Truckers’ Loss in Calif. Contractor Fight Won’t End Legal Battle

The California trucking industry is pressing the argument—so far without gaining much traction—that its drivers should be classified as contractors, not employees.

Their efforts come amid uncertainty roiling employers that fear California’s new rigid test for determining who qualifies as a contractor will threaten their business models.

The Western States Trucking Association recently lost its challenge to the worker classification standard known as the “ABC test,” which the California Supreme Court adopted last year in Dynamex Operations West, Inc. v. Superior Court. A federal judge in the U.S District Court for the Eastern District of California dismissed the association’s case last month. But the case is the latest to reveal the growing tension for many employers and industry groups seeking to push back against the test.

Employers have the burden under the three-part test to show workers qualify as independent contractors, and are thus exempt from many state and federal wage and hour requirements. The previous Borello standard provided a dozen different factors that allowed for more leeway and room for interpretation when companies wanted to labeled their workforce as independent contractors. Massachusetts and New Jersey already use the ABC test, but the California ruling sparked fear among employers across industries as a major harbinger of progressive labor policies.

The trucking industry has previously fought for an exemption to the more rigid worker classification standard in various courts for years. Appeals courts are divided on the question.

Industry groups argue that the rigid test clashes with the Federal Aviation Administration Authorization Act, which pre-empts certain state regulations for the industry. The Western Trucking Association ruling on March 28 was the first to weigh in on that argument since California’s new test was cleared last year. Another case is still pending in a different California federal court addressing the same question.

“The day Dynamex came down, we knew these were coming,” Shannon Liss-Riordan, a Boston-based attorney who frequently handles worker classification cases, told Bloomberg Law. “The whole trucking industry is basically banking on the idea that the ABC test is preempted by federal law.”

The stakes are high for workers and employers alike.

Distinguishing between employees and contractors is key, as only employees are entitled to benefits such as minimum wage, health care, and workers compensation—all of which can add to employer costs. Employer groups say the ABC test, which lays out specific and strict standards for classifying workers as contractors, could hurt business. Worker advocates say such standards could lead to shorting workers on benefits and pay.

The Golden State’s adoption of the test has sparked a wave of legislation, particularly aimed at on-demand companies such as Uber Technologies, Lyft, Inc., and Postmates, Inc., that build their business models on the backs of independent contractors. In many of those cases, companies argue that the test should be applied narrowly or not retroactively. But other companies are pushing against it in the state legislature. Measures have been proposed to rewrite California law to undo the Dynamex ruling.

Prior Test Less Rigid

Courts thus far have issued mixed rulings in response to requests from the trucking industry to restore the old standard, at least where it might contradict with federal law.

The U.S. Supreme Court on March 18 declined a request by the California Trucking Associationto take up the issue under the previous Borello standard. The U.S. Court of Appeals for the Seventh and Third Circuits have previously dismissed such arguments by the trucking industry. Yet, the First Circuit ruled in 2016 that part of a test in Massachusetts was pre-empted by the federal law.

A similar challenged to the ABC test, filed by the California Trucking Association, is separately pending in the U.S. District Court for the Southern District of California. In that case, the association’s attorneys with Ogletree, Deakins, Smoak & Stewart argue in court documents that under the new test, “it would be impractical if not impossible” for motor-carrier members to contract with owner-operators to provide interstate trucking services while treating the drivers as employees. The practical consequence, they argue, is that the companies will ultimately lose business. The judge in that case has yet to decide on a motion to dismiss.

Fisher Phillips partner Richard Meneghello said court decisions in states such as Massachusetts have been similarly progressive, like the recent California court’s ruling. He said so far challenges against the ABC test have been pushing for a change to the state law or playing defense in the courts.

A cottage industry has cropped up to push businesses to comply with the new standard, he said.

“Companies are flying blind,” Meneghello said. “That causes uncertainty and panic. The courts in California have been fairly unified when taking the remedial approach to the ABC test and where it’s going.”

Pre-emption Argument Falters

In the Western State Trucking Association case, Judge Morrison England Jr. said the group’s argument that federal law trumped the new standard fails because the test’s definition of the word “employ” doesn’t trigger other federal transportation laws and regulations simply because “that interpretation may have some effect on transportation services.” He said the association showed it altered its business practices to conform to the ruling.

England said the argument that the new employment test has a discriminatory effect on out-of-state competitors in violation of the U.S. Constitution also fails because the ABC test doesn’t differentiate between in-state and out-of state commerce or residents.

The California Attorney General’s Office represented the state. Ellison Whalen & Blackburn represented Western States. A representative from the trucking association didn’t immediately respond to a request for comment about the ruling or its plan to appeal to the Ninth Circuit.

The International Brotherhood of Teamsters also intervened in the case.

“What this case is about for me is that there is no separate rule that applies to the trucking industry,” said Altshuler Berzon attorney Andrew Kushner, who represents the union. “In this case, the misclassification part was assumed.”