Federal Preemption Defense Running Out of Gas?

by Orrick - Global Employment Law Group
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Recent decisions by the Ninth Circuit Court of Appeals and the California Supreme Court have thrown a road block in the way of employers relying on a federal statute to preempt certain state wage-and-hour law claims. At issue is whether the Federal Aviation Administration Authorization Act (“FAAAA”) precludes truck drivers from asserting claims for meal and rest break, minimum wage, and other violations under California law. At least for now, the road is clear for such claims.

The FAAAA, enacted by Congress in 1994 to prevent states from undermining federal deregulation of interstate trucking with a patchwork of state regulations, preempts state laws “related to a price, route, or service of any motor carrier... with respect to the transportation of property.” The statute was intended to prevent states from enacting laws such as barriers to entry, tariffs, price regulations, and restrictions on the types of commodities a carrier can transport. The FAAAA does not preclude states from enacting safety regulations for motor vehicles; insurance, liability, or standard transportation rules; or certain other requirements.

In Dilts v. Penske Logistics, LLC, No. 12-55705, — F.3d —, 2014 WL 3291749 (9th Cir. July 9, 2014), a certified class of truck drivers working exclusively on routes within California argued that their work environment precluded them from taking 30-minute unpaid meal breaks and 10-min paid rest breaks, which employers must provide under California law. A federal district court held that the FAAAA preempts California’s meal and rest break laws and granted summary judgment in favor of the defendants.

On appeal, a Ninth Circuit panel reversed. The court reasoned that California’s meal and rest break laws are not the sort of laws that Congress intended to preempt, because meal and rest break laws do not set prices or regulate routes or services directly or indirectly, but are instead “normal background rules for almost all employers doing business in the state of California.” The court acknowledged that motor carriers may have to take meal and rest break laws into account in scheduling routes and allocating resources, but emphasized that the laws “do not ‘bind’ motor carriers to specific prices, routes, or services.”

In People ex rel. Harris v. Pac Anchor Transportation, Inc., No. S194388, — P.3d —, 2014 WL 3702674 (Cal. July 28, 2014), the State of California sued a trucking company and its owner, alleging that the defendants violated the state’s Unfair Competition Law (“UCL”) by misclassifying drivers as independent contractors and failing to comply with various California laws, including by failing to pay unemployment insurance taxes, failing to withhold state disability insurance and state income taxes, failing to provide worker’s compensation, failing to provide employees with itemized wage statements, and failing to ensure payment at all times of California’s minimum wage. The trial court held that the FAAAA preempted the UCL claim, but the Court of Appeal reversed, and the California Supreme Court affirmed the Court of Appeal.

Echoing the Ninth Circuit’s reasoning in Dilts, the California Supreme Court concluded that a UCL claim based on violation of generally applicable labor and employment laws does not implicate the concerns underlying FAAAA preemption. The Court concluded that any effect California minimum wage and employer recordkeeping requirements may have upon prices, routes, or services is too remote to trigger preemption.

Taken together, Dilts and Pac Anchor Transportation suggest that FAAAA preemption is no longer a viable defense to trucker claims for meal and rest break, minimum wage, inaccurate wage statement, or other violations of California labor and employment laws.

However, on August 6, the defendants in Dilts filed a petition in the Ninth Circuit for rehearing en banc.  Notably, the district court decision holding that the FAAAA preempts California’s meal and rest break laws was authored by Judge Sammartino of the Southern District of California, who also held in a prior case that a similar federal statute preempted misrepresentation and breach of the implied covenant of good faith and fair dealing claims. In Northwest, Inc. v. Ginsberg, 134 S. Ct. 1422 (2014), the U.S. Supreme Court overturned the Ninth Circuit’s reversal of Judge Sammartino and held that the Airline Deregulation Act of 1978 (from which the FAAAA’s preemption provision was borrowed) preempted claims brought in connection with the cancellation of airline frequent flyer miles program memberships.

If the defendants in Dilts fail to persuade the Ninth Circuit to rehear the case en banc, they or the defendants in Pac Anchor Transportation may be able to convince the U.S. Supreme Court to review the issue. For now, though, companies employing truck drivers in California should carefully review their policies and practices to ensure that they are complying with California wage and hour law in light of these recent decisions – and stay tuned!

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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