United States: California Trucking Association Appeal Over Driver Classification Rejected By U.S. Supreme Court, But Challenges To Dynamex Ruling Remain

(June 2019) - On March 18, 2019, the United States Supreme Court denied without comment a petition by the California Trucking Association (CTA), which sought to overturn a ruling by the Ninth Circuit permitting the California Labor Commissioner's Office to use a worker classification standard known as the Borello test in disputes before the California Department of Industrial Relations (known as Berman hearings). Berman hearings are administrative proceedings that address wage claims under the California Labor Code. The Borello test is a set of factors used to determine worker classification (employee or independent contractor) pursuant to S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341.

In 2016, the CTA filed a lawsuit in Federal court against California Labor Commissioner Julie A. Su seeking declaratory and injunctive relief with respect to application of the Borello test at Berman hearings (California Trucking Association v. Su, U.S. Supreme Court case number 18-887). The CTA argued that California state law was preempted by Federal law pursuant to the Federal Aviation Administration Authorization Act (FAAAA) of 1994, because the state law impacted routes and rates. The CTA contended that the FAAAA preempts the Labor Commissioner from interfering in the contractual relationships between motor carriers and independent contractors. In September 2018, the Ninth Circuit affirmed a trial court's decision that use of the Borello standard was not preempted by the FAAAA because it did not affect routes and rates.

"There is no allegation that if a current driver is found to be an employee, [California Trucking Association's] members will no longer be able to provide the service it was once providing through that driver, or that the route or price of that service will be compelled to change," Judge A. Wallace Tashima wrote in the federal appellate court's ruling. "At 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."

The 2019 denial of certiorari by the U.S. Supreme Court was the final outcome of CTA's 2016 lawsuit against the California Labor Commissioner (certiorari is denied in about 98% of cases). However, this ruling does not impact the CTA's ongoing challenges to the "ABC" test set forth in Dynamex v. Superior Court (2018) 4 Cal.5th 903.

In Dynamex, on April 30, 2018, the California Supreme Court abandoned the Borello test in favor of the "ABC" test for purposes of California wage orders, which provide minimum wage, maximum hour, and working condition requirements for specific industries. The Dynamex ruling effectively goes a long way toward eliminating the independent contractor business model frequently used in the transportation industry. The Dynamex decision resulted in multiple efforts to clarify or challenge the ruling, both legislatively and through litigation, including a CTA lawsuit which is currently making its way through consideration by the United States District Court for the Southern District of California.

On November 15, 2018, in Alvarez v. XPO Logistics Cartage, LLC, 2018 WL 6271965, at *5 (C.D. Cal. Nov. 15, 2018), the United States District Court for the Central District of California held the FAAAA preempts the application of the Dynamex "ABC" test to a motor carrier for the purposes of determining whether owner-operators are considered employees under California's Wage Orders. The Alvarez decision is generally positive for motor carriers facing misclassification claims under wage orders in California, where the Borello test should apply once again. The Alvarez ruling does not set a precedent and the case is still proceeding. However, Dynamex opponents will point to the legal reasoning set forth in the Alvarez ruling to challenge the "ABC" test.

Absent further guidance from an appellate court, it is currently difficult to foresee with any certainty how future courts will rule on the preemption defenses addressed in Alvarez. Beyond the legal cases detailed herein (and others), Assembly Bill 5 is currently working its way through the California legislative process. AB 5 would largely codify Dynamex in California, however exceptions for certain industries are under consideration, including transportation. The Dynamex ruling remains a significant issue for the transportation industry, with a need for further clarification, either legislatively or through the courts.

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