. The United States Supreme court decided on March 18, 2019 not to review the case so the decision will stand.
The plaintiff-appellant in this case, California Trucking Association (“CTA”), “is an association devoted to advancing the interests of its motor carrier members.” CTA makes a distinction between “company drivers” and “owner-operators.” When CTA members utilize owner-operators, the parties enter into a contract with terms regarding the truck, who is responsible for operating expenses, who has control, and an agreed-upon rate of payment. Thus, CTA views owner-operators as independent contractors. CTA’s main claim in this case against the California Labor Commissioner is that “the Commissioner’s application of the Borello standard disrupts the contractual arrangements between owner-operators and motor carriers, which introduces inefficiencies into the transportation services market” and is inconsistent with the goals of the FAAAA; as such, CTA alleges that the FAAAA preempts application of the Borello standard. The Borello standard is a “common law test for determining whether a worker is an employee or an independent contractor.” The question that the Borello standard contemplates is “whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired.”
The Borello standard is flexible and should not be applied mechanically. The reason this standard comes into play in this case is because if the Commissioner “were to determine that, under Borello, certain owner-operators are employees of a motor carrier, this could result in obligations under the California Labor Code that are inconsistent with the parties’ contractual arrangements (e.g., who is responsible for truck maintenance expenses).”
The FAAAA “expressly preempts certain state regulation of intrastate motor carriage.” When deciding whether a statute is preemptive, “congressional intent is the ultimate touchstone.” Here, the relevant provision is 49 U.S.C. 14501(c)(1): “ . . . a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” The Ninth Circuit notes that “related to” preemption is often broad, but that the FAAAA “does not preempt state laws that affect a carrier’s prices, routes or services in only a ‘tenuous, remote, or peripheral . . . manner’ with no significant impact on Congress’s deregulatory objectives.”
The Ninth Circuit discussed various United States Supreme Court decisions regarding preemption of state laws in the context of interference with customer contracts at the point of sale and impacting workforce arrangements, the Borello standard’s impact on workforce arrangements, and the historical context and preemption in the present. Ultimately, the Ninth Circuit held that the FAAAA does not preempt the California Labor Commissioner from applying the Borello standard “because this generally applicable, common law test is not ‘related to’ motor carriers’ prices, routes or services.”
Contact John F. Fatino for more information about trucking and transportation matters at (515) 288-6041. Bryn E. Hedlund, J.D. Candidate, University of Iowa College of Law, assisted in the preparation of these materials.