On May 3, 2019, in the case of Anthony Ayala vs. U.S. Xpress Enterprises, the U.S. Central District Court of California dismissed a California plaintiff’s meal and rest break claim on the basis of the FMCSA’s December 21, 2018 Order that preempted California’s meal and rest break laws as they apply to interstate drivers. Despite the plaintiff’s challenges, the court reasoned that it lacked authority to make any determination regarding the merits of the FMCSA’s decision, it could only enforce it.
The FMCSA’s December 21, 2018 Order determined that California’s meal and rest break laws 1) have no safety benefit beyond those already provided by the FMCSA; 2) are incompatible with federal hours of service rules; and 3) cause an unreasonable burden on interstate commerce. The Court in Ayala vs. U.S. Xpress held that the FMCSA’s Order is binding unless overturned by a federal appeals court. The Court further held that it has no jurisdiction to reverse the FMCSA Order and dismissed the Plaintiff’s meal rest break claims on that basis. Currently, there are four separate appeals filed in the U.S. Ninth Circuit Court of Appeals challenging the FMCSA’s Order.
The day after the Ninth Circuit Court of Appeals ruled that the California Supreme Court’s decision in Dynamex Operations West, Inc. vs. Superior Court applies retroactively, California’s Division of Labor Standards Enforcement (DLSE) released an opinion letter concluding that Dynamex’s ABC test applies to both IWC (Industrial Welfare Commission) Wage Order claims and certain Labor Code provisions that enforce Wage Order rules. The California Court of Appeals has ruled that the Dynamex ruling applies only to claims brought under the IWC Wage Orders, and the DLSE’s opinion letter seems to expand what that means.
While California state and federal courts are not bound by DLSE opinion letters (they could reach a different conclusion as to exactly which California Labor Code claims fall under Dynamex), the DLSE’s opinion letter reflects the way that agency will be interpreting Dynamex moving forward. This will impact all the employers who face DLSE wage claims where employees contend they were improperly classified as independent contractors.
In its opinion letter, the DLSE stated that, because wage order provisions are not independently actionable, “the obligations imposed by the wage orders do not appear only in the wage orders themselves. Wage order obligations are also imposed by certain Labor Code provisions, which serve to enforce the wage orders.” Therefore, the DLSE concluded that Labor Code provisions that implicate or “derive” from employer obligations under the IWC Wage Orders are also subject to Dynamex’s ABC test. The opinion letter specifically mentions the following Labor Code provisions: minimum wage (sections 1182.12 and 1197); overtime (sections 510 and 1194); liquidated damages (section 1194); meal and rest periods (sections 226.7 and 512); itemized wage statements (section 226); and expense reimbursement claims (section 2802).
With respect to waiting time penalties under Labor Code section 203, the DLSE said applying the ABC test to those claims would be appropriate “where section 203 serves to enforce the underlying minimum wage and overtime obligations of the wage orders.” The DLSE’s opinion letter shows the ever-expanding reach of California’s employee-friendly contractor classification test, and all California employers would be wise to examine their current driver classifications, if they have not done so already.
On Wednesday, May 29, 2019, California’s legislative Assembly passed AB 5, which seeks to codify the ABC Test set forth in last year’s Dynamex decision. While the legislation codifies the test set forth in that case as applied to Industrial Welfare Commission wage orders, it also expands the Dynamex ruling to apply to all of California’s Labor and Unemployment Insurance Codes. As currently drafted, the legislation specifically identifies several industries that are exempt from application of the Dynamex standard and would, instead, be subject to the pre-Dynamex test that was set forth in S.G. Borello & Sons, Inc. vs. Department of Industrial Relations.
Although the trucking industry is not included in the list of exempted industries, stakeholders continue to work with the legislation’s sponsor to establish a workable exemption for the trucking industry. The legislation will next be heard in the California Senate Labor Committee in late June.
Most companies are familiar with the great amount of publicity and litigation involving the classification of workers as employees or independent contractors. But companies may not be aware of a rarely publicized concern – the concern being that under the companies’ policies, employees may be entitled to various benefits, such as healthcare coverage and possibly retirement and other benefits. Thus, if a worker is determined to be an employee rather than a contractor, that company’s potential liability for employment benefits may be even larger than expected.
A closely watched case dealing with these issues is pending before the federal Sixth Circuit Court of Appeals in Jammal vs. American Family Insurance Company, No. 17-4125, Petition for Rehearing 2/26/19. A three-judge panel of the Sixth Circuit had determined that about 7,200 insurance agents were independent contractors not entitled to employment benefits, based on an analysis suggested by the factors set forth in the U.S. Supreme Court ruling in Nationwide Mutual Insurance Co. vs. Darden.
A lower court judge had ruled that the company was wrong to classify the agents as independent contractors, but the Sixth Circuit had reversed that decision. The plaintiff insurance agents want all the Sixth Circuit judges to rehear their case, giving them another opportunity to prevail. The determination of whether purported independent contractors might be found to be employees and thus covered by company benefit policies may be determined by contractual principles, often relying on criteria set forth in the relevant benefit plan documents.
Companies should be careful how these plan documents are drafted in order to lessen their exposure to this type of litigation. Further motivation for all employers to examine their current contractor relationships are announcements made in March that Swift Transportation has agreed to pay $100 million to end a long-standing suit alleging that it makes its workers “faux owner-operators” to avoid federal and state wage laws, and that Uber Technologies has agreed to pay $20 million to drivers to settle a lawsuit claiming the ride-hailing company misclassified those drivers as independent contractors. If you have any doubt whatsoever as to your company’s status with your independent contractors, you should contact your applicable association (or we at NTA at 800-805-0040) for help and guidance!