Federal and State Court Rulings Conflict on Misclassification Standards

On November 19, 2020, the California Court of Appeal in State of California v. Cal Cartage Transportation Express, LLC (“Cal Cartage”) reversed the lower court’s finding that the new “ABC” test of worker misclassification, first set forth in Dynamex Operations W. v. Superior Court and later implemented by AB2257, is preempted by the FAAAA because the “ABC” test effectively prohibits motor carriers from using independent contractors.  Contrary to this ruling, both the lower state court and the Federal Southern District of California in California Trucking Association, et al v. Attorney General Xavier Becerra, et al., (“Becerra”) have found that the “ABC” test has a significant, impermissible effect on motor carriers’ prices, routes, and services, requiring preemption. 

 On January 16, 2020, the Becerra court granted a preliminary injunction, barring the enforcement of the “ABC” test as against interstate motor carriers operating in California. The Becerra court recognized that the “ABC” test, and particularly prong “B” of the test, effectively prevents motor carriers from exercising their freedom to choose between using independent contractors or employees.  In order to be considered an independent contractor under prong “B,” a worker must provide services that are outside the usual course of the hiring entity’s business.  Thus, as read by the Southern District, the “ABC” test prohibits motor carriers from utilizing drivers to transport goods unless they are classified as employees. 

Interestingly, the Southern District in Becerra had noted that the Los Angeles Superior Court in Cal Cartage agreed that because the “ABC” test effectively prohibits motor carriers from using independent contractors, it has a significant, impermissible effect on motor carriers’ prices, routes, and services, and thus, is preempted by the FAAAA. Now, however, that decision has been reversed by the Court of Appeal. 

On January 30, 2020, the Becerra court’s preliminary injunction prohibiting enforcement of the “ABC” test as against interstate motor carriers was appealed to the U.S. Court of Appeals for the Ninth Circuit. On March 30, 2020, the Ninth Circuit denied the request of the plaintiffs to stay the preliminary injunction pending a final order on the appeal.  The case has been briefed and argued in the Ninth Circuit, but no decision has issued as of this date. 

It has long been expected that the issue of whether the “ABC” test is preempted by the FAAAA as applied to interstate motor carriers would make its way to the United States Supreme Court. The First Circuit previously held that prong “B” of Massachusetts’ “ABC” test (which contains the same language as California’s test) is preempted by the FAAAA. The federal district courts are split on the issue – the Eastern District of California has held that the FAAAA does not preempt application of the “ABC” test because it is a general classification test applicable to all employers and not motor carriers specifically, and does not, by its terms, compel a motor carrier to use an employee; the Northern District of California has held that the FAAAA does preempt part “B” of the “ABC” test; and the Southern District in Becerra found preemption and enjoined application of the test.

Now, it appears inevitable that the issue will be decided by the U.S. Supreme Court, leaving California motor carriers in limbo, which could last at least another year, maybe longer. 

For additional information, contact Hillary Arrow Booth at HBoothLLP.com