We are pleased to welcome Miles L. Kavaller to NTA as a regular contributor and consultant and are certain our members will benefit from his experience and expertise. Miles Kavaller was admitted to the New York Bar in 1972 and the California State Bar in 1977. He was employed by the Bureau of Enforcement of the Interstate Commerce Commission as a trial attorney and Assistant Regional Counsel from 1972 to 1977 in Washington, D.C., Chicago and Los Angeles. In 1977 he went into private practice, and in 1985 became a sole practitioner. Specializing in transportation law and litigation, Kavaller regularly practices in the Federal and State trial and appellate courts, litigating virtually any matter which arises in the transportation business. He routinely handles cargo claims and freight charge collections. He also has litigated trade secret protection, insurance and bad faith claims, employment law and various commercial disputes. In addition to litigation, Kavaller frequently counsels shippers, trucking firms and intermediaries (brokers, forwarders, 3 and 4 PLs) regarding FMCSA and California Highway Patrol requirements, carrier and warehouse liens under the UCC and federal law, liability for
payment of freight charges and cargo claims. Miles submitted this article for this month’s Wayne’s World, and it is information you need to know, from a very credible source.
On April 30, 2018, the California Supreme Court adopted a new test for classifying workers as independent contractors. While it could have at least recommended that the California Legislature examine the issues, this activist judicial body ironically adopted the requirements found in the statutes of Massachusetts and New Jersey. Under a case involving Dynamex, the California Supreme Court held as follows: “For the reasons explained hereafter, we conclude that in determining whether, under the suffer or permit to work definition, a worker is properly considered the type of independent contractor to whom the wage order does not apply, it is appropriate to look to a standard, commonly referred to as the “ABC” test, that is utilized in other jurisdictions in a variety of contexts to distinguish employees from independent contractors. Under this test, a worker is properly considered an independent contractor to whom a wage order does not apply only if the hiring entity establishes: (A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently-established trade, occupation, or business of the same nature as the work performed for the hiring entity.”
The decision was issued in a case involving Dynamex Operations West, Inc., a nationwide same-day courier and delivery service that operates several business centers in California, offers on-demand, same-day pickup and delivery services to the public, and also has a number of large business customers – including Office Depot and Home Depot. Although the question of whether the shipments delivered were, or could have been, transported in interstate commerce, was not raised or discussed. If a shipment originates out-of-state or out of the country and is transported into California, for example, and then from the port of Los Angeles or Long Beach to a destination in Los Angeles, it is said to be “in interstate of foreign commerce,” despite the fact that it never leaves the state. This is a very significant point, because federal transportation law regulates interstate transportation and interstate trucking – not the state.
A provision in the Federal Aviation Administration Authorization Act of 1994 found in 49 U.S.C. Section 14501 subdivision (c) (hereinafter referred to as “FAAAA preemption”) forbids states from enforcing their laws against interstate truckers and says: “(1) General rule. 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) or any private motor carrier, broker or freight forwarder, with respect to the transportation of property.”
Prong B of the California Supreme Court’s Dynamex ruling is likely to be found to be subject to FAAAA preemption. Part B would not permit an interstate trucking firm from contracting with an independent contractor trucker to transport cargo because that service would not be outside the usual course of the hiring entity’s business. A recent 9th Circuit Court of Appeals decision ruled that FAAAA preemption determined that the City of Los Angeles could not prohibit interstate trucking firms from using the services of independent contractor truckers. And a recent 1st Circuit Court of Appeals decision concluded that Part B of the ABC test was preempted by FAAAA preemption.
So, what should California truckers do? At this stage, a careful review of their use of independent contractor truckers is recommended. An owner operator is an independent business person and contracting with an independent business person means both sides bargain for the terms of the agreement. The fundamentals are: 1) the contractor owns his/her tractor; (2) the contractor knowingly and willingly signs a contract which is subject to the requirement in the regulations of the FMCSA; and (3) the contractor has the freedom to accept or reject any load assignments and transport loads for any other company.
The Dynamex ruling subjects employers who now use workers classified as independent contractors to examine those relationships under the ABC test and, if not satisfied, entitles those workers improperly classified to the benefits provided under the California Labor Code. The California Employment Development Department and Department of Industrial Relations will apply those guidelines to the cases brought before them. Other state agencies may do so, as well. Truckers can assert FAAAA preemption as a defense, and while these agencies have not been sympathetic to trucking firms, post-agency court review is available.
The Dynamex case has not been finalized and remains at the California Supreme Court. Petitions for reconsideration have been filed, asking for clarification as to whether the ruling is retroactive. The California Trucking Association (CTA) and others are also considering legal challenges to the court’s ruling. So, for now, the industry is basically in a “wait and see” mode, before enacting any major restructuring or changes. If you need or want further advice or guidance, please call NTA at (562) 279-0557.