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California District Court Finds Dynamex ABC Test Preempted by FAAAA

Since April 30, 2018, when the California Supreme Court issued its decision in Dynamex Operations West. v. Superior Court, California motor carriers, as well as many other businesses, have been struggling to deal with the unexpected new "ABC test" for deciding who is an independent contractor and who is an employee. Under its problematic B prong, the new Dynamex test requires that for a person to be an independent contractor the work he or she does must be outside the usual course of the hiring entity's business. For a basic motor carrier, it is hard to argue that a truck driver is performing a service outside the usual course of the motor carrier's business. But now, a new Central District Court has found that federal law preempts Dynamex for determining the classification of truck drivers.

Even as Dynamex has left motor carriers uncertain about their long-established business models, courts have also been grappling with this new decision in cases pending in state and federal courts. Some of those cases have been brought specifically to challenge the application of Dynamex to motor carriers such as those filed by the California Trucking Association and Western States Trucking Association. These cases squarely present the argument that the Dynamex test compels the use of employee drivers and is incompatible with the Federal Aviation Administration Authorization Act (FAAAA) which provides that states "may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier." Because federal law pre-empts state law, if the Dynamex result of requiring employee drives affects a price, route, or service of any motor carrier, then under the federal pre-emption doctrine, the Dynamex test may not be enforced.

While the CTA and WSTA cases were specifically brought to challenge Dynamex, other worker classifications cases were already in progress when the Dynamex decision was issued and the parties and courts in those cases have had to respond to this sudden change in the law. One of those cases was Alvarez v. XPO Logistics Cartage, LLC, pending in the United States District Court for the Central District of California. In that misclassification case, application of the Dynamex ABC test was challenged by XPO, a motor carrier treating truck drivers as independent contractors. The Alvarez court held that the FAAAA preempts the application of the Dynamex ABC Test to a motor carrier for determining whether owner-operators are considered employees under California's Wage Orders. This means that determining whether a truck driver is an independent contractor or employee would be determined under the older multi-factor standard created by S. G. Borello & Sons, Inc. v. Department of Industrial Relations which has been around for nearly 30 years. Because Borello has been around so long and is so well understood, properly operating motor carriers have been able to safely use independent contractor truck drivers for many years.

Of course, Alvarez is only one District Court decision and certainly not the final word on Dynamex's application to the transportation industry. However, it is a well-considered decision and points in the right direction. And, as the Alvarez court noted, "while the Ninth Circuit in California Trucking Assoc. v. Su, ... declined to affirmatively address whether the ABC test was preempted by the FAAAA, it nevertheless distinguished the two standards, noting that 'the ABC test may effectively compel a motor carrier to use employees for certain services because, under the ABC test, a worker providing a service within an employer's usual course of business will never be considered an independent contractor.' Su, 903 F.3d at 955." Eventually, the Ninth Circuit will be faced squarely with the question of whether Dynamex is preempted by the FAAAA. While the outcome is not certain, the Ninth Circuit does seem to understand Dynamex would compel the use of employee truck drivers. And, back in 2011, when the Ninth Circuit considered a regulatory rather than judicially-created mandate for the use of employee drivers in Am. Trucking Ass'ns v. City of L.A, it found that such a mandate was preempted by the FAAAA.

The independent contractor model has been under pressure for many years in California but careful motor carriers were able to work within the rules set by Borello and maintain their owner-operator fleets. Dynamex created significant uncertainty for motor carriers because it appears to prohibit the use of independent contractor truck drivers despite being related to "price, route, and service" and therefore unenforceable due to federal preemption. Whether trying to deal with the uncertainty caused by Dynamex or to comply with the Borello standard, it is important to properly address the classification issue. Each carrier's circumstances will differ and guidance from experienced transportation counsel can help reduce the risks associated with misclassification issues.

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