and Submitted March 7, 2018 Pasadena, California
from the United States District Court No. CV 16-1866 CAB for
the Southern District of California Cathy Ann Bencivengo,
District Judge, Presiding
Carl Smedstad (argued), Scopelitis Garvin Light Hanson &
Feary, PC, Chicago, Illinois, for Plaintiff-Appellant.
E. Locker (argued), Department of Industrial Relations,
California Division of Labor Standards Enforcement, San
Francisco, California, for Defendant-Appellee.
Before: A. Wallace Tashima, Richard A. Paez, [*] and Jacqueline H.
Nguyen, Circuit Judges.
panel affirmed the district court's dismissal of an
action seeking declaratory and injunctive relief regarding
the Labor Commissioner of the State of California Department
of Industrial Relations' use of a common law test, often
referred to as the Borello standard, to determine
whether a motor carrier has properly classified its drivers
as independent contractors.
pursuant to the Borello standard impact what
benefits workers are entitled to under the State's labor
laws and the corresponding burdens placed on the entities
that hire them. California Trucking Association, an
association of licensed motor carriers, alleged that its
"owner-operator" drivers were independent
contractors, rather than employees. CTA alleged that the
Commissioner's application of the Borello
standard disrupted the contractual arrangements between
owner-operators and motor carriers, which introduced
inefficiencies into the transportation services market and
was inconsistent with Congress's deregulatory goals under
the Federal Aviation Administration Authorization Act.
panel held that the Borello standard, a generally
applicable test used in a traditional area of state
regulation, is not "related to" prices, routes, or
services, and therefore is not preempted by the FAAAA.
TASHIMA, Circuit Judge.
issue in this case is whether the Federal Aviation
Administration Authorization Act of 1994 ("FAAAA")
preempts the California Labor Commissioner's use of a
common law test, often referred to as the Borello
standard, to determine whether a motor carrier has
properly classified its drivers as independent contractors.
Classifications pursuant to the Borello standard
impact what benefits workers are entitled to under the
State's labor laws and the corresponding burdens placed
on the entities that hire them. We hold that the
Borello standard, a generally applicable test used
in a traditional area of state regulation, is not
"related to" prices, routes, or services, and
therefore is not preempted. By the FAAAA Accordingly, we
affirm the district court.
AND PROCEDURAL BACKGROUND
California Trucking Association ("CTA") is an
association devoted to advancing the interests of its motor
carrier members. CTA members are licensed motor carrier
companies that manage, coordinate, and schedule the movement
of property throughout California in interstate commerce.
Based on factors such as efficiency and market demand, CTA
members use either "company drivers" or
"owner-operators" to haul freight. As expected,
"company drivers" haul freight using trucks that
are owned by the motor carrier; "owner-operators"
use their own trucks. When CTA members use owner-operators,
the parties enter into contracts providing, generally, that
the owner-operators: (1) must provide the truck and a
qualified driver to haul the freight; (2) must be responsible
for operating expenses like truck maintenance, repair, and
refueling; (3) will, in turn, have control over whether and
how to perform a haul; and (4) will then be paid at an
agreed-upon rate. CTA alleges that owner-operators are
filed suit against Defendant-Appellee Julie Su in her
official capacity as Labor Commissioner of the State of
California Department of Industrial Relations (the
"Commissioner"). The Commissioner is responsible
for enforcing the California Labor Code, which affords
certain benefits and protections to workers who qualify as
employees. As with any other industry, the Commissioner
applies the Borello standard to assess
owner-operators' claims that they have been misclassified
as independent contractors and so denied certain benefits
under the Labor Code. CTA alleges the Commissioner's
application of the Borello standard disrupts the
contractual arrangements between owner-operators and motor
carriers, which introduces inefficiencies into the
transportation services market and is inconsistent with
Congress' deregulatory goals under the FAAAA. CTA
therefore seeks a declaration that the FAAAA preempts the
Commissioner's application of the Borello
standard to disrupt these contracts, and corresponding
injunctive relief barring the Commissioner from applying the
Borello standard to motor carriers.
Commissioner moved to dismiss CTA's Complaint under
Federal Rule of Civil Procedure 12(b)(6). The district court
granted the motion, concluding that the Borello
standard used by the Commissioner was not preempted under the
FAAAA. The district court denied CTA's motion for
reconsideration, and CTA timely appealed the dismissal of its
AND STANDARD OF REVIEW
jurisdiction under 28 U.S.C. § 1291. We review de novo a
district court's decision regarding preemption, Dilts
v. Penske Logistics, LLC, 769 F.3d 637, 640 (9th Cir.
2014), as well as a dismissal under Rule 12(b)(6), Soo
Park, 851 F.3d at 918.
case involves a purported clash between a common law test
used to enforce California's labor laws and a federal
statute aimed at preventing States from undermining federal
deregulation of interstate transport. We provide a brief
overview of each, before explaining why the latter does not
preempt the former.
Borello, the California Supreme Court discussed at
length the common law test for determining whether a worker
is an employee or an independent contractor. See 769
P.2d at 403-07; see also Dynamex Operations W. v.
Superior Court, 416 P.3d 1, 15 (Cal. 2018) (describing
Borello as "the seminal California decision on
this subject"). "Under the common law,
"'[t]he principal test of an employment relationship
is whether the person to whom service is rendered has the
right to control the manner and means of accomplishing the
result desired."'" Ayala v. Antelope Valley
Newspapers, Inc., 327 P.3d 165, 171 (Cal. 2014) (quoting
Borello, 769 P.2d at 404). "Perhaps the
strongest evidence of the right to control is whether the
hirer can discharge the worker without cause . . . ."
Id. Aside from the right to control, courts also
consider a list of "secondary indicia" that inform
the task of classifying workers. See id. Drawn from
the Restatement Second of Agency, these include
(a) whether the one performing services is engaged in a
distinct occupation or business; (b)the kind of occupation,
with reference to whether, in the locality, the work is
usually done under the direction of the principal or by a
specialist without supervision; (c) the skill required in the
particular occupation; (d) whether the principal or the
worker supplies the instrumentalities, tools, and the place
of work for the person doing the work; (e)the length of time
for which the services are to be performed; (f) the method of
payment, whether by the time or by the job; (g) whether or
not the work is a part of the regular business of the
principal; and (h) whether or not the parties believe they
are creating the relationship of employer-employee.
Borello, 769 P.2d at 404. The Borello
standard is neither mechanical nor inflexible; different
cases can and do demand focus on different factors. See
id. While an affirmative agreement to classify a
particular worker one way or another may be considered, it
"is not dispositive, and subterfuges are not
countenanced." Id. at 403. Instead, the
Borello standard is applied with an eye towards the
purpose of the remedial statute being enforced.
Dynamex, 416 P.3d at 19-20. "In other words,
Borello calls for the application of a statutory
purpose standard that considers the control of details
and other potentially relevant factors identified in prior
California and out-of-state cases in order to determine which
classification . . . best effectuates the underlying
legislative intent and objective of the statutory scheme at
applied the Borello standard when assessing
misclassification claims in the motor carriage industry.
See, e.g., Narayan v. EGL, Inc., 616 F.3d
895, 900-04 (9th Cir. 2010). Relevant here, the Commissioner
applies the Borello standard when adjudicating and
enforcing claims within her jurisdiction. If she were to
determine that, under Borello, certain
owner-operators are employees of a motor carrier, this could
result in obligations under the California Labor Code that
are inconsistent with the parties' contractual
arrangements (e.g., who is responsible for truck
maintenance expenses). CTA contends the FAAAA thus compels
the Commissioner and courts to accept the parties'
agreements at face value. The ...