Ninth Circuit Rejects FAAAA Preemption Challenge to Law Governing Independent Contractors

In a decision issued by the U.S. Ninth Circuit Court of Appeals on September 10, 2018, the court rejected a challenge based on federal preemption grounds to the California Labor Commissioner’s use of the Borello standard for determining independent contractor status. The challenge was made based on the motor carrier provisions of the Federal Aviation and Administration Authorization Act of 1994 (“FAAAA”), 49 U.S.C. § 14501, et seq., which prohibit states from enacting or enforcing laws or regulations that relate to “a price, route or service of a motor carrier . . . with respect to the transportation of property.”

The FAAAA law was enacted for the purpose of “preventing States from undermining deregulation of interstate transport.”  The FAAAA has been applied to prohibit states from making the transportation of tobacco more difficult, but has been found insufficient to invalidate laws of general application like a state prevailing wage law that has only a “tenuous effect” on a motor carrier’s prices, routes or services.  The question for the court in California Trucking Assn. v. Su was whether the State Labor Commissioner’s use of the test for determining whether an employee has been misclassified as an independent contractor that was articulated in the 1989 case of S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, otherwise known as the “Borello standard,” fell within the holding of the first kind of case or the second. 

The Borello case adopted a multi-factor test for determining whether an independent contractor relationship can be found to exist.  It authorized an inquiry into:

1) Whether the principal had a "right to control" the manner and means of the work completed;

2) The principal’s right to discharge the workers;

3) Whether the workers were engaged in a distinct occupation or business;

4) The nature of the work performed;

5) The skill required in the particular occupation;

6) Whether the principal or the agent supplies the instrumentalities, tools, and the place of work;

7) The length of time for which the services were to be performed;

8) Method of payment;

9) Whether the work was part of the regular business of the principal; and

10) Whether the parties believed they were creating an employer-employee relationship.

The case was brought by the California Trucking Association (“C.T.A.”), which contended that the Labor Commissioner’s application of the Borello standard disrupts the contractual relationships between owner-operators and motor carriers, and introduced inefficiencies in the transportation services market.  It also contended that use of that standard  was inconsistent with Congress’s deregulatory goals under the FAAAA. 

In upholding the dismissal of the lawsuit, the trial/lower court held that the FAAAA does not prevent state agencies like the Labor Commissioner from adopting and using “generally applicable, common law tests” such as the Borello standard which are not related to a motor carrier’s prices, routes or services.  It was not enough that use of the Borello standard in cases before the Commissioner led to higher costs of doing business and greater potential liability as the result of their independent contractor agreements being ignored, instead, in order to find preemption, the truckers were required to show that the effect of the challenged standard was to make their continued provision of a particular service, or implementation of a certain route or price, “essential to compliance with the law.”  The court concluded that Congress did not intend to foreclose states from applying common law tests to discern who is entitled to generally applicable labor protections, such as the Borello standard.

Based on this ruling, the Borello test is not subject to challenge as a means of determining whether workers are employees or independent contractors for workers’ compensation, wage payment, and other employment-related matters.  However, the court stated that it was not deciding whether the same result would apply to Dynamex, in which the California Supreme Court adopted a three-part test for establishing independent contractor status that is different from the multi-factor test employed in Borello.  That test, adopting factors  (1), (3) and (9) of the Borello standard set forth above, is in fact more simple to apply, but it is questionable whether the result of any FAAAA preemption challenge would be successful given the 9th Circuits’ reasoning in the C.T.A. decision.

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