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Supreme Court declines to hear classification case

The California Trucking Association is continuing to challenge a California Supreme Court decision that it says amounts to an “essential outright ban on independent contracting.”

   The U.S. Supreme Court has declined to hear an appeal by the California Trucking Association (CTA) of a decision by the 9th Circuit Court of Appeals on the employment classification of truck drivers. It was one of dozens of writs for certiorari denied by the high court on Monday. 
   The classification of drivers, especially drayage drivers who move ocean and intermodal containers to and from seaports and rail yards, has become a huge issue in recent years in California because of millions of dollars in penalties that have been assessed against drayage companies. The Teamsters and other groups also have sought to have drivers classified as employees and not independent owner-operators and to organize drivers as union members, leading to sporadic strikes and protests at the ports of Los Angeles and Long Beach.
   In January, the office of California’s labor commissioner said it had received more than 1,000 port trucking wage claims and issued 448 decisions in favor of the truck drivers with more than $50 million in wages owed since 2011. The vast majority of the cases filed by truck drivers with the labor commissioner’s office involve drivers out of the ports.
   Under a law (SB 1402) that went into effect this year, the California Labor Commissioner has begun posting a list of port trucking companies with unsatisfied final court judgments, tax assessments or tax liens. Retailers and other businesses that hire companies on the list are jointly and severally liable for future labor and employment law violations committed by these companies. 
   That means shippers, the customers who contract with the listed motor carriers, will now share civil legal responsibility and civil liability for the full amount found due for unpaid wages, unreimbursed expenses, damages, penalties and applicable interest owed to a driver, the state said.
   The 9th Circuit opinion (California Trucking Association v. Julie A. Su. 9th Cir. No. 17-55133. September 10, 2018) that the CTA was trying to appeal to the U.S. Supreme Court was handed down last fall. It affirmed a U.S. “district court’s dismissal of an action seeking declaratory and injunctive relief regarding the labor commissioner of the state of California Department of Industrial Relations’ use of a common law test, often referred to as the Borello standard, to determine whether a motor carrier has properly classified its drivers as independent contractors,” according to the 9th Circuit’s summary of the decision.
   Su was named as defendant in her official capacity as labor commissioner of the California Department of Industrial Relations. She is now California’s secretary of the California Labor and Workforce Development Agency.
   The 9th Circuit explained that “classifications pursuant to the Borello standard impact what benefits workers are entitled to under the state’s labor laws and the corresponding burdens placed on the entities that hire them.”
   CTA alleged owner-operator drivers were independent contractors, rather than employees and that the California labor commissioner’s application of the Borello standard “disrupted the contractual arrangements between owner-operators and motor carriers, which introduced inefficiencies into the transportation services market and was inconsistent with Congress’ deregulatory goals under the Federal Aviation Administration Authorization Act.(FAAAA). Despite its name, FAAAA has many provisions with motor carrier regulations.
   But the 9th Circuit judges held that “the Borello standard, a generally applicable test used in a traditional area of state regulation, is not ‘related to’ prices, routes or services and therefore is not pre-empted by the FAAAA.”
   Su said this week that “wage theft in the commercial trucking industry denies the basic rights and benefits that come with employee status. ​Over the last eight years, the Labor Commissioner’s Office has awarded millions of dollars to truck drivers to help them recoup wages stolen from them through minimum wage and overtime violations. We are committed to protecting drivers who are retaliated against for asserting their rights and will continue to adjudicate wage claims to ensure workers are paid all wages and benefits owed.”
   Fred Potter, the director of the Teamsters Port Division, said, “In rejecting the CTA’s appeal, the highest court in the land has effectively closed the case on predatory trucking companies’ efforts to dodge taxes and steal the hard-earned wages of drivers through a scheme that illegally classifies drivers as independent contractors.”
   Shawn Yadon, chief executive officer of the CTA, said, “While the Supreme Court’s decision to not review our case is disappointing, it is not altogether surprising given that the Court agrees to take less than 2 percent of the cases petitioning for a hearing.
   “However, the misclassification issue and the ability for truckers to be independent contractors continues,” he said.
   Yadon noted that his organization, along with two independent owner-operators who contract with licensed motor carriers to provide trucking services in California and other states, are currently challenging a subsequent 2018  ruling by the California Supreme Court having to do with independent contractors.
   He said that California Supreme Court decision — Dynamex Operations West, Inc. v. Superior Court, 4 Cal. 5th 903 (2018) — uses a test different from Borello and amounts to an “essential outright ban on independent contracting” and that CTA and the plaintiffs intend to “demonstrate to the court the dire impact the state’s quest to eliminate small-business trucking will have on interstate commerce.”
   CTA and the two drivers are challenging the Dynamex decision in U.S. District Court, where they filed a lawsuit on Oct. 25 last year. That lawsuit is titled California Trucking Association et al v. Becerra et al. (U.S. District Court, Southern District of California. No. 18-cv-02458.) Becerra is the California attorney general. 
    CTA says in its court complaint that “in Dynamex, the California Supreme Court adopted for the first time the so-called ‘ABC test for determining whether a worker is an employee or independent contractor.”
   They want the U.S. District Court to prohibit the state from applying and enforcing what is called “Wage Order No. 9” as interpreted in the Dynamex decision. Wage Order No. 9 is the state regulation for wages, hours and working conditions in the transportation industry.
   CTA says under the three-prong ABC test a worker “is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.”
   CTA says in its lawsuit that “because drivers perform work that is within rather than outside the usual course of a motor carrier’s business, the unavoidable effect of Prong B is to automatically classify every driver who works for a motor carrier as an ‘employee’ no matter the actual and contractual relationship between the driver and the motor carrier.
   “It would be impracticable if not impossible for CTA’s motor carrier members to contract with owner-operators to provide interstate trucking services while treating the drivers as employees under Wage Order No. 9,” the association says in its lawsuit.
   “The direct and real consequence of the new interpretation of Wage Order No. 9, therefore, is that CTA’s motor carrier members must cease using independent contractors to perform trucking services for customers in California and use employee drivers only or face the risk of significant civil and criminal penalties arising from the violation of Wage Order No. 9.”
   CTA says the two independent owner-operators that joined it as plaintiffs “face the risk of losing their business of providing trucking services in California for other motor carriers because motor carriers operating in California are now effectively prohibited under the new interpretation of Wage Order No. 9 from contracting with individual owner-operators to provide such services.”
   An attorney who spoke to American Shipper said, however, that even if the CTA is successful in challenging the California Supreme Court decision in Dynamex, he did not believe the ABC standard would supersede or invalidate the Borello standard. 
   “Borello is still good law and it exists along with Dynamex” and could continue to be used by the California Labor Commission to determine whether drivers are employees or independent contractors, he said.
   He noted that other states have their own standards for determining whether workers are employees or independent contractors and some have standards similar to the three-prong ABC standard in California. Federal appeal courts in different parts of the country have disagreed as to whether provisions similar to Prong B conflict with the FAAAA.
   The 1st Circuit (Schwann v. FedEx Ground Package Systems Inc. 1st Cir. 15-1214. Feb. 22, 2016) found a pre-emption provision of the FAAAA pre-empted application of one of the necessary requirements under the Massachusetts Independent Contractor Statute while the 3rd Circuit (Bedoya v. Amercan Eagle Express, Inc. 3rd Cir. No. 18-1641. Jan. 29, 2019) said, “The FAAAA does not pre-empt the New Jersey law for determining employment status.”

Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.