Cal. Trucking Ass'n v. Su

• Decision Date: 10 September 2018
• Docket Number: No. 17-55133,17-55133
• Citation: 903 F.3d 953
• Parties: CALIFORNIA TRUCKING ASSOCIATION, Plaintiff-Appellant, v. Julie A. SU, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

903 F.3d 953

CALIFORNIA TRUCKING ASSOCIATION, Plaintiff-Appellant,

v.Julie A. SU, Defendant-Appellee.

No. 17-55133

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 7, 2018, Pasadena, California

Filed September 10, 2018

Adam Carl Smedstad (argued), Scopelitis Garvin Light Hanson & Feary, PC, Chicago, Illinois, for Plaintiff-Appellant.

Miles E. Locker (argued), Department of Industrial Relations, California Division of Labor Standards Enforcement, San Francisco, California, for Defendant-Appellee.

Before: A. Wallace Tashima, Richard A. Paez,^* and Jacqueline H. Nguyen, Circuit Judges.

TASHIMA, Circuit Judge:

The issue in this case is whether the Federal Aviation Administration Authorization Act of 1994 ("FAAAA") preempts the California Labor Commissioner’s use of a common law test, often referred to as the Borello standard,¹ to determine whether a motor carrier has properly classified its drivers as independent contractors. Classifications pursuant to the Borello standard impact what benefits workers are entitled to under the State’s labor laws and the corresponding burdens placed on the entities that hire them. We hold that the Borello standard, a generally applicable test used in a traditional area of state regulation, is not "related to" prices, routes, or services, and therefore is not preempted by the FAAAA. Accordingly, we affirm the district court.

FACTUAL AND PROCEDURAL BACKGROUND²

Plaintiff-Appellant California Trucking Association ("CTA") is an association devoted to advancing the interests of its motor carrier members.³ CTA members are licensed motor carrier companies that manage, coordinate, and schedule the movement of property throughout California in interstate commerce. Based on factors such as efficiency and market demand, CTA members use either "company drivers" or "owner-operators" to haul freight. As expected, "company drivers" haul freight using trucks that are owned by the motor carrier; "owner-operators" use their own trucks. When CTA members use owner-operators, the parties enter into contracts providing, generally, that the owner-operators: (1) must provide the truck and a qualified driver to haul the freight; (2) must be responsible for operating expenses like truck maintenance, repair, and refueling; (3) will, in turn, have control over whether and how to perform a haul; and (4) will then be paid at an agreed-upon rate. CTA alleges that owner-operators are independent contractors.

CTA filed suit against Defendant-Appellee Julie Su in her official capacity as Labor Commissioner of the State of California Department of Industrial Relations (the "Commissioner"). The Commissioner is responsible for enforcing the California Labor Code, which affords certain benefits and protections to workers who qualify as employees. As with any other industry, the Commissioner applies the Borello standard to assess owner-operators’ claims that they have been misclassified as independent contractors and so denied certain benefits under the Labor Code. CTA alleges the Commissioner’s application of the Borello standard disrupts the contractual arrangements between owner-operators and motor carriers, which introduces inefficiencies into the transportation services market and is inconsistent with Congress’ deregulatory goals under the FAAAA. CTA therefore seeks a declaration that the FAAAA preempts the Commissioner’s application of the Borello standard to disrupt these contracts, and corresponding injunctive relief barring the Commissioner from applying the Borello standard to motor carriers.

The Commissioner moved to dismiss CTA’s Complaint under Federal Rule of Civil Procedure 12(b)(6). The district court granted the motion, concluding that the Borello standard used by the Commissioner was not preempted under the FAAAA. The district court denied CTA’s motion for reconsideration, and CTA timely appealed the dismissal of its Complaint.

JURISDICTION AND STANDARD OF REVIEW

We have jurisdiction under 28 U.S.C. § 1291. We review de novo a district court’s decision regarding preemption, Dilts v. Penske Logistics, LLC , 769 F.3d 637, 640 (9th Cir. 2014), as well as a dismissal under Rule 12(b)(6), Soo Park , 851 F.3d at 918.

DISCUSSION

A. Background Principles

This case involves a purported clash between a common law test used to enforce California’s labor laws and a federal statute aimed at preventing States from undermining federal deregulation of interstate transport. We provide a brief overview of each, before explaining why the latter does not preempt the former.

1. The Borello Standard

In Borello , the California Supreme Court discussed at length the common law test for determining whether a worker is an employee or an independent contractor. See 256 Cal.Rptr. 543, 769 P.2d at 403–07 ; see also Dynamex Operations W. v. Superior Court , 232 Cal.Rptr.3d 1, 416 P.3d 1, 15 (2018) (describing Borello as "the seminal California decision on this subject"). "Under the common law, " ‘[t]he principal test of an employment relationship is whether the person to whom service is rendered has the right to control the manner and means of accomplishing the result desired." ’ " Ayala v. Antelope Valley Newspapers, Inc. , 59 Cal.4th 522, 173 Cal.Rptr.3d 332, 327 P.3d 165, 171 (2014) (quoting Borello , 256 Cal.Rptr. 543, 769 P.2d at 404 ). "Perhaps the strongest evidence of the right to control is whether the hirer can discharge the worker without cause ...." Id. Aside from the right to control, courts also consider a list of "secondary indicia" that inform the task of classifying workers. See id. Drawn from the Restatement Second of Agency, these include

(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee.

Borello, 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d at 404. The Borello standard is neither mechanical nor inflexible; different cases can and do demand focus on different factors. See id. While an affirmative agreement to classify a particular worker one way or another may be considered, it "is not dispositive, and subterfuges are not countenanced." Id., 48 Cal.3d 341, 256 Cal.Rptr. 543, 769 P.2d at 403. Instead, the Borello standard is applied with an eye towards the purpose of the remedial statute being enforced. Dynamex, 4 Cal.5th 903, 232 Cal.Rptr.3d 1, 416 P.3d at 19–20. "In other words, Borello calls for the application of a statutory purpose standard that considers the control of details and other potentially relevant factors identified in prior California and out-of-state cases in order to determine which classification ... best effectuates the underlying legislative intent and objective of the statutory scheme at issue." Id.

We have applied the Borello standard when assessing misclassification claims in the motor carriage industry. See, e.g. , Narayan v. EGL, Inc. , 616 F.3d 895, 900–04 (9th Cir. 2010). Relevant here, the Commissioner applies the Borello standard when adjudicating and enforcing claims within her jurisdiction. If she were to determine that, under Borello , certain owner-operators are employees of a motor carrier, this could result in obligations under the California Labor Code that are inconsistent with the parties’ contractual arrangements (e.g. , who is responsible for truck maintenance expenses). CTA contends the FAAAA thus compels the Commissioner and courts to accept the parties’ agreements at face value. The Commissioner, in turn, seeks the power (as with any other employer) to look behind the agreements and apply the Borello standard to ensure that owner-operators are, in fact, independent contractors.⁴

2. The FAAAA

The FAAAA expressly preempts certain state regulation of intrastate motor carriage. 49 U.S.C. § 14501(c)(1). "In considering the preemptive scope of a statute, congressional intent is the ultimate touchstone." Dilts , 769 F.3d at 642 (citation and internal quotation marks omitted). With express preemption, "we focus first on the statutory language, which necessarily contains the best evidence of Congress’ preemptive intent."

Dan’s City Used Cars, Inc. v. Pelkey , 569 U.S. 251, 260, 133 S.Ct. 1769, 185 L.Ed.2d 909 (2013) (citation and internal quotation marks omitted). The FAAAA provides:

(c) Motor carriers of property.–(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 ... with respect to the transportation of property.

49 U.S.C. § 14501(c)(1). This language resembles that found in the air carrier preemption provision of the Airline Deregulation Act ("ADA"), except for the FAAAA’s inclusion of the phrase, "with respect to the transportation of property." Compare id. , with 49 U.S.C. § 41713(b)(1). ADA preemption cases can therefore be consulted to analyze FAAAA preemption. See Rowe v. N.H. Motor Transp. Ass’n , 552 U.S. 364, 370–71, 128 S.Ct. 989, 169 L.Ed.2d 933 (2008).⁵

In the context of the ADA and FAAAA, "[t]he phrase ‘related to’ embraces state laws ‘having a connection with or reference to’ carrier ‘rates, routes, or services,’ whether directly or indirectly." Dan’s City , 569 U.S. at 260, 133 S.Ct. 1769 (quoting Rowe...