Court rejects preeemption argument against Dynamex decision

A federal judge has tossed out a trucking association's lawsuit claiming last year's pivotal Dynamex decision on contractors versus employees is preempted by federal law because it affects the pricing of their services.

Western States Trucking Association sued the state last July claiming the California Supreme Court's decision laying down a stringent employee-presumptive test for independent contractor arrangements is preempted by the Federal Aviation Administration Authorization Act of 1994. The law forbids state regulations related to the "price, route or service of any motor carrier ... with regard to the transportation of property."

Since the state high court decision would likely force companies to convert drivers to employees, increasing labor costs, it could be tied to price increases.

U.S. District Judge Morrison C. England, Jr. spotlighted legislative intent and an array of precedent to dismiss the lawsuit without leave to amend, saying the decision's "tenuous" connection is insufficient and not what the law aims to prevent.

"Dynamex's interpretation of the term 'employ' as used in California across-the-board wage orders does not run afoul of the FAAAA simply because that interpretation may have some effect on transportation services. Like Dilts, as well as Mendonca, any such effect is simply too remote," England wrote in the order, issued Friday.

"This court ruling is a victory for truck drivers and for all California workers who put in the time and labor at the behest of their employer," said Attorney General Xavier Becerra in a statement Tuesday. "The courts have once again demonstrated that it is well within a state's right to establish standards for the welfare of those working within its borders."

Patrick J. Whalen of Ellison Wilson Advocacy LLC represented the plaintiff and did not respond to requests for comment.

England further reasoned the federal law was written not to forbid any state law that might affect motor carriers but direct regulation like tariffs or price mandates. Western States Trucking Association v. Schoorl, 2:18-cv-01989 (E.D. Cal., filed July 19, 2018).

In doing so, England cited similar challenges to California labor laws rejected by the California Supreme Court and the 9th U.S. Circuit Court of Appeals. On other occasions, plaintiffs made similar arguments against meal and rest break laws and the prevailing wage law, with similar results.

Dynamex laid down a three-prong test for supposed independent contractor arrangements that has been called virtually impossible to satisfy. The conditions are that the worker is free from hirer control, works outside the usual course of the hirer's business, and engages in independent trade of the same work performed for the hirer.

Controversy immediately embroiled the decision as businesses clamored over the overnight conversion of their workforces in a time where "alternate work arrangements" are increasingly common. Some pointed with concern to the gig economy, which heavily utilizes independent contractors.

On the other side, labor advocates argued the decision corrected a mass injustice by companies using the designation to escape obligations and cut costs.

Michael Rubin of Altshuler Berzon LLP, who represented labor groups in Dynamex, said the lawsuit challenge was ill-advised and the result unsurprising.

"The 9th Circuit has twice rejected FAAAA challenges to California's basic workplace protection laws," he said. "This seemed like a last ditch effort by an industry association to avoid the ongoing legislative process and judicial process by avoiding the impact of a Supreme Court decision that plainly applies to its members."

Glenn Danas of Robins Kaplan LLP concurred, and said "the fact that Dynamex applies to all the wage orders, and not just the wage order aimed at the trucking industry, means that its indirect effect on the trucking industry is too attenuated to trigger preemption." He also noted that states' police powers for things like worker protection get broad deference.

ABs 5 and 71 were quickly introduced by assemblywomen Lorena Gonzalez, D-San Diego, and Melissa Melendez, R-Lake Elsinore, respectively this session. The former would codify Dynamex as state law whereas it currently only applies to wage orders. The latter would eliminate it in favor of its predecessor, the multi-factor Borello test.

In a press release about AB 71, Melendez said, "Without clear legislative action, the Dynamex case could unravel gig and tech economies and threaten the traditional business models of realtors, teachers, beauticians, truck drivers, construction trades and countless other professions."