Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856

By Miles L. Kavaller

On April 30, in Dynamex Operations West, Inc. v. Superior Court, 2018 DJDAR 3856, the California Supreme Court adopted a new test for classifying workers as independent contractors, “the ABC test.” While it could have at least recommended that the California Legislature examine the issues, this activist judicial body ironically adopted the requirements found in the statutes of Delaware (Del. Code Ann., tit. 19, Sections 3501(a)(7), 3503(c)), Massachusetts (Mass.  Gen.  Laws, ch.  149, Section 148B(a)), and New Jersey (N.J. Stat. Ann. Section 43:21-19(i)(6)(A-C)). Dynamex held as follows:

“For the reasons explained hereafter, we conclude that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the ‘ABC’ test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors.  Under this 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.”

The decision was issued in a case involving Dynamex Operations West, Inc., a nationwide same-day courier and delivery service that operates a number of business centers in California, offers on-demand, same-day pickup and delivery services to the public generally and also has a number of large business customers — including Office Depot and Home Depot — for whom it delivers purchased goods and picks up returns on a regular basis. The question of whether the shipments delivered were, or could have been, transported in interstate commerce, was not raised or discussed.But i a shipment originates out of state or out of the country and is transported into California, for example, and then from the port of Los Angeles or Long Beach to a destination in Los Angeles, it is said to be “in interstate of foreign commerce,” despite the fact that it never leaves the state. This is significant because federal transportation law regulates interstate transportation in general and interstate trucking specifically. See 49 U.S.C. Section 13501; Project Hope v M/V Ibn Sina, et al., 250 F3d 67 (2nd Cir. 2001).

A provision in the Federal Aviation Administration Authorization Act of 1994 found in 49 U.S.C. Section 14501(c) expressly forbids states from enforcing their laws against interstate truckers and states as follows:

“(1) General rule. Except as provided in paragraphs (2) and (3), a State, political subdivision of a State, or political authority of 2 or more 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 (other than a carrier affiliated with a direct air carrier covered by section 41713(b)(4) [49 U.S.C. Section 41713(b)(4)]) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.”

Prong B of the California Supreme Court’s Dynamex ruling is likely to be found to be subject to FAAAA preemption. Prong B would not permit an interstate trucking firm from contracting with an independent contractor trucker to transport cargo because that service would not be outside the usual course of the hiring entity’s — the trucking company’s — business.

A recent 9th U.S. Circuit Court of Appeals decision ruled that FAAAA preemption barred the city of Los Angeles from prohibiting interstate trucking firms from using the services of independent contractor truckers. Am. Trucking Ass’ns v. City of Los Angeles, 660 F.3d 384 (9th Cir. 2011), (reversing ruling on placarding and parking), Am. Trucking Ass’ns v. City of Los Angeles, 569 U.S. 641 (2013). And a recent 1st Circuit Court of Appeals decision concluded that Part B of the ABC test was preempted by FAAAA preemption. Mass. Delivery Ass’n v. Healey, 821 F.3d 187 (1st Cir. 2016).

So, what should California truckers do? At this stage, a careful review of their use of independent contractor truckers is recommended. An independent contractor is an independent business person and contracting with an independent business person means both sides bargain for the terms of the agreement. The fundamentals are as follows:

  1. The contractor owns his/her tractor;
  2. The contractor knowingly and willingly signs a lease agreement which is subject to the requirement in the regulations of the Federal Motor Carrier Safety Administration in 49 C.F.R. 376.12.
  3. The contractor has the freedom under the agreement to accept or reject load assignments and transport loads for any company.

These are but a few of the factors addressed in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), but are the most significant in trucking cases.

The Dynamex ruling subjects employers who now use workers classified as independent contractors to examine those relationships under the ABC test and if not satisfied entitles those workers improperly classified to the benefits provided under the California Labor Code. The California Employment Development Department and Department of Industrial Relations will apply those guidelines to the cases brought before them. Other state agencies may do so as well. (The Workers’ Compensation Appeals Board case on point is Allen v. Atlas Transfer and Storage Company, 2013 Cal. Wrk. Comp. P.D. LEXIS 5 applying the Borello factors.) Truckers can assert FAAAA preemption as a defense and while these agencies have not been sympathetic to trucking firms, post-agency court review is available.

FAAAA preemption does not preclude, carte blanche, application and enforcement of the California Labor Code to interstate trucking companies. People ex rel. Harris v. Pac Anchor Transportation, Inc., 59 Cal. 4th 772 (2014). FAAAA preemption requires that the affected activity “relate to” a motor carrier’s prices, routes or services. Dilts v. Penske Logistics, LLC, 757 F.3d 1078 (9th Cir. 2014). While the use of the services of independent contractors should not be prohibited by prong B of the Dynamex ABC test, Borello has not been overruled and should, with some modification, continue to guide misclassification issues in trucking cases. The author suggests that Borello be modified for trucking cases by including an analysis of the FMCSA regulation of motor carrier leasing in 49 C.F.R. Part 376.

Miles L. Kavaller is a sole practitioner in Woodland Hills specializing in transportation law.