U.S. Supreme Court Declines Review, Hands Win to California Truckers

California truck drivers enjoyed a victory recently when the U.S. Supreme Court declined to review a decision by the California Supreme Court which held that the state’s Unfair Competition Law (“UCL”) is not preempted by federal transportation laws. See People ex rel. Harris v. Pac Anchor Transportation, Inc., 59 Cal. 4th 772 (Cal. 2014) (cert. denied by Pac Anchor Transp. v. Cal. ex rel. Harris, 2015 U.S. LEXIS 1326 (U.S., Feb. 23, 2015)).

Congress enacted the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) with the intent of preventing “‘. . . [s]tates from undermining federal deregulation of interstate trucking’ through a ‘patchwork’ of state regulations.” Dilts v. Penske Logistics, LLC, 769 F.3d 637, 644 (9th Cir. Cal. 2014) (citing Am. Trucking Ass’ns v. City of Los Angeles, 660 F.3d 384, 395-96 (9th Cir. 2011)). Congress did not want states to effectively undo federal deregulation of motor carriers by enacting their own laws “‘related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.’” Id. at 641 (citing 49 U.S.C. § 14501(c)(1)). The rationale was that lower fares and better service would be best achieved by maximum reliance on competitive market forces.

In September 2008, California Attorney General Kamala Harris filed a lawsuit against Pac Anchor Transportation Inc., alleging that the trucking company violated the UCL by misclassifying its truck drivers as independent contractors, thereby side-stepping state labor laws meant to protect employees within the state. The suit alleged that Pac Anchor gained an unfair advantage over competitors by not paying unemployment insurance taxes, not providing workers’ compensation benefits, and failing to pay drivers at least minimum wages and reimburse them for necessary business expenses. The trial court ruled in favor of Pac Anchor, finding that classifying truck drivers as employees could increase costs for the motor carrier, and, as such, California labor and unemployment insurance laws related to Pac Anchor’s prices, routes, and services and were therefore preempted by the FAAAA.

The appellate court reversed the trial court’s decision, finding that the UCL was a law of general application that did not relate to Pac Anchor’s prices, routes or services and thus was not preempted by the FAAAA. The California Supreme Court affirmed the appellate court’s ruling, noting that there was no indication in the congressional record that Congress intended to prevent states from being able to tax motor carriers, enforce labor and wage standards, or to exempt motor carriers from generally applicable insurance laws. Harris v. Pac Anchor at 786. Pac Anchor then petitioned the U.S. Supreme Court for review.

On February 23, 2015, the U.S. Supreme Court denied Pac Anchor’s petition for writ of certiorari, declining to review the issue of whether California can enforce its employment laws against motor carriers by seeking injunctive relief under the UCL or whether the FAAAA preempts such action by the state.

The Supreme Court’s denial of review in Pac Anchor reinforces other rulings holding that the FAAAA does not preempt the enforcement of California labor laws. In Dilts v. Penske, the Ninth Circuit held that the FAAAA did not preempt the enforcement of California meal and rest break laws for truck drivers. Dilts at 650. In reaching this determination, the Ninth Circuit found that California’s meal and rest break laws are not “significantly related to” price rates, routes or services of the motor carrier and therefore are not the types of state laws Congress set out to preempt when enacting the FAAAA.

Thus, for the time being, motor carrier employers cannot rely on FAAAA preemption to help them circumvent California employment and insurance laws. These decisions do not mean the end of independent contractor relationships in the State of California, but they definitely put motor carrier employers on notice that if they do utilize independent contractor models, they must do so properly.

Authored by: 
Jamie Greene, Associate
CAPSTONE LAW APC