California’s ‘ABC employee test’ (Dynamex decison) not preempted by federal law

By Harold S. Berman J.D. — The decision, which adopted the “ABC test” for determining whether a worker should be deemed an employee or an independent contractor, is not preempted by the Federal Aviation Administration Authorization Act, or federal motor carrier safety regulations.

The California Supreme Court’s 2018 Dynamex decision, which articulated a new and broad standard for distinguishing between employees and independent contractors under California state regulations, was not preempted by either the Federal Aviation Administration Authorization Act (FAAAA), or federal motor carrier safety regulations, a federal district court in California ruled. The Dynamex standard related only tangentially to the scope of the federal statute and regulations; it did not specifically target the transportation industry. Nor did Dynamex violate the U.S. Constitution’s dormant Commerce Clause because its reasoning applied equally to California, out-of-state, and multi-state employers (Western States Trucking Association v. Schoorl, March 28, 2019, England, M., Jr.).

Dynamex decision. In 2018, the California Supreme Court issued its decision in Dynamex Operations West, Inc. v. Superior Court, which established the “ABC test” as a new standard to distinguish between employees and independent contractors for purposes of certain quasi-legislative regulations issued by the California Industrial Welfare Commission concerning both minimum wage and employee general welfare. The Dynamex court established a three-part test for distinguishing an independent contractor from an employee, utilizing a broad definition of what constituted an employee under applicable California regulations. That court’s ABC test requires, among other things, that an independent contractor not be engaged in the same work as the hiring entity.

Preempted by FAAAA? A trade association representing truck operators, including those who regularly hired truckers as independent contractors, sued the state of California through the Acting Director of the California Department of Industrial Relations and the California Attorney General, as the individuals responsible for enforcing and implementing the Dynamex decision. The trade association alleged that the ABC test directly impacted the price, routes, and services of its motor carrier members, and so was preempted by the FAAAA.

FMCS regs too. The trade association also maintained that the ABC test discriminated against out-of-state and interstate trucking companies, violating the dormant Commerce Clause of the U.S. Constitution. Finally, the trade association argued that the ABC test was preempted by the Federal Motor Carrier Safety regulations. The trade association sought declaratory and injunctive relief prohibiting enforcement of the Dynamex test. The state moved to dismiss, claiming the trade association lacked standing, and that the Dynamex test was not preempted by federal law.

Standing. The court found that the trade association did have standing to sue, rejecting the argument that there was no concrete legal dispute requiring redress and that the trade association merely sought an advisory opinion as to the potential application of the Dynamex test. Rather, the application of the Dynamex test fundamentally affected the trade association and its members’ current business model as to how independent contractors were characterized. It already had resulted in significant litigation concerning the fundamental change Dynamex created in employee/independent contractor characterizations.

Associational standing. Additionally, the trade association had associational standing to represent its members in the litigation, given its claim that virtually all of its members used independent contractor trucking companies to accommodate changing workloads and had a concrete interest in knowing whether their employee classification must fundamentally change in the wake of Dynamex. The trade association almost assuredly would be impacted by the Dynamex test, either because it would need to change its use of independent contract companies and drivers in favor of employee drivers, or because it would face liability for its classification decisions. The trade association did not need to identify a specific association member who had suffered or would suffer harm.

FAAAA preemption rejected. The court rejected the trade association’s argument that the Dynamex test and interpretation of California wage regulations was preempted by the FAAAA. The substantive requirements of the California wage regulation interpreted by Dynamex had only a tenuous connection to and no significant impact on motor carriers’ rate, routes, or services governed by the FAAAA.

Transportation not targeted. The California wage regulation concerned how individuals employed in the transportation industry would be paid, but the rationale of Dynamex in interpreting that regulation applied to all California wage orders, and so Dynamex did not specifically target the transportation industry. Dynamex applied across the range of California industries and so could not be preempted by the FAAAA simply because it happened also to include transportation workers.

Increased costs not enough. Additionally, neither Dynamex nor the specific wage order it interpreted prevented a motor carrier from hiring an independent contractor for individual assignments, only mandating that the carrier adhere to the wage order’s requirements. That increased costs might result from such adherence did not trigger preemption.

Federal motor carrier safety regulations preemption. Nor did the Dynamex test preempt applicable federal motor carrier safety regulations. The federal regulations were safety rules that regulated motor carriage industry safety, such as use of alcohol by drivers, vehicle inspections, and driver’s license standards. The interpretation of California wage orders in Dynamex had only a tangential connection to safety issues; the decision did not conflict with the federal regulations because the federal regulations did not speak to when an employee relationship exists, or under what terms.

Dormant Commerce Clause violation. The court similarly found that Dynamex did not violate the dormant Commerce Clause of the U.S. Constitution, rejecting the trade association’s argument that the ABC test on its face discriminated against out-of-state and interstate trucking companies. California’s wage orders did not facially discriminate against interstate commerce but rather articulated generally applicable requirements that applied equally to California, out-of-state, and multi-state employers. The trade association did not cite to any provision either of California wage orders or the Dynamex decision that distinguished between in-state and out-of-state commerce.

Source: http://www.employmentlawdaily.com/index.php/news/california-dynamex-abc-employee-test-decison-not-preempted-by-federal-law/