California Supreme Court: Everyone is Presumed to be an Employee
By WSTA Director of Governmental Affairs, Joe Rajkovacz
On April 30th 2018 the California Supreme Court issued a bombshell of a decision in a case titled, Dynamex Operations West, Inc v. Chareles Lee et al. The unanimous (7-0) decision was to invoke what is termed an A-B-C test to determine proper employment classification in the absence of a state wage order.
The A-B-C test in California courts replaces previous legal guidance used by judges in making decisions. Now anyone sued for misclassifying an independent contractor will need to satisfy all three prongs of the new A-B-C test in order to avoid massive liability related to misclassifying someone. Only two other states utilize an A-B-C test, Massachusetts and New Jersey.
As Lee explained in his article here, you will need to pass all three prongs (A, B and C) in defending yourself. For trucking, B is impossible for most to pass. The B prong of the test is that “the worker performs work that is outside the usual course of the hiring entity’s business.”
Basically, if a trucking company contracts with an owner-operator in any way, you cannot pass the B part of the test. Should an owner-operator you contracted with decide to sue you, and the case were class certified, the financial liability is massive. Begin with meal & rest breaks, think of the employers half of social security contributions, the list is endless. In legal cases the statute of limitations is four years.
Many lawyers have publicly stated what I’ve written. We have additional concerns about how the A-B-C test will be applied. We’ve dealt directly with negative EDD and State Fund audits of members where assessments were into the hundreds of thousands of dollars. We were successful in helping beat back the assessments. It’s not too difficult to believe that state agencies and State Fund, absent a successful legal challenge or legislation will adopt the A-B-C test in making their determinations.
WSTA Will Sue
Association leadership approved moving ahead with litigation to directly challenge the permissibility of using an A-B-C test in trucking operations. When we made that announcement in our weekly e-newsletter I was contacted by trucking media and law firms. Thus far, media coverage in trucking has been what I’d consider sparse with some industry people being quoted basically saying they don’t have an opinion – they are still studying the decision. The lawyers are another story. They would like us to join in with other legal efforts. When I quizzed them on whether they think the Dynamex decision has an impact on brokers, they said they don’t believe it does.
It was clear that there is a complete lack of understanding how brokers operate in California, especially with regards to the construction trucking industry. Broker operations are not regulated as they are at the federal level and the vast majority of brokering within California happens by those who are also registered motor carriers, so yes, there is exposure.
Another concern with joint litigation is the types of motor carriers being represented. Frankly, many of the adverse legal decisions amounting to hundreds of millions of dollars in California have dealt with motor carriers engaged in the practice of “lease-purchasing” or renting a truck to a driver. I am grateful to be with an organization that believes the practice is willful misclassification.
In 2009 while I was with the Owner-Operator Independent Drivers Association I was invited to speak before a group of harbor trucking companies in Los Angeles. The goal was to get OOIDA to sue the ports instead of the American Trucking Associations over the banning of owner-operators from serving the ports. That attempted ban lead to a massive congressional hearing in Washington D.C. at which I testified and the focus turned entirely to lease purchasing scams.
I understand the Clean Trucks Program put every motor carrier in a difficult position, but I warned the group I spoke before in Los Angeles they don’t want to go down that road. They got encouragement from other associations to engage in the practice and now we all live with the end result. We cannot be a party to litigation where the interest of those to maintain that status quo and hopefully avoid payments to wrongfully classified drivers subjugates a purer legal argument.
Legal argument
While virtually every industry in California is impacted by this decision, no industry has the special legal protection enjoyed by the trucking industry.
In my article on page 10 I referenced the Federal Aviation Administration Authorization Act of 1994 (FAAAA or F4A). That federal law will be used by everyone suing California including the WSTA. It is with good reason too, it’s been used successfully to challenge the applicability of an A-B-C test to the trucking industry in Massachusetts.
The relevant language in the FAAAA to be relied upon states:
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)) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.
The State of Massachusetts attempted to apply its A-B-C test (specifically the B prong) to local last mile delivery companies (pretty identical to Dynamex). On appeal to the United States Court of Appeals First Circuit which has jurisdiction in Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico the Appeals Court decided federal law preempted Massachusetts from applying its test to the trucking industry.
While we necessarily will be filing in the federal Ninth Circuit, it certainly has been hostile to arguments before the court invoking the FAAAA and federal preemption. That doesn’t discourage us one bit. The number one consideration for the U.S. Supreme Court in accepting cases is when a split exists between the federal circuit courts.
We will have additional arguments based on federal law permitting the use of owner-operators. While we expect multiple lawsuits to be filed, we want to insure our members’ interests are first and foremost. In the years I’ve worked for associations since coming off the road, I’ve been around many lawyers and have very mixed views on their abilities. The WSTA is represented by a group of lawyers I hold in extremely high esteem for many reasons. They want input from us and wrap that into their writings. They don’t conjure up never-tried-before legal theories. In the world I’ve lived in, that has been rare and often resulted in snatching defeat from the jaws of victory.
