Ninth Circuit Upholds California's Worker-Contractor Classification Law Against Federal Preemption

Steven D. Schwinn, University of Illinois Chicago School of Law

The Ninth Circuit ruled that the Federal Aviation Administration Authorization Act did not preempt California's law that classifies workers as either employees or independent contractors. The ruling means that the state law stays on the books.

The case is a win for workers, because employers are much more likely to have to treat their workers as "employees" under state law (with all the attendant benefits) rather than contractors.

The case splits with the First Circuit, which held in Schwann v. FedEx that the FAAAA did not preempt an identical Massachusetts law.

The case, California Trucking Association v. Bonta, arose when the CTA sued the state AG to halt to the state's enforcement of its "AB-5 test" for classifying workers as either employees or independent contractors. The AB-5 test says that workers are "employees," not independent contractors, "unless the hiring entity demonstrates that all of the following conditions are satisfied":

(A) the person is free from the control and direction of the hiring entity in connection with the performance of the work . . . . (B) The person performs work that is entirely outside the usual course of the hiring entity's business. (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

As compared to prior state law, the test leans heavily in favor of "employee," because it presumes a worker is an employee unless a "hiring entity" could establish all three parts of the test, one of which (part (B)) was previously only a factor (not a determinate element) in the analysis.

According to CTA, SB-5 would increase its members' costs "by as much as 150% or more," because they'd have to treat more workers as "employees."

CTA claimed that the FAAAA preempted SB-5. It pointed to the FAAAA's express preemption clause, which says that the federal act preempts any state law "related to a price, route, or service of any motor carrier . . . with respect to the transportation of property."

The Ninth Circuit rejected the claim. The court ruled that AB-5 applies across industries (and doesn't single out the trucking industry) and only affects the employment relation, not "a price, route, or service" (at least not directly).

Because AB-5 is a generally applicable law that impacts a motor carrier's business at the point where the motor carrier interacts with its workers, and the law affects motor carriers' relation with their workers in a manner analogous to the worker classification laws we have previously upheld . . . AB-5 is not significantly related to rates, routes, or services. Therefore, we conclude that the [FAAAA] does not preempt AB-5 as applied to motor carriers.

Judge Bennett dissented, arguing that "the majority's rule ignores the possibility [as here] that a state law might affect a motor carrier's relationship with its workforce and have a significant impact on that motor carrier's prices, routes, or services . . . ."