Motor Carriers Face Uphill Battle After California Supreme Court Decision

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact

Harris v. Pac Anchor Transportation, Inc., No. S194388 (July 28, 2014): In a unanimous decision, the California Supreme Court has held that the Federal Aviation Administration Authorization Act of 1994 (FAAAA) does not preempt an action brought under California’s Unfair Competition Law (UCL) when the action does not relate to the prices, routes, or services of a motor carrier with respect to the transportation of property. As a result, the state of California can proceed with its action against a trucking company and its owner for allegedly misclassifying their drivers as independent contractors and for other alleged violations of California’s labor and unemployment insurance laws. 

Alfredo Barajas is the owner and manager of Pac Anchor Transportation, Inc., a trucking company in Long Beach, California. Barajas also separately owns 75 trucks. He recruits drivers to drive his trucks and leases the drivers and trucks to Pac Anchor. Both Barajas and Pac Anchor classify these drivers as independent contractors. The drivers invest no capital, own no trucks, and do not use their own tools or equipment. The drivers are employed for extended periods of time, but can be discharged without cause. They do not have their own customers or substantial control over operations. The drivers take all of their instructions from Barajas and Pac Anchor. The drivers perform the core activity of Pac Anchor’s trucking business of delivering cargo.

In 2008, the state of California filed suit against Pac Anchor and Barajas under the UCL for allegedly misclassifying their drivers as independent contractors and, consequently, illegally lowering their cost of doing business. Pac Anchor and Barajas argued that the FAAAA preempts the state’s UCL action.

The trial court found that the UCL action was preempted by the FAAAA because it relates to the company’s “price, route, or service.” The court reasoned, in part, that requiring the company to treat its drivers as employees would increase operational costs.

The California Court of Appeal disagreed with the trial court. It held that although the FAAAA “preempts state and local regulations relating to the prices, routes, or services of motor carriers with respect to the transportation of property,” the state’s unfair competition action seeks to enforce the employers’ statutory obligations and is not related to a price, route, or service of any motor carrier—even though it may “remotely affect” them.

The California Supreme Court agreed with the Court of Appeal. The state high court held that an action by the state under California’s UCL that is based on a trucking company’s alleged violation of state labor and insurance laws, is not preempted by the FAAAA because it is not “related to a price, route, or service” of the company.

The justices held that employers, including trucking companies, are free to use independent contractors as long as such individuals are properly classified “in order to conform to state law.” In fact, the court specifically stated, “The defendants’ assertion that the [state] may not prevent them from using independent contractors is correct.” The issue of whether the defendants actually misclassified their drivers as independent contractors, however, must be decided by the trial court.

Key Takeaways

According to Robert A. Jones, a shareholder in the San Francisco office of Ogletree Deakins: “What is most troubling in the court’s opinion is its holding that in enacting the FAAAA, Congress did not intend to preempt ‘basic regulation of employment conditions even though such regulation will invariably affect the cost and price of services.’”

Jones added, “Given its discussion of the existing case law with respect to FAAAA preemption, it appears the California courts will ultimately find that no matter what state law criteria applies to who may be properly classified as an independent contractor—as long as that criteria may be characterized as a ‘basic regulation of employment conditions’—FAAAA preemption will not be found.”

Rafael G. Nendel-Flores, a shareholder in the Orange County office of Ogletree Deakins, noted: “In this case, the California Supreme Court avoided the FAAAA’s broad prohibition against state laws and regulations that relate to a price, route, or service of a motor carrier. The court did so by asserting that state law provisions (e.g., state wage and hour provisions, state unemployment insurance tax provisions, and state workers’ compensation provisions) that on their face apply to all employers, and only remotely affect prices, routes, or services of motor carriers, are not preempted by the FAAAA.”

Nendel-Flores continued, “Further, the court’s statement that motor carriers ‘are free to use independent contractors as long as they are properly classified’ provides little comfort. This is akin to stating that motor carrier drivers are free to go through the eye of a needle so long as their trucks fit. California law presumes that workers are employees and the burden rests with companies utilizing independent contractors to prove otherwise. Further, California’s enforcement agencies such as the Division of Labor Standards Enforcement and the Employment Development Department are hostile towards independent contractor classifications. Put differently, motor carriers will continue to face an uphill battle convincing California regulators that their independent contractors are properly classified.”

Note: This article was published in the July 2014 issue of the California eAuthority.

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.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact
more
less

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!