Cal. Trucking Ass'n v. Julie Su

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CALIFORNIA TRUCKING No. 17-55133

ASSOCIATION,

Plaintiff-Appellant, D.C. No.

CV 16-1866 CAB

v.

JULIE A. SU, OPINION

Defendant-Appellee.

Appeal from the United States District Court

for the Southern District of California

Cathy Ann Bencivengo, District Judge, Presiding

Argued and Submitted March 7, 2018

Pasadena, California

Filed September 10, 2018

Before: A. Wallace Tashima, Richard A. Paez,*

and Jacqueline H. Nguyen, Circuit Judges.

Opinion by Judge Tashima

*

Following the death of Judge Reinhardt, who originally was a

member of this panel, Judge Paez was randomly drawn to replace him. He

has read the briefs, reviewed the record, and listened to a recording of oral

argument.

2 CAL. TRUCKING ASS’N V. SU

SUMMARY**

Labor Law

The 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.

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. 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.

The 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.

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

CAL. TRUCKING ASS’N V. SU 3

COUNSEL

Adam Carl Smedstad (argued), Scopelitis Garvin Light

Hanson & Feary, PC, Chicago, Illinois, for Plaintiff-

Appellant.

Miles E. Locker (argued), Department of Industrial Relations,

California Division of Labor Standards Enforcement, San

Francisco, California, for Defendant-Appellee.

OPINION

TASHIMA, Circuit Judge:

The 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,1

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.

1

See generally S. G. Borello & Sons, Inc. v. Dep’t of Indus. Relations,

769 P.2d 399, 403–07 (Cal. 1989).

4 CAL. TRUCKING ASS’N V. SU

FACTUAL AND PROCEDURAL BACKGROUND2

Plaintiff-Appellant California Trucking Association

(“CTA”) is an association devoted to advancing the interests

of its motor carrier members.3 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 independent contractors.

2

We accept the factual allegations in CTA’s Complaint as true and

construe them in the light most favorable to CTA. Soo Park v. Thompson,

851 F.3d 910, 918 (9th Cir. 2017). We reject CTA’s contention that the

district court failed to do the same. The district court was not required to

accept the truth of any legal conclusions, Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009), and the district court’s summary of CTA’s legal arguments

does not, in any way, demonstrate that it applied an incorrect standard of

review.

3

“A ‘motor carrier’ is an individual, a partnership, or a corporation

engaged in the transportation of goods; those engaged in interstate

commerce are subject to, inter alia: Department of Transportation

regulations; the Motor Carrier Acts; and the Motor Carrier Safety Acts.”

Am. Trucking Ass’ns, Inc. v. City of Los Angeles, 559 F.3d 1046, 1049 n.4

(9th Cir. 2009) (“American Trucking”) (citations omitted).

CAL. TRUCKING ASS’N V. SU 5

CTA 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.

The 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

Complaint.

JURISDICTION AND STANDARD OF REVIEW

We have 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),

6 CAL. TRUCKING ASS’N V. SU

as well as a dismissal under Rule 12(b)(6), Soo Park,

851 F.3d at 918.

DISCUSSION

A. Background Principles

This 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.

1. The Borello Standard

In 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

CAL. TRUCKING ASS’N V. SU 7

(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 issue.” Id.

8 CAL. TRUCKING ASS’N V. SU

We have 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 Commissioner, in turn, seeks the power (as

with any other employer) to look behind the agreements and

apply the Borello standard to ensure that owner-operators are,

in fact, independent contractors.4

4

Shortly after argument in this case, the California Supreme Court

decided Dynamex, which addressed the classification of workers for

purposes of California wage orders. 416 P.3d at 4–7, 25–42. Dynamex

held that the “suffer or permit to work” definition of “employ” in a

particular wage order must be determined based on the “ABC” test – not

the Borello standard. See id. at 7, 40. Under the “ABC” test, a worker

must meet three, separate criteria to be considered an independent

contractor. See id. at 7, 36–40. One criteria (“B”) is “that the worker

performs work that is outside the usual course of the hiring entity’s

business.” Id. at 7, 37–38. Under Borello, this is one factor among many

– and not even the most important one. See 769 P.2d at 404.

We do not believe Dynamex has any impact here (nor have the parties

argued that it does). CTA seeks relief from California’s common law

definition of employee, as reflected in Borello. CTA has not alleged that

the Commissioner employs the “ABC” test, nor has it sought relief on this

basis. Moreover, Dynamex did not purport to replace the Borello standard

in every instance where a worker must be classified as either an

independent contractor or an employee for purposes of enforcing

California’s labor protections. See 416 P.3d at 7 n.5, 13, 29.

CAL. TRUCKING ASS’N V. SU 9

2. The FAAAA

The FAAAA expressly preempts certain state regulation

of intrastate motor carriage. 49 U.S.C. § 14501(c)(1). “In

considering the preemptive scope of a statute, congressional

intent is the ultimate touchstone.” Dilts, 769 F.3d at 642

(citation and internal quotation marks omitted). With express

preemption, “we focus first on the statutory language, which

necessarily contains the best evidence of Congress’ pre-

emptive intent.” Dan’s City Used Cars, Inc. v. Pelkey,

569 U.S. 251, 260 (2013) (citation and internal quotation

marks omitted). The FAAAA provides:

(c) Motor carriers of property.–(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 . . . with respect to the

transportation of property.

49 U.S.C. § 14501(c)(1). This language resembles that found

in the air carrier preemption provision of the Airline

Deregulation Act (“ADA”), except for the FAAAA’s

inclusion of the phrase, “with respect to the transportation of

property.” Compare id., with 49 U.S.C. § 41713(b)(1). ADA

preemption cases can therefore be consulted to analyze

10 CAL. TRUCKING ASS’N V. SU

FAAAA preemption. See Rowe v. N.H. Motor Transp. Ass’n,

552 U.S. 364, 370–71 (2008).5

In the context of the ADA and FAAAA, “[t]he phrase

‘related to’ embraces state laws ‘having a connection with or

reference to’ carrier ‘rates, routes, or services,’ whether

directly or indirectly.” Dan’s City, 569 U.S. at 260 (quoting

Rowe, 552 U.S. at 370). While “related to” preemption is

broad, this “does not mean the sky is the limit,” or else “pre-

emption would never run its course.” Id. (citation and

internal quotation marks omitted). Thus, the FAAAA does

not preempt state laws that affect a carrier’s prices, routes, or

services in only a “tenuous, remote, or peripheral . . . manner”

with no significant impact on Congress’s deregulatory

objectives. Rowe, 552 U.S. at 371 (quoting Morales v. Trans

World Airlines, Inc., 504 U.S. 374, 390 (1992)) (alteration in

original). Our task, then, is to discern on which side of the

line the Borello standard falls: a forbidden law that

significantly impacts a carrier’s prices, routes, or services; or,

a permissible one that has only a tenuous, remote, or

peripheral connection. Dilts, 769 F.3d at 643.

Because this task has nuance, we may “turn . . . to the

legislative history and broader statutory framework of the

FAAAA” to better glean Congress’ intent. Id. We have

previously recounted the FAAAA’s history and purpose in

detail, so, for our purposes here, it is sufficient to note that

Congress passed the FAAAA to achieve two broad goals. See

Californians For Safe & Competitive Dump Truck Transp. v.

Mendonca, 152 F.3d 1184, 1187 (9th Cir. 1998). First, it

5

The Commissioner does not dispute that the transportation of

property is involved here, and so we focus on the “related to a price, route,

or service” element of FAAAA preemption.

CAL. TRUCKING ASS’N V. SU 11

aimed “to even the playing field between air carriers and

motor carriers.” Id. (citation and internal quotation marks

omitted). Prior decisions applied ADA preemption to

regulations of air carriers, but not motor carriers, which gave

air carriers a competitive advantage. Id. The FAAAA was an

attempt at “parity.” Dilts, 769 F.3d at 644. Second, Congress

believed deregulation would address the inefficiencies, lack

of innovation, and lack of competition caused by non-uniform

state regulations of motor carriers. Mendonca, 152 F.3d at

1187. We have described this as the FAAAA’s “principal

purpose,” namely, “prevent[ing] States from undermining

federal deregulation of interstate trucking through a

patchwork of state regulations” – with Congress particularly

concerned about States enacting “barriers to entry, tariffs,

price regulations, and laws governing the types of

commodities that a carrier could transport.” Dilts, 769 F.3d

at 644 (citations and internal quotation marks omitted).

We have also detailed what was not intended by the

FAAAA. “Congress did not intend to preempt generally

applicable state transportation, safety, welfare, or business

rules that do not otherwise regulate prices, routes, or

services.” Id. Rather, its “driving concern” was preventing

States from replacing market forces with their own, varied

commands, like telling carriers they had to provide services

not yet offered in the marketplace. See Dan’s City, 569 U.S.

at 263–64. Thus, when assessing preemption, we are

cognizant that, “[a]lthough Congress clearly intended

FAAAA to preempt some state regulations of motor carriers

who transport property, the scope of the pre-emption must be

tempered by the presumption against the pre-emption of state

police power regulations.” Dilts, 769 F.3d at 643 (citation

omitted). To this end, we have held that Congress did not

intend to preempt laws that implement California’s traditional

12 CAL. TRUCKING ASS’N V. SU

labor protection powers, and which affect carriers’ rates,

routes, or services in only tenuous ways. Dilts, 769 F.3d at

647–50 (meal and rest break laws); Mendonca, 152 F.3d at

1189 (prevailing wage law).

B. The FAAAA Does Not Preempt the Borello Standard

With our task and that background in mind, we turn to

assessing whether the Commissioner’s use of the Borello

standard has significant, and therefore preempted, impact or

only tenuous impact on a carrier’s prices, routes or service.

Relying heavily on Supreme Court precedent, CTA contends

that the FAAAA preempts the Borello standard because the

Commissioner’s use of it can replace freely-bargained,

efficiency-driven contract terms with California’s policy

judgment about what those terms ought to be.

True, the Supreme Court has held state laws preempted

when a customer invokes them to obtain certain rates or

services beyond what was set forth in their contract with a

carrier. See generally Northwest, Inc. v. Ginsberg, 572 U.S.

273, 134 S. Ct. 1422 (2014); Am. Airlines, Inc. v. Wolens,

513 U.S. 219 (1995). However, those cases did not announce

a broad rule that preemption occurs whenever a state law

touches any aspect of a carrier’s contractual relationship with

anyone. Instead, we have made clear that those cases are

inapplicable, and so no preemption occurs, when the law is a

generally applicable background regulation in an area of

traditional state power that has no significant impact on a

carrier’s prices, routes, or services. See Dilts, 769 F.3d at

642–50; Mendonca, 152 F.3d at 1185–89. Despite CTA’s

arguments to the contrary, Dilts and Mendonca compel us to

conclude that the Borello standard is not preempted. And this

CAL. TRUCKING ASS’N V. SU 13

conclusion finds support in the FAAAA’s legislative history,

as well as the California Supreme Court’s view of the matter.

1. Interference with Customer Contracts at the Point

of Sale

We begin with the Supreme Court decisions holding

preempted state laws that interfered with a carrier’s

contractual relationship with its customers – on which CTA

heavily relies. See Ginsberg, 134 S. Ct. at 1428–33; Wolens,

513 U.S. at 226–34. These cases did not announce a rule that

preemption occurs whenever a state law effectively alters

freely-negotiated contract terms; the preemption issues they

addressed were, instead, quite distinct from the issue here.

In both Ginsberg and Wolens, customers objected to

changes that an airline made to its “frequent flyer” program.

Ginsberg, 134 S. Ct. at 1426–27 (objecting to being kicked

out of frequent flyer program); Wolens, 513 U.S. at 224–25

(objecting to retroactive changes that devalued frequent flyer

credits). The customers pointed to state laws, arguing that

these laws compelled the air carrier to provide specific prices

or services – like making flights or upgrades available on

certain dates or for certain credit amounts – even if such

obligations were absent from the parties’ agreements.

Ginsberg, 134 S. Ct. at 1431–33 (addressing a claim for

breach of the covenant of good faith and fair dealing);

Wolens, 513 U.S. at 226–27 (reviewing a consumer fraud act

claim). In both cases, the Supreme Court held that the

FAAAA preempted these state law claims because they

would have resulted in a State’s normative policies dictating

what prices and services an airline had to offer to its

customers. Ginsberg, 134 S. Ct. at 1431–33; Wolens,

14 CAL. TRUCKING ASS’N V. SU

513 U.S. at 227–28.6 Customers’ breach of contract claims

that sought merely to hold an airline to agreed-upon terms,

however, were not preempted. Wolens, 513 U.S. at 230–33.

CTA emphasizes that the line drawn is “between what the

State dictates and what the [carrier] itself undertakes.”

Wolens, 513 U.S. at 233. As explained in Wolens, a breach

of contract claim against a carrier is cognizable because it

enforces only the latter “with no enlargement or enhancement

based on state laws or policies external to the agreement.”

Id.; see also id. at 228–29 & n.5. Moreover, permitting such

claims against carriers aligns with the ADA’s goal of

promoting reliance on market forces because “[m]arket

efficiency requires effective means to enforce private

agreements.” Id. at 230. CTA urges us to focus on the fact

that the Borello standard could replace efficiency-driven

terms in its members’ contracts with external ones found in

California’s labor laws (e.g., sua sponte reallocating

responsibility for truck maintenance costs from owner-

operators to carriers).

CTA’s focus on this delineation in the broadest sense

misses the trees for the forest – and does not square with our

task of assessing whether Congress clearly intended to

preempt Borello by analyzing its effect on prices, routes, and

services. It is one thing to say market efficiencies are

promoted when competitive forces compel a carrier to offer

6

The results in Wolens and Ginsberg flowed logically from Morales,

which held that the ADA preempted States from using their general

consumer protection statutes to combat deceptive airline advertisements.

See 504 U.S. at 387–91. The States sought to use those statutes to enforce

guidelines that mandated the content of airfare advertisements, and the

prices and services an airline had to make available once it advertised

certain fares. See id.

CAL. TRUCKING ASS’N V. SU 15

certain services or prices, and a customer can then enforce

these promises – but only these promises. See Hickcox-

Huffman v. US Airways, Inc., 855 F.3d 1057, 1066 (9th Cir.

2017) (ruling that the ADA did not preempt breach of

contract claim where airline freely undertook obligation to

offer timely delivery of baggage). It does not follow that a

state law will be preempted in every instance where it defeats

any term in any carrier contract. Even if Wolens and

Ginsberg draw a line between the permissible enforcement of

contractual terms and the preempted enforcement of

normative policies, that line does not control when the

contractual relationship is between a carrier and its

workforce, and the impact is on the protections afforded to

that workforce.

2. Impacting Workforce Arrangements

Indeed, we have already explained that the details of

Wolens and Ginsberg matter because Congress did not intend

to hinder States from imposing normative policies on motor

carriers as employers. See Dilts, 769 F.3d at 642–50;

Mendonca. 152 F.3d at 1187–89. And Dilts and Mendonca

all but dictate the result here.7

Mendonca held that California’s Prevailing Wage Law

(CPWL) is not preempted, 152 F.3d at 1187–89, and Dilts

later held that California’s meal and rest break requirements

are not preempted, 769 F.3d at 642–50. In effect, the laws at-

issue in these cases compelled new terms in motor carriers’

agreements with their workers. To be sure, in Dilts and

7

Mendonca was decided between Wolens and Ginsberg; Dilts was

decided after both, and confirmed Mendonca’s continued vitality.

769 F.3d at 645.

16 CAL. TRUCKING ASS’N V. SU

Mendonca there was no dispute that the workers were

employees. Still, we permitted California to interfere with

the relationship between a motor carrier and its workforce.

Dilts explicitly distinguished Wolens and Ginsberg based on

where and how this interference occurs:

Laws are more likely to be preempted when

they operate at the point where carriers

provide services to customers at specific

prices.

...

On the other hand, generally applicable

background regulations that are several steps

removed from prices, routes, or services, such

as prevailing wage laws or safety regulations,

are not preempted, even if employers must

factor those provisions into their decisions

about the prices that they set, the routes that

they use, or the services that they provide.

Such laws are not preempted even if they raise

the overall cost of doing business or require a

carrier to re-direct or reroute some

equipment. . . . Nearly every form of state

regulation carries some cost. The statutory

text tells us, though, that in deregulating

motor carriers and promoting maximum

reliance on market forces, Congress did not

intend to exempt motor carriers from every

state regulatory scheme of general

applicability.

CAL. TRUCKING ASS’N V. SU 17

769 F.3d at 646 (citations omitted). We agree with the

Commissioner that, in light of Dilts and Mendonca, CTA’s

position “defies logic.” Our conclusion that Congress did not

intend to preempt these generally applicable labor laws could

be nullified if motor carriers have the unchecked ability to

contract around these laws simply by obtaining owner-

operators’ consent to label them as independent contractors

and thus exclude them from such protections.8

Similarly instructive is Air Transport Ass’n of America

v. City and County of San Francisco, 266 F.3d 1064, 1070–75

(9th Cir. 2001), where we concluded that the ADA did not

preempt a San Francisco ordinance barring city contractors

from discriminating, even though it affected air carriers at

San Francisco International Airport and could have increased

their cost of doing business at that airport. The ordinance had

the effect of “adding a contractual requirement” that

interfered with an air carrier’s relationship with its workforce

because, for example, if it offered certain terms to an

employee’s spouse, it was compelled to provide the same

benefits to another employee’s domestic partner. Id. at 1069,

1073. What mattered, however, was that the ordinance did

not constitute improper compulsion in the preemption sense.

Id. at 1074. As we framed the inquiry there, “[t]he question

is not whether the Ordinance compels or binds them into not

discriminating; the question is whether the Ordinance

compels or binds them to a particular price, route or service.”

Id.

8

For example, CTA does not refute the Commissioner’s claim that

the Labor Code prevents an employee from waiving rest breaks or the

right to be reimbursed for business expenses. See Cal. Labor Code

§§ 219, 1194, 2804.

18 CAL. TRUCKING ASS’N V. SU

3. The Borello Standard’s Impact on Workforce

Arrangements

CTA contends that, nonetheless, if we look at the specific

effects the Borello standard has on its members here, we will

see that there is improper compulsion in the preemption

sense. We reject this contention because the Borello standard

does not compel the use of employees or independent

contractors; instead, at most, it impacts CTA’s members in

ways that Dilts and Mendonca make clear are not significant,

and so do not warrant preemption.

a. Compelling Who Provides Services

CTA argues that a state law or policy compelling a carrier

to use employees to provide its services is preempted. Even

so, the Borello standard does not, by its terms, compel a

carrier to use an employee or an independent contractor. Nor

does CTA contend that the nature of the Borello standard

compels the use of employees to provide certain carriage

services.

This case is therefore wholly different from American

Trucking. See 559 F.3d at 1053–57. There, in reversing the

denial of a preliminary injunction, we concluded that the

FAAAA likely preempted the Ports of Los Angeles and Long

Beach’s directive that carriers must use only employee

drivers and give hiring preference to drivers with more

experience. Id. As compared to the Borello standard, which

sets a background rule for ensuring a driver is correctly

classified, American Trucking stands for the obvious

proposition that an “all or nothing” rule requiring services be

performed by certain types of employee drivers and

CAL. TRUCKING ASS’N V. SU 19

motivated by a State’s own efficiency and environmental

goals was likely preempted. Id. at 1053–56.

For similar reasons, it is immaterial that other States have

adopted the “ABC” test to classify workers, the application of

which courts have then held to be preempted. See Schwann

v. FedEx Ground Package Sys., Inc., 813 F.3d 429, 437–40

(1st Cir. 2016) (analyzing Massachusetts law). Like

American Trucking, the “ABC” test may effectively compel

a motor carrier to use employees for certain services because,

under the “ABC” test, a worker providing a service within an

employer’s usual course of business will never be considered

an independent contractor. Id at 438. For a motor carrier

company, this means it may be difficult to classify drivers

providing carriage services as independent contractors. Id. at

439. But California’s common law test – as embodied in the

Borello standard – is to the contrary. Whether the work fits

within the usual course of an employer’s business is one

factor among many – and not even the most important one.

See Borello, 769 P.2d at 404.9 CTA has not alleged or shown

how the Borello standard makes it difficult for its members to

use independent contractors to provide their services.

9

The First Circuit left in place the two other “prongs” of the “ABC”

test, which align more closely with the Borello standard. See 813 F.3d at

433, 441 (classification depends on level of control and whether individual

is regularly engaged in service being provided). The carrier in that case

did not argue that those elements of the “ABC” test were preempted. See

id. at 441. As previously discussed, we need not and do not decide

whether the FAAAA would preempt using the “ABC” test to enforce labor

protections under California law. See footnote 4 supra.

20 CAL. TRUCKING ASS’N V. SU

b. Compelling or Foreclosing Prices, Routes, or

Services

CTA also argues for preemption because of the potential

impact on a motor carriers’ financial arrangements with its

drivers and their agreed-upon incentives; again, Dilts and

Mendonca foreclose these arguments.

Specifically, CTA complains that, whereas owner-

operators often control how their trucks are used and can

accept or reject hauls offered by the carriers they are working

with, an employee driver must accept a haul or face

termination. In the relevant agreements, owner-operators are

also responsible for expenses like maintenance, repair,

parking, and fueling and then compensated at an agreed-upon

rate; however, California law requires motor carriers to

reimburse employee drivers for these expenses.

In Mendonca, we rejected similar arguments that CPWL

was preempted because it would increase a carrier’s prices by

25%, require it to change how it offered these services (e.g.,

using independent owner-operators), and compel it to redirect

and reroute equipment to compensate for lost revenue.

152 F.3d at 1189. Mendonca acknowledged that CPWL

related to prices, routes, and services “in a certain sense,” but

relied on the Supreme Court’s efforts in this arena “to

preserve the proper and legitimate balance between federal

and state authority.” Id. Because CPWL was an area of

traditional state regulation that did not “acutely interfer[e]

with the forces of competition,” it was not preempted. Id.

The question in Dilts was whether meal and rest break

laws – either directly or indirectly – set prices, mandated or

prohibited certain routes, or told motor carriers what services

CAL. TRUCKING ASS’N V. SU 21

they could or could not provide. 769 F.3d at 647. The

answer was no. Id. at 647–50. Dilts recognized that a motor

carrier may have to hire more workers in order to stagger

breaks and operate continuously. Id. at 648. Rest breaks

could also result in drivers taking longer to travel the same

distance, meaning motor carriers would need to reallocate

resources or face increased costs, like hiring more drivers, to

maintain a particular service level. Id. And motor carriers

would need to take drivers’ breaks into consideration when

scheduling services. Id. There still was no preemption –

even though motor carriers would have to arrange operations

and services based on what the law requires, and not only on

what the market demands. See id. at 648–50.

The specific effects CTA discusses – such as reallocation

of truck maintenance costs and a potential change in who sets

drivers’ hours – are indistinguishable from those recognized

as permissible in Dilts and Mendonca. There is no allegation

that if a current driver is found to be an employee, CTA’s

members will no longer be able to provide the service it was

once providing through that driver, or that the route or price

of that service will be compelled to change. At most, carriers

will face modest increases in business costs, or will have to

take the Borello standard and its impact on labor laws into

account when arranging operations. “[T]he mere fact that a

motor carrier must take into account a state regulation when

planning services is not sufficient to require FAAAA

preemption, so long as the law does not have an

impermissible effect, such as binding motor carriers to

specific services, making the continued provision of

particular services essential to compliance with the law, or

interfering at the point that a carrier provides services to its

customers.” Dilts, 769 F.3d at 649 (citations omitted).

22 CAL. TRUCKING ASS’N V. SU

Nothing in CTA’s Complaint suggests that application of the

Borello standard will have these effects.

c. Generally Applicable Labor Protections

Rather than explain why Dilts and Mendonca do not

control, CTA attempts to undercut their reasoning by arguing

that it is improper to focus on the fact that the Borello

standard applies across all industries in an area traditionally

reserved to the States. The laws at issue in Dilts and

Mendonca involved generally applicable labor protections,

i.e., an area of traditional state power, and this factor was

critical in these cases – as it is here. See, e.g., Dilts, 769 F.3d

at 642–43. Aside from the fact that we are bound by Dilts

and Mendonca, CTA’s argument is also unavailing because

it misapprehends the authority on which it relies. See Rowe,

552 U.S. at 374; see also Morales, 504 U.S. at 386.

In Rowe, carriers hauling tobacco products risked liability

under a Maine law unless they provided certain receipt and

delivery verification services, like ensuring that the individual

who purchased and received the tobacco was of legal age and

that entities sending packages marked as containing tobacco

were Maine-licensed tobacco retailers. 552 U.S. at 368–69,

372–73. Rowe reflects a straightforward application of

FAAAA preemption: Maine could not require motor carriers

to provide these tobacco-focused carriage services, which

carriers may not have provided – or may have gotten rid of –

if left unregulated. Id. at 372–73. In so holding, Rowe

rejected Maine’s argument that the importance of preventing

underage smoking and promoting public health justified an

exception to FAAAA preemption. Id. at 374–76. As Dilts

observed, a law reflecting a State’s traditional police power

will not be immune from preemption “if Congress in fact

CAL. TRUCKING ASS’N V. SU 23

contemplated [its] preemption.” 769 F.3d at 643; accord

Gobeille v. Liberty Mut. Ins. Co., 136 S. Ct. 936, 946 (2016).

The Commissioner, however, is not seeking an exception

to preemption; she argues there is no preemption in the first

place because there is no clear intent to usurp the well-

established test for triggering a State’s traditional labor

protection powers. In Rowe, Maine targeted only the carriage

of tobacco products, enlisting motor carriers to accomplish its

public health goals by telling carriers how to complete

tobacco pick-up and delivery within that State. Id. at 373–75.

To the contrary, the Borello standard is more comparable to

a state regulation that Rowe described as not preempted,

namely, one that “broadly prohibits certain forms of conduct

and affects, say, truckdrivers, only in their capacity as

members of the public . . . .” 552 U.S. at 375.

This is not to say that the general applicability of a law is,

in and of itself, sufficient to show it is not preempted. See

Morales, 504 U.S. at 386. While general applicability is not

dispositive, Dilts and Rowe still instruct that it is a relevant

consideration because it will likely influence whether the

effect on prices, routes, and services is tenuous or significant.

What matters is not solely that the law is generally applicable,

but where in the chain of a motor carrier’s business it is

acting to compel a certain result (e.g., consumer or

workforce) and what result it is compelling (e.g., a certain

wage, non-discrimination, a specific system of delivery, a

specific person to perform the delivery). As we have already

detailed, CTA’s Complaint is devoid of any allegations that

could demonstrate that the Commissioner’s application of the

Borello standard, in any significant way, impacts its

members’ prices, routes, or services.

24 CAL. TRUCKING ASS’N V. SU

4. Historical Context and Preemption in the Present

Our conclusion today brings us in accord with the

California Supreme Court – and, as that court discussed,

Congress’ intent for the FAAAA’s preemptive reach. See

generally People ex rel. Harris v. Pac Anchor Transp., Inc.,

329 P.3d 180 (Cal. 2014).

Pac Anchor held that the FAAAA did not preempt a claim

under California’s Unfair Competition Law (“UCL”), Cal.

Bus. & Prof. Code § 17200 et seq., premised on drivers being

misclassified as independent contractors. Id. at 187–90. As

with the Commissioner’s use of the Borello standard, the

UCL claim sought only “to ensure that employers properly

classify their employees or independent contractors in order

to conform to state law.” Id. at 190.

Pac Anchor relied on Mendonca’s discussion of indirect

evidence of Congress’ intent, which we find persuasive. See

id. When enacting the FAAAA, Congress identified ten

jurisdictions (nine States and the District of Columbia

(“States”)) that did not regulate intrastate prices, routes, and

services. See Mendonca, 152 F.3d at 1187 (citing H.R. Conf.

Rep. 103-677, at 86 (1994), reprinted in 1994 U.S.C.C.A.N.

1715, 1758). Because seven of these ten States had

prevailing wage laws similar to CPWL, this was “indirect

evidence” Congress did not intend to preempt that law –

which was reinforced by the fact that there was no “positive

indication in the legislative history that Congress intended

CAL. TRUCKING ASS’N V. SU 25

preemption in this area of traditional state power.” Id. at

1187–88.10

As relevant here, eight out of the ten States that Congress

initially identified had laws for differentiating between an

employee and an independent contractor. Pac Anchor,

329 P.3d at 190. Moreover, nothing in the FAAAA’s

legislative history indicated that Congress intended to

preempt the traditional power to protect employees or the

necessary precursor to that power, i.e., identifying who is

protected. See id. This indirect evidence provides further

support that Congress did not intend to foreclose States from

applying common law tests to discern who is entitled to

generally applicable labor protections.11 For these additional

reasons, then, we conclude that the FAAAA does not bar the

Commissioner’s application of the Borello standard to claims

within her jurisdiction involving motor carriers.

CONCLUSION

The FAAAA does not preempt the Commissioner from

using the Borello standard with respect to motor carriers

10

While Rowe discredited reliance on this type of evidence of indirect

intent, it did so in the context of rejecting a public health exception for

Maine’s law that directly regulated carrier services. 552 U.S. at 374–75.

Such an exception would have been contrary to the FAAAA’s purpose of

avoiding “a patchwork of state service-determining laws” regulating how

to carry certain products. Id. at 373–75. Again, the Commissioner is not

arguing for an exception. And Dilts confirmed that Rowe did not call

Mendonca into question. 769 F.3d at 645.

11

Even if the relevant tests vary across States, Dilts instructs that this

would be a “permissible” patchwork under the FAAAA. See 769 F.3d at

647–48 & n.2.

26 CAL. TRUCKING ASS’N V. SU

because this generally applicable, common law test is not

“related to” motor carriers’ prices, routes, or services.

Accordingly, we affirm the district court’s order of dismissal.

AFFIRMED.