Saturday, January 18, 2020

ERISA Preemption Progeny Strike Again: Lower Federal Court Strikes AB-5 As Applied to Truck Drivers

The California Trucking Association has temporarily carved out an exception to applying the ABC test to truck drivers in California, who will continue to be stripped of important rights regardless the economic realities of their “contractor” arrangement. The route to this right-stripping is predictably circuitous. Because, according to a federal district court judge, a worker could never be found an independent contractor under the ABC test, use of that test violates the Federal Aviation and Administration Authorization Act of 1994 (“FAAAA”). Under that federal law, 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 . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). This is the theory on which the federal district court in San Diego, in the case California Trucking Association (CTA) v. Becerra, Download California_Trucking_Associati, 2020 WL 248993 granted a permanent injunction in favor of the CTA.

You may recognize the “relate to” phraseology. As the court acknowledges in its opinion, it is the same phrase that, under the Airline Deregulation Act, prevents states from enacting a law “relating to” air ambulance rates. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 386 (1992) (“a State . . . 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 an air carrier that may provide air transportation.”). Both statutes, in turn, admittedly pattern their language after the Employee Retirement Income Security Act of 1974. ( “the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . .”)  In the case of ERISA, early Supreme Court cases held, “Congress used the words ‘relate to’ in § 514(a) in their broad sense. To interpret § 514(a) to preempt only state laws specifically designed to affect employee benefit plans would be to ignore the remainder of § 514. It would have been unnecessary to exempt generally applicable state criminal statutes from preemption in § 514(b), for example, if § 514(a) applied only to state laws dealing specifically with ERISA plans.” The Court began to walk ERISA preemption back in the Travelers case. Justice Souter’s opinion  reemphasized that,

[D]espite the variety of these opportunities for federal preeminence, we have never assumed lightly that Congress has derogated state regulation, but instead have addressed claims of pre-emption with the starting presumption that Congress does not intend to supplant state law . . . Indeed . . . where federal law is said to bar state action in fields of traditional state regulation . . . we have worked on the "assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress."

The question in the context of the preemption provision of the FAAAA, and the Airline Deregulation Act for that matter, is, what traditional state law would not be preempted? As Justice Souter also presciently wrote,

If “relate to” were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes pre-emption would never run its course, for “[r]eally, universally, relations stop nowhere,” H. James, Roderick Hudson xli (New York ed., World's Classics 1980). But that, of course, would be to read Congress's words of limitation as mere sham, and to read the presumption against pre-emption out of the law whenever Congress speaks to the matter with generality. (Emphasis supplied).

A layperson might be inclined to dismiss the importance of the preemption of state law by federal law. After all, who really cares if state or federal law addresses a problem, as long as the problem is addressed. All-too-frequently however, in the case of these sweeping preemption provisions given virtually unchecked sway, substantive state law is supplanted by non-substantive federal law – a phenomenon I have referred to as “empty preemption.” It is not as if federal law with similar substantive provisions substitutes for state law. Rather, state law, even within traditional state spheres, is defeated utterly. Here, the state cannot regulate trucking substantively (as extremely broadly defined) but federal law provides no solution. Similarly, state workers’ compensation systems are prevented from taking measures to curtail unacceptably high air ambulance costs, but federal law contains no applicable alternative. And now, states are prevented from acting against “unreal” employment classification practices. Surely, one might think, there must be some federal resolution to the employment classification problem. After all, time and time again, the U.S. Supreme Court has instructed that common law definitions of employment be utilized where a federal statute is silent on the question. And the FAAAA is substantively silent on employee classification. The question then becomes, “whose” common law, and common law from which century?

Read closely, CTA v. Becerra, Download California_Trucking_Associati ,and some of the cases cited therein, seem on the one hand to say that Congress meant to preempt the traditional sphere of state definition of employee status (as an aside, a determination with important tort ramifications), and on the other to say that the problem is not with traditional state control (to which lip service is paid), but with the change in a state rule—not traditional enough?—which has upset settled business expectations because it makes establishment of employee status much more likely (See Becerra, slip op. at 6 citing California Trucking Association v. Su, 903 F.3d 953, 964 (9th Cir. 2018) (Borello test as applied to truckers not preempted by FAAAA), which I interpret as a back-door, due process challenge. There is much more to say, but I will close here by arguing that this is a major federalism case. The heretofore obscure progeny of ERISA preemption are about to be sorely tested. Though the U.S. Supreme Court has recently avoided review of 9th Circuit rebuff of aggressive California Trucking Association tactics, another such rebuff here (which I anticipate) may render these issues unavoidable.

Michael C. Duff

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