Petition for Writ of Certiorari — Gulick Trucking, Inc., Petitioner v. Washington State Employment Security Department

Supreme Court briefOct 10, 2018

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No. 18In the

Supreme Court of the United States

GULICK TRUCKING, INC., AN OREGON

CORPORATION,

Petitioner,

STATE OF WASHINGTON EMPLOYMENT

SECURITY DEPARTMENT,

Respondent.

On Petition for a Writ of Certiorari to the Court of

A ppeals of the State of Washington, Division II

PETITION FOR A WRIT OF CERTIORARI

A aron Riensche

Ogden Murphy

Wallace, P.L.L.C.

901 Fifth Avenue, Suite 3500

Seattle, WA 98164

(206) 447-7000

Philip A. Talmadge

Counsel of Record

Talmadge/Fitzpatrick /Tribe

2775 Harbor Avenue SW

Third Floor, Suite C

Seattle, WA 98126

(206) 574-6661

phil@tal-fitzlaw.com

Attorneys for Petitioner

283945

(800) 274-3321 • (800) 359-6859

QUESTIONS PRESENTED

1. The Federal Aviation Administration Authorization

Act, 49 U.S.C. § 14501(c)(1), (“FAAAA”) broadly preempts

any state action that relates even indirectly to a carrier’s

prices, routes, or services. Washington State’s statute

defining independent contractors for unemployment

compensation taxes, Wash. Rev. Code § 50.04.140, makes

it impossible for such federally-authorized independent

contractors in the trucking industry (owner/operators)

to ever be anything but trucking carriers’ employees.

Such a reclassification eliminates an established business

model in that industry. Is such a reclassification scheme

preempted by the FAAAA, given its direct and indirect

effects on prices, routes, and services of trucking carriers?

2. 49 C.F.R. § 376.12 regulates the relationship

between tr ucking car r iers and ow ner/operators,

specifically providing in C.F.R. § 376.12(c)(4) that

compliance with the federal requirement of exclusive

carrier possession, control, and use of owner/operator

equipment during the duration of the parties’ equipment

lease may not affect whether an owner/operator is an

employee or independent contractor under state law.

Are courts barred from considering federally-mandated

lease contract provisions in determining carrier control

over an owner/operator for purposes of unemployment

compensation taxation?

PARTIES TO THE PROCEEDING

Petitioners

GULICK TRUCKING, INC., an Oregon corporation,

Respondent

STATE OF WASHINGTON EMPLOYMENT SECURITY

DEPARTMENT

iii

CORPORATE DISCLOSURE FORM

Pursuant to Supreme Court Rule 29.6, petitioner

Gulick Trucking, Inc. provides the following Corporate

Disclosure Statement:

1. Petitioner Gulick Trucking, Inc. has no parent

corporation, and no publicly held company owns 10% or

more of its stock.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED . . . . . . . . . . . . . . . . . . . . . . . i

PARTIES TO THE PROCEEDING . . . . . . . . . . . . . . . . ii

CORPORATE DISCLOSURE FORM . . . . . . . . . . . . . iii

TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . iv

TABLE OF APPENDICES . . . . . . . . . . . . . . . . . . . . . . . vi

TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . vii

OPINIONS BELOW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF JURISDICTION . . . . . . . . . . . . . . . 1

STATUTORY PROVISIONS INVOLVED . . . . . . . . . . 1

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . 13

(1) Owner/Operators in the Trucking Industry . . . 13

(2) Petitioners’ Operations . . . . . . . . . . . . . . . . . . . . 14

(3) The State Targeted Washington’s Trucking

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

(4) Procedural History . . . . . . . . . . . . . . . . . . . . . . . 19

REASONS FOR GRANTING THE PETITION . . . . 19

Table of Contents

Page

(1) Washington State’s Effective Elimination

of the Owner/Operator Business Model Is

Federally Preempted . . . . . . . . . . . . . . . . . . . . . . 20

(a) T he Wa sh i ng t on Cou r t s Fa i led

t o A pply T h i s Cou r t ’s FA A A A

Jurisprudence Providing Expansive

Fe d e r a l P r e e m p t i o n o f L o c a l

Laws A f fecti ng P r ices, Rout es,

or Services in Trucking . . . . . . . . . . . . . . . . 21

(b) Washington State’s Effective End to

the Owner/Operator Business Model

for Unemployment Compensation Tax

Purposes Affects Prices, Routes, or

Services in the Trucking Industry . . . . . . 25

Laws that Effectively Ban the Use of the

Owner/Operator Business Model Affect

Carrier Prices, Routes, or Services and

Are FAAAA- Preempted . . . . . . . . . . . . . . 29

(2) Compliance with Federally-Mandated

Lease Terms in 49 C.F.R. § 376.12 Is Not

Evidence of Carrier Control over Owner/

Operators for State Law Purposes . . . . . . . . . . 34

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

TABLE OF APPENDICES

Page

APPENDIX A — UNPUBLISHED OPINION

IN THE COURT OF APPEALS OF THE

STATE OF WASHINGTON DIVISION II,

FILED JANUARY 23, 2018 . . . . . . . . . . . . . . . . . . . 1a

APPENDIX B — DECISION OF COMMISSIONER

BEFORE THE COMMISSIONER OF THE

EMPLOYMENT SECURITY DEPARTMENT

OF T H E S TAT E OF WA SH I NGT ON,

DATED AUGUST 28, 2015 . . . . . . . . . . . . . . . . . . . . 23a

A PPENDI X C — FINDING S OF

FA C T / C O N C L U S I O N S O F L AW /

ORDER/JUDGMENT OF THE

S TA T E OF WA S H I NG T ON, C L A R K

COU N T Y SU PERIOR COU RT,

DATED OCTOBER 11, 2016 . . . . . . . . . . . . . . . . . . 76a

A PPEN DI X D — OR DER OF T H E

SUPREME COURT OF WASHINGTON,

FILED JULY 12, 2018 . . . . . . . . . . . . . . . . . . . . . . . 81a

vii

TABLE OF CITED AUTHORITIES

Page

CASES

American Airlines v. Wolens,

513 U.S. 219 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

American Trucking Ass’ns, Inc. v.

City of Los Angeles,

596 F.3d 602 (9th Cir. 2010) . . . . . . . . . . . . . . . . . . . . 23

California Trucking Ass’n v. Su,

__ F.3d __, 2018 WL 4288953 (9th Cir. 2018) . . . . . 28

Californians for Safe & Competitive Dump

Truck Transp. v. Mendonca,

152 F.3d 1184 (9th Cir. 1998), cert. denied,

526 U.S. 1060 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . 24

CEVA Freight, LLC v. Emp’t Dep’t,

279 Or. App. 570, 379 P.3d 776, review denied,

360 Or. 751 (2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Cole v. City of Dallas,

314 F.3d 730 (5th Cir. 2002) . . . . . . . . . . . . . . . . . . . . 21

Costello v. BeavEx Corp.,

810 F.3d 1045 (7th Cir. 2016), cert. denied,

137 S. Ct. 2289 (2017) . . . . . . . . . . . . . . . . . . . . . . . . . 24

Dan’s City Used Cars, Inc. v. Pelkey,

569 U.S. 251 (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

viii

Cited Authorities

Page

Dilts v. Penske Logistics, LLC,

769 F.3d 637 (9th Cir. 2014), cert. denied,

135 S. Ct. 2049 (2015) . . . . . . . . . . . . . . . . . . . . . . 24, 28

Dynamex Operations West, Inc. v.

Superior Court,

416 P.3d 1 (Cal. 2018) . . . . . . . . . . . . . . . . . . . . . . . 28, 29

Filo Foods, LLC v. City of Sea-Tac,

357 P.3d 1040 (Wash. 2015) . . . . . . . . . . . . . . . . . . . . 29

Goyal v. CSX Intermodal Terminals, Inc.,

2018 WL 4649829 (N.D. Cal. 2018) . . . . . . . . . . . . . . 26

Gulick Trucking Inc. v.

State of Washington Emp’t Sec. Dep’t,

2018 WL 509096 (Wash. App. 2018) . . . . . . . . . . . . . . 1

Henry Indus. Inc. v.

Dep’t of Labor & Indus.,

381 P.3d 172 (Wash. App. 2016) . . . . . . . . . . . . . . . . . 29

Hernandez v. Triple Ell Transp., Inc.,

175 P.3d 199 (Ida. 2007) . . . . . . . . . . . . . . . . . . . . . . . 38

Hillman v. Maretta,

569 U.S. 483 (2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Home Transp., Inc. v. Idaho Dep’t of Labor,

318 P.3d 940 (Ida. 2014) . . . . . . . . . . . . . . . . . . . . . . . 34

Cited Authorities

Page

In re Federal Preemption of Provisions of the

Motor Carrier Act,

566 N.W.2d 299 (Mich. App. 1997), review

denied, 587 N.W.2d 632 (Mich. 1998),

cert. denied, 525 U.S. 1018 (1998) . . . . . . . . . . . . . . . 23

MacMillan-Piper, Inc. v.

State of Washington Emp’t Sec. Dep’t,

2017 WL 6594805 (Wash. App. 2017) . . . . . . . . . . . . . 1

Mass. Delivery Ass’n v. Coakley,

769 F.3d 11 (1st Cir. 2014) . . . . . . . . . . . . . . . . . . . . . . 28

Mass. Delivery Ass’n v. Healey,

821 F.3d 187 (1st Cir. 2016) . . . . . . . . . . . . 28, 31, 32, 33

Morales v. Trans World Airlines, Inc.,

504 U.S. 374 (1992) . . . . . . . . . . . . . . . . . . . . . . . . 22, 32

Nw., Inc. v. Ginsberg,

572 U.S. 273 (2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Owner-Operator Indep. Drivers Ass’n v.

Mayflower Transit, Inc.,

161 F. Supp. 2d 948 (S.D. Ind. 2001) . . . . . . . . . . . . . 14

Penick v. Emp’t Sec. Dep’t,

917 P.2d 136 (Wash. App. 1996), review denied,

925 P.2d 989 (Wash. 1996). . . . . . . . . . . . . . . . . . . 16-17

Cited Authorities

Page

Pouliot v. Paul Arpin Van Lines, Inc.,

292 F. Supp. 2d 374 (D. Conn. 2003) . . . . . . . . . . . . . 38

Reed v. Indus. Comm’n,

534 P.2d 1090 (Ariz. App. 1975) . . . . . . . . . . . . . . . . . 38

Remington v. J.B. Hunt Transport, Inc.,

2016 WL 4975194 (D. Mass. 2016) . . . . . . . . . 25, 26, 39

Rodriguez v. RWA Trucking Co.,

219 Cal. App. 4th 692 (Cal. App. 2013) . . . . . . . . . 25-26

Rowe v. New Hampshire Motor Transp. Ass’n,

552 U.S. 364 (2008) . . . . . . . . . . . . . . . . . . . . . . . passim

Sanchez v. Lasership, Inc.,

937 F. Supp. 2d 730 (E.D. Va. 2013) . . . . . . . . . . . . . 28

Schwann v. FedEx Ground Package Sys., Inc.,

813 F.3d 429 (1st Cir. 2016) . . . . . . . . . . . . . . .28, 31, 32

Sida of Hawaii, Inc. v. NLRB,

512 F.2d 354 (9th Cir. 1975) . . . . . . . . . . . . . . . . . . . . 38

Swanson Hay Co. v.

State of Washington Emp’t Sec. Dep’t,

404 P.3d 517 (Wash. App. 2017) . . . . . . . . . 1, 29, 35, 37

Tamez v. S.W. Motor Transp., Inc.,

155 S.W.2d 564 (Tex. Civ. App. 2004) . . . . . . . . . . . . 38

Cited Authorities

Page

United Parcel Serv., Inc. v. Flores-Galarza,

318 F.3d 323 (1st Cir. 2003) . . . . . . . . . . . . . . . . . . . . 23

Wash. State Dep’t of Labor & Indus. v.

Mitchell Bros. Truck Line, Inc.,

54 P.3d 711 (Wash. App. 2002) . . . . . . . . . . . . . . . . . . 16

Wash. Trucking Ass’ns v.

State, Emp’t Sec. Dep’t.

369 P.3d 170 (Wash. App. 2016), rev’d,

393 P.3d 761 (Wash. 2017) . . . . . . . . . . . . . . . . . . . . . .18

Western Ports v. Emp’t Sec. Dep’t,

41 P.3d 510 (Wash. App. 2002) . . . . . . . . . . . . 36, 38, 39

Wilkinson v. Palmetto State Transp. Co.,

676 S.E.2d 700 (S.C. 2009), cert. denied,

130 S. Ct. 741 (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . 38

STATUTES AND OTHER AUTHORITIES

28 U.S.C. § 1257(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

49 U.S.C. § 13906 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

49 U.S.C. § 14102 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1, 6

49 U.S.C. § 14102(a) . . . . . . . . . . . . . . . . . . . . . . . 15, 22, 36

49 U.S.C. § 14501 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

xii

Cited Authorities

Page

49 U.S.C. § 14501(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . 20, 22

49 U.S.C. § 41713(b)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

49 C.F.R. § 376 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

49 C.F.R. § 376.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

49 C.F.R. § 376.11(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

49 C.F.R. § 376.11(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

49 C.F.R. § 376.11(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

49 C.F.R. § 376.11(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

49 C.F.R. § 376.11(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

49 C.F.R. § 376.11(d)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

49 C.F.R. § 376.12 . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

49 C.F.R. § 376.12(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

49 C.F.R. § 376.12(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

49 C.F.R. § 376.12(c)(4) . . . . . . . . . . . . . . . . . . . . . 37, 38, 39

49 C.F.R. § 376.12(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

49 C.F.R. § 376.12(h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

xiii

Cited Authorities

Page

49 C.F.R. § 376.31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

49 C.F.R. § 376.12(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

49 C.F.R. § 376.22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 35

49 C.F.R. § 379 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

49 C.F.R. § 382.107 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

49 C.F.R. § 382.601 . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 27

49 C.F.R. § 385.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

49 C.F.R. § 390.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

49 C.F.R. § 390.21(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . 26

49 C.F.R. § 392.60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 35

49 C.F.R. § 396.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

49 C.F.R. Part 390 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

H.R. Conf. Rep. No. 103-677 . . . . . . . . . . . . . . . . . . . . . . 21

Rule 10(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Rule 10(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Mass. Gen. Laws, ch. 149 § 148B . . . . . . . . . . . . . . . . . . 27

xiv

Cited Authorities

Page

Wash. Admin. Code § 192-320-005 . . . . . . . . . . . . . . . . . 33

Wash. Rev. Code § 50.04.140 . . . . . . . . . . . . . . . . . . passim

Wash. Rev. Code § 50.04.140(1)(a) . . . . . . . . . . . . . . . . . . 35

Wash. Rev. Code § 50.20.050(2)(b)(v) . . . . . . . . . . . . . . . 34

Wash. Rev. Code § 50.24.010 . . . . . . . . . . . . . . . . . . . . . . 19

Wash. Rev. Code § 50.24.160 . . . . . . . . . . . . . . . . . . . . . . 16

Wash. Rev. Code § 50.29.021(2) . . . . . . . . . . . . . . . . . . . . 33

Wash. Rev. Code § 50.29.025 . . . . . . . . . . . . . . . . . . . . . . 33

Wash. Rev. Code § 51.08.180 . . . . . . . . . . . . . . . . . . . . . . 16

Wash. Rev. Code § 51.12.110 . . . . . . . . . . . . . . . . . . . . . . 16

Douglas C. Grawe, Have Truck, Will Drive:

The Tr ucking Industr y and the Use of

Independent Owner-Operators Over Time,

35 Transp. L.J. 115 (2008) . . . . . . . . . . . . . . . . . . . . . 13

Jessica Goldstein, The Lease and Interchange

of Vehicles in the Motor Carrier Industry,

32 Transp. L.J. 131 (Spring 2005) . . . . . . . . . . . . . . . 36

Petition to Amend Lease & Interchange of Vehicle

Regulations, 8 I.C.C.2d 669 (I.C.C. June 29, 1992) . 37

OPINIONS BELOW

Three separate divisions of the Washington Court of

Appeals affirmed trial court decisions approving of the

Washington State Employment Security Department’s

(“ESD”) assessments of unemployment taxes against

trucking carriers for remuneration paid to independent

contractor owner/operators. Swanson Hay Co. v. State of

Washington Employment Security Department, 404 P.3d

517 (Wash. App. 2017); MacMillan-Piper, Inc. v. State of

Washington Employment Security Department, 2017

WL 6594805 (Wash. App. 2017); Gulick Trucking Inc. v.

State of Washington Employment Security Department,

2018 WL 509096 (Wash. App. 2018). This case involves

Gulick Trucking, Inc. (“Gulick”). App. A. The Washington

Supreme Court denied review in all three cases, by

separate orders, on July 12, 2018. See App. D (Gulick

order).

STATEMENT OF JURISDICTION

The Court has jurisdiction under 28 U.S.C. § 1257(a)

to review federal questions arising from State courts.

STATUTORY PROVISIONS INVOLVED

49 U.S.C. § 14102:

(a) General authority of Secretary.—The Secretary may

require a motor carrier providing transportation subject

to jurisdiction under subchapter I of chapter 135 that uses

motor vehicles not owned by it to transport property under

an arrangement with another party to—

(1) make the arrangement in writing signed by the parties

specifying its duration and the compensation to be paid

by the motor carrier;

(2) carry a copy of the arrangement in each motor vehicle

to which it applies during the period the arrangement is

in effect;

(3) inspect the motor vehicles and obtain liability and cargo

insurance on them; and

(4) have control of and be responsible for operating

those motor vehicles in compliance with requirements

prescribed by the Secretary on safety of operations and

equipment, and with other applicable law as if the motor

vehicles were owned by the motor carrier.

49 U.S.C. § 14501:

(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 (other

than a carrier affiliated with a direct air carrier covered

by section 41713(b)(4)) or any motor private carrier, broker,

or freight forwarder with respect to the transportation

of property.

49 C.F.R. § 376.11:

Other than through the interchange of equipment as set

forth in § 376.31, and under the exemptions set forth in

subpart C of these regulations, the authorized carrier may

perform authorized transportation in equipment it does

not own only under the following conditions:

(a) Lease. There shall be a written lease granting the use

of the equipment and meeting the requirements contained

in § 376.12.

(b) Receipts for equipment. Receipts, specifically

identifying the equipment to be leased and stating the

date and time of day possession is transferred, shall be

given as follows:

(1) When possession of the equipment is taken by the

authorized carrier, it shall give the owner of the equipment

a receipt. The receipt identified in this section may be

transmitted by mail, telegraph, or other similar means

of communication.

(2) When possession of the equipment by the authorized

carrier ends, a receipt shall be given in accordance with

the terms of the lease agreement if the lease agreement

requires a receipt.

(3) Authorized representatives of the carrier and the

owner may take possession of leased equipment and give

and receive the receipts required under this subsection.

acquiring the use of equipment under this section shall

identify the equipment as being in its service as follows:

(1) During the period of the lease, the carrier shall

identify the equipment in accordance with the FMCSA’s

requirements in 49 CFR part 390 of this chapter

(Identification of Vehicles).

(2) Unless a copy of the lease is carried on the equipment,

the authorized carrier shall keep a statement with the

equipment during the period of the lease certifying that

the equipment is being operated by it. The statement shall

also specify the name of the owner, the date and length

of the lease, any restrictions in the lease relative to the

commodities to be transported, and the address at which

the original lease is kept by the authorized carrier. This

statement shall be prepared by the authorized carrier or

its authorized representative.

(d) Records of equipment. The authorized carrier using

equipment leased under this section shall keep records of

the equipment as follows:

(1) The authorized carrier shall prepare and keep

documents covering each trip for which the equipment

is used in its service. These documents shall contain the

name and address of the owner of the equipment, the

point of origin, the time and date of departure, and the

point of final destination. Also, the authorized carrier

shall carry papers with the leased equipment during its

operation containing this information and identifying the

lading and clearly indicating that the transportation is

under its responsibility. These papers shall be preserved

by the authorized carrier as part of its transportation

records. Leases which contain the information required

by the provisions in this paragraph may be used and

retained instead of such documents or papers. As to

lease agreements negotiated under a master lease, this

provision is complied with by having a copy of a master

lease in the unit of equipment in question and where the

balance of documentation called for by this paragraph is

included in the freight documents prepared for the specific

movement.

(2) [Reserved]

49 C.F.R. § 376.12:

Except as provided in the exemptions set forth in subpart

C of this part, the written lease required under § 376.11(a)

shall contain the following provisions. The required lease

provisions shall be adhered to and performed by the

authorized carrier.

(a) Parties. The lease shall be made between the

authorized carrier and the owner of the equipment.

The lease shall be signed by these parties or by their

authorized representatives.

(b) Duration to be specific. The lease shall specify the

time and date or the circumstances on which the lease

begins and ends. These times or circumstances shall

coincide with the times for the giving of receipts required

by § 376.11(b).

(1) The lease shall provide that the authorized carrier

lessee shall have exclusive possession, control, and use

of the equipment for the duration of the lease. The lease

shall further provide that the authorized carrier lessee

shall assume complete responsibility for the operation of

the equipment for the duration of the lease.

(2) Provision may be made in the lease for considering the

authorized carrier lessee as the owner of the equipment

for the purpose of subleasing it under these regulations

to other authorized carriers during the lease.

(3) When an authorized carrier of household goods leases

equipment for the transportation of household goods, as

defined by the Secretary, the parties may provide in the

lease that the provisions required by paragraph (c)(1) of

this section apply only during the time the equipment is

operated by or for the authorized carrier lessee.

(4) Nothing in the provisions required by paragraph

(c)(1) of this section is intended to affect whether the

lessor or driver provided by the lessor is an independent

contractor or an employee of the authorized carrier lessee.

An independent contractor relationship may exist when a

carrier lessee complies with 49 U.S.C. 14102 and attendant

administrative requirements.

(d) Compensation to be specified. The amount to be paid

by the authorized carrier for equipment and driver’s

services shall be clearly stated on the face of the lease

or in an addendum which is attached to the lease. Such

lease or addendum shall be delivered to the lessor prior

to the commencement of any trip in the service of the

authorized carrier. An authorized representative of the

lessor may accept these documents. The amount to be paid

may be expressed as a percentage of gross revenue, a flat

rate per mile, a variable rate depending on the direction

traveled or the type of commodity transported, or by any

other method of compensation mutually agreed upon by

the parties to the lease. The compensation stated on the

lease or in the attached addendum may apply to equipment

and driver’s services either separately or as a combined

amount.

(e) Items specified in lease. The lease shall clearly specify

which party is responsible for removing identification

devices from the equipment upon the termination of the

lease and when and how these devices, other than those

painted directly on the equipment, will be returned to

the carrier. The lease shall clearly specify the manner in

which a receipt will be given to the authorized carrier by

the equipment owner when the latter retakes possession

of the equipment upon termination of the lease agreement,

if a receipt is required at all by the lease. The lease shall

clearly specify the responsibility of each party with respect

to the cost of fuel, fuel taxes, empty mileage, permits of

all types, tolls, ferries, detention and accessorial services,

base plates and licenses, and any unused portions of such

items. The lease shall clearly specify who is responsible

for loading and unloading the property onto and from

the motor vehicle, and the compensation, if any, to be

paid for this service. Except when the violation results

from the acts or omissions of the lessor, the authorized

carrier lessee shall assume the risks and costs of fines

for overweight and oversize trailers when the trailers are

pre-loaded, sealed, or the load is containerized, or when

the trailer or lading is otherwise outside of the lessor’s

control, and for improperly permitted overdimension

and overweight loads and shall reimburse the lessor for

any fines paid by the lessor. If the authorized carrier is

authorized to receive a refund or a credit for base plates

purchased by the lessor from, and issued in the name of,

the authorized carrier, or if the base plates are authorized

to be sold by the authorized carrier to another lessor the

authorized carrier shall refund to the initial lessor on

whose behalf the base plate was first obtained a prorated

share of the amount received.

(f) Payment period. The lease shall specify that payment

to the lessor shall be made within 15 days after submission

of the necessary delivery documents and other paperwork

concerning a trip in the service of the authorized carrier.

The paperwork required before the lessor can receive

payment is limited to log books required by the Department

of Transportation and those documents necessary for the

authorized carrier to secure payment from the shipper. In

addition, the lease may provide that, upon termination of

the lease agreement, as a condition precedent to payment,

the lessor shall remove all identification devices of the

authorized carrier and, except in the case of identification

painted directly on equipment, return them to the carrier.

If the identification device has been lost or stolen, a letter

certifying its removal will satisfy this requirement.

Until this requirement is complied with, the carrier may

withhold final payment. The authorized carrier may

require the submission of additional documents by the

lessor but not as a prerequisite to payment. Payment to

the lessor shall not be made contingent upon submission

of a bill of lading to which no exceptions have been taken.

The authorized carrier shall not set time limits for the

submission by the lessor of required delivery documents

and other paperwork.

(g) Copies of freight bill or other form of freight

documentation. When a lessor’s revenue is based on

a percentage of the gross revenue for a shipment, the

lease must specify that the authorized carrier will give

the lessor, before or at the time of settlement, a copy of

the rated freight bill or a computer-generated document

containing the same information, or, in the case of contract

carriers, any other form of documentation actually used

for a shipment containing the same information that would

appear on a rated freight bill. When a computer-generated

document is provided, the lease will permit lessor to

view, during normal business hours, a copy of any actual

document underlying the computer-generated document.

Regardless of the method of compensation, the lease must

permit lessor to examine copies of the carrier’s tariff or,

in the case of contract carriers, other documents from

which rates and charges are computed, provided that

where rates and charges are computed from a contract

of a contract carrier, only those portions of the contract

containing the same information that would appear on a

rated freight bill need be disclosed. The authorized carrier

may delete the names of shippers and consignees shown

on the freight bill or other form of documentation.

(h) Charge-back items. The lease shall clearly specify

all items that may be initially paid for by the authorized

carrier, but ultimately deducted from the lessor’s

compensation at the time of payment or settlement,

together with a recitation as to how the amount of each

item is to be computed. The lessor shall be afforded copies

of those documents which are necessary to determine the

validity of the charge.

(i) Products, equipment, or services from authorized

carrier. The lease shall specify that the lessor is not

required to purchase or rent any products, equipment,

or services from the authorized carrier as a condition

of entering into the lease arrangement. The lease shall

specify the terms of any agreement in which the lessor

is a party to an equipment purchase or rental contract

which gives the authorized carrier the right to make

deductions from the lessor’s compensation for purchase

or rental payments.

(j) Insurance.

(1) The lease shall clearly specify the legal obligation of the

authorized carrier to maintain insurance coverage for the

protection of the public pursuant to FMCSA regulations

under 49 U.S.C. 13906. The lease shall further specify

who is responsible for providing any other insurance

coverage for the operation of the leased equipment, such

as bobtail insurance. If the authorized carrier will make

a charge back to the lessor for any of this insurance, the

lease shall specify the amount which will be charged-back

to the lessor.

(2) If the lessor purchases any insurance coverage for

the operation of the leased equipment from or through

the authorized carrier, the lease shall specify that the

authorized carrier will provide the lessor with a copy of

each policy upon the request of the lessor. Also, where the

lessor purchases such insurance in this manner, the lease

shall specify that the authorized carrier will provide the

lessor with a certificate of insurance for each such policy.

Each certificate of insurance shall include the name of the

insurer, the policy number, the effective dates of the policy,

the amounts and types of coverage, the cost to the lessor

for each type of coverage, and the deductible amount for

each type of coverage for which the lessor may be liable.

(3) The lease shall clearly specify the conditions under

which deductions for cargo or property damage may

be made from the lessor’s settlements. The lease shall

further specify that the authorized carrier must provide

the lessor with a written explanation and itemization of

any deductions for cargo or property damage made from

any compensation of money owed to the lessor. The written

explanation and itemization must be delivered to the lessor

before any deductions are made.

(k) Escrow funds. If escrow funds are required, the lease

shall specify:

(1) The amount of any escrow fund or performance bond

required to be paid by the lessor to the authorized carrier

or to a third party.

(2) The specific items to which the escrow fund can be

applied.

(3) That while the escrow fund is under the control of the

authorized carrier, the authorized carrier shall provide

an accounting to the lessor of any transactions involving

such fund. The carrier shall perform this accounting in

one of the following ways:

(i) By clearly indicating in individual settlement sheets

the amount and description of any deduction or addition

made to the escrow fund; or

(ii) By providing a separate accounting to the lessor of

any transactions involving the escrow fund. This separate

accounting shall be done on a monthly basis.

(4) The right of the lessor to demand to have an accounting

for transactions involving the escrow fund at any time.

(5) That while the escrow fund is under the control of the

carrier, the carrier shall pay interest on the escrow fund

on at least a quarterly basis. For purposes of calculating

the balance of the escrow fund on which interest must be

paid, the carrier may deduct a sum equal to the average

advance made to the individual lessor during the period

of time for which interest is paid. The interest rate shall

be established on the date the interest period begins and

shall be at least equal to the average yield or equivalent

coupon issue yield on 91-day, 13-week Treasury bills as

established in the weekly auction by the Department of

Treasury.

(6) The conditions the lessor must fulfill in order to have

the escrow fund returned. At the time of the return of the

escrow fund, the authorized carrier may deduct monies for

those obligations incurred by the lessor which have been

previously specified in the lease, and shall provide a final

accounting to the lessor of all such final deductions made

to the escrow fund. The lease shall further specify that

in no event shall the escrow fund be returned later than

45 days from the date of termination.

(l) Copies of the lease. An original and two copies of each

lease shall be signed by the parties. The authorized carrier

shall keep the original and shall place a copy of the lease

on the equipment during the period of the lease unless a

statement as provided for in § 376.11(c)(2) is carried on

the equipment instead. The owner of the equipment shall

keep the other copy of the lease.

(m) This paragraph applies to owners who are not

agents but whose equipment is used by an agent of an

authorized carrier in providing transportation on behalf

of that authorized carrier. In this situation, the authorized

carrier is obligated to ensure that these owners receive

all the rights and benefits due an owner under the leasing

regulations, especially those set forth in paragraphs (d)(k) of this section. This is true regardless of whether the

lease for the equipment is directly between the authorized

carrier and its agent rather than directly between the

authorized carrier and each of these owners. The lease

between an authorized carrier and its agent shall specify

this obligation.

STATEMENT OF THE CASE

(1) Owner/Operators in the Trucking Industry

Owner/operators have long been important in the

trucking industry. See generally, Douglas C. Grawe,

Have Truck, Will Drive: The Trucking Industry and

the Use of Independent Owner-Operators Over Time,

35 Transp. L.J. 115 (2008). They are used in most, if not

all, sectors of the industry, including long-haul trucking,

household-goods moving, and intermodal operations. App.

42a. Because demand in the contemporary American

trucking industry fluctuates so dramatically, the industry

is structured around these independent owner/operators,

who provide carriers with a flexible supply of trucking

equipment.

For owner/operators, an independent-contractor

relationship is similarly beneficial. In this era of increased

shipping demand because of internet shopping, today’s

shippers are sophisticated and now look for “one stop”

shopping for their shipping needs. It would thus be

extremely difficult for an individual owning a single truck

to compete. By contracting with large trucking carriers,

owner/operators can overcome this obstacle and still

maintain a small business. The firms give owner/operators

access to higher-paying freight than they would have

access to if they operated under their own authority and

make it easier for owner/operators to obtain insurance.

The federal government requires all motor carriers

to engage owner/operators through a written lease

agreement, under 49 C.F.R. § 376, known as the Truthin-Leasing regulations. Owner-Operator Indep. Drivers

Ass’n v. Mayflower Transit, Inc., 161 F. Supp. 2d 948, 953

n.2 (S.D. Ind. 2001). These regulations not only require

a written lease contract, but also specify certain terms

that must be included in the equipment lease agreement.

See, e.g., 49 C.F.R. §§ 376.11, 376.12.1

(2) Petitioners’ Operations

The four petitioning interstate motor carriers share

certain common characteristics. Each is licensed by the

1. For example, the regulations mandate that owner/

operators operate exclusively under a carrier’s federal license

granted by the USDOT and that the owner/operator be insured

by the carrier (although the owner/operator must pay for

that insurance). 49 C.F.R. § 376.12(c), (j). These requirements

promote public safety by ensuring that all trucks are covered by

adequate insurance and by facilitating the collection of safety

data for carriers. As will be discussed infra, federal regulations

specifically provide that these requirements do not constitute

“control” for purpose of state law regulatory schemes.

United States Department of Transportation (“USDOT”)

and the Federal Motor Carrier Safety Administration

(“FMCSA”). Each operates in interstate commerce. 2 Each

carrier leases trucking equipment from owner/operators.

Each carrier, with the exception of Mac-Millan Piper,

is involved in the long haul of freight and utilizes both

company drivers and owner/operators to accomplish such

operations. 3

Central to the existence of owner/operators as

independent businesses, is the fact that owner/operators

make an enormous capital investment in their businesses.

The truck alone represents an investment of roughly

$200,000. Owner/operators have a trade association

designed to protect their interests as small businesses.4

In leasing equipment, each carrier had equipment

lease agreements with owner/operators in the form

mandated by federal law. 49 U.S.C. § 14102(a); 49 C.F.R.

§ 376.11; 49 C.F.R. § 376.12. As was generally determined

by ESD in the administrative process, those agreements

made clear that the owner/operator had complete control

2. Underscoring this point is the fact that Gulick is

headquartered in Vancouver, Washington, near the Oregon border.

App. 34a. It competes with carriers in other jurisdictions in which

unemployment taxes are not levied on carriers for the lease of

equipment from owner/operators. See n.23, infra.

3. Gulick had equipment agreements with 152 owner/

operators. App. 34a.

4. A national organization, the Owner/Operator Independent

Drivers Association (“OOIDA”) has 153,000 members nationally

who value their business independence. https://www.ooida.com/

WhoWeAre/.

over the selection of drivers or laborers for the trucks,

and over the selection of the routes for the delivery of

the cargo the carriers asked them to deliver. The owner/

operators also determined employee hours, stops/rest

breaks, attendance and performance standards, and

general working conditions. The owner/operators could

reject loads offered to them by the carriers. Critically,

although the carriers might advance expenses to the

owner/operators as a convenience, as federal regulations

permitted, 49 C.F.R. § 376.12(h), the owner/operators

were ultimately responsible for the cost of the operation

of their equipment including general vehicle maintenance,

insurance, permits, base plates, license fees, taxes, fuel,

lubricants, cold weather protection, tie-down gear and

cargo protection equipment, tires, tolls, fines, and driver

wages and payroll taxes. 5 The owner/operators were

generally paid a percentage of the fee paid to the carrier

by the customer.

(3) The State Targeted Washing ton’s Trucking

Industry

Reversing Washington public policy that had long

treated owner/operators as independent contractors,6

5. In addition to paying worker compensation premiums

and unemployment compensation taxes for their drivers, owner/

operators may elect coverage for themselves, Wash. Rev. Code §

50.24.160; Wash. Rev. Code § 51.12.110.

6. Owner/operators are not carrier employees under

Washington’s worker compensation laws. Wash. Rev. Code §

51.08.180; Wash. State Dep’t of Labor & Indus. v. Mitchell Bros.

Truck Line, Inc., 54 P.3d 711 (Wash. App. 2002). ESD previously

treated owner/operators as independent contractors. Penick

v. Emp’t Sec. Dep’t, 917 P.2d 136 (Wash. App. 1996), review

and without specific legislative authority, ESD joined

with Washington’s Department of Revenue (“DOR”)

and Department of Labor & Industries (“DOLI”) (the

agency administering worker compensation) to form

an “underground economy task force” (“UETF”).7 The

UETF targeted the trucking industry and its historical

use of owner/operators. 8 None of the carriers here

were “underground” enterprises. All were rigorously

regulated under federal law and their relationship with

owner-operators is also federally-regulated. The carriers’

operations are also regulated for safety purposes under

state law. Their trucks operate openly on Washington’s

roads. They are taxed under state law and were current

in the payment of applicable Washington taxes.

denied, 925 P.2d 989 (Wash. 1996). ESD previously instructed its

auditors the distinction between independent owner/operators

and employee truck drivers, on the basis of the “Independent

Trucker Tests.” These tests provide that owner/operators qualify

as independent contractors if they: (1) normally have the right to

hire and fire any driver of the truck, set wage amounts, select

routes, and establish or approve procedures for loading and

unloading; (2) perform all services other than loading or unloading

freight outside the carrier’s places of business; and (3) maintain a

separate set of books and are responsible for the majority of cost

items. ESD abandoned those tests when it targeted the industry.

7. http://w w w.lni.wa.gov/Main/AboutLNI/Legislature/

PDFs/Reports/2015/ UndergroundEconomyBenchmarkReport.

pdf (last visited November 2, 2016). Ch. 432, Laws of 2009, § 13

required DOR, DOLI, and ESD to “coordinate” their efforts and

report annually to the Legislature. Apart from that direction to

“coordinate,” the Legislature, by statute, and ESD, by rulemaking,

have never defined the UETF’s organization, mission, or authority.

8. ESD notes from a meeting of its officials indicated that

in the preceding eighteen months, ESD had audited 284 trucking

companies. Those notes also stated that ESD “targeted trucking.”

As noted supra, ESD had standards for conducting

its audits including a Tax Audit Manual (“TAM”) that

provided factors for an auditor to consider in determining

if work is performed by an independent contractor. ESD

also provided its auditors a Status Manual (“SM”) that

supplied the Independent Trucker tests. Finally, ESD

generally required that all audits be conducted according

to Generally Accepted Auditing Standards, which

mandate auditor objectivity. It did not follow any of these

standards.9

Moreover, ESD auditors were compromised by ESD

job performance quotas requiring them to assess a certain

amount of unpaid taxes, and to reclassify a certain number

of independent contractors to employee status. One auditor

even had the audacity to ask the governor to pay her a

percentage bonus based on revenues she generated for the

State. In Hatfield’s administrative proceedings, evidence

was adduced that ESD leadership even directed auditors

to impose taxes on owner/operator equipment knowing

that such assessments were illegal under Washington law

that confined unemployment compensation taxation to

wages paid by the taxpayer; ESD wanted to “leverage”

settlement by carriers. See generally, Wash. Trucking

Ass’ns v. State, Emp’t. Sec. Dep’t. 369 P.3d 170, 176-77

(Wash. App. 2016) rev’d, 393 P.3d 761 (Wash. 2017).

9. Although it initially admitted it had to follow the TAM/SM

standards, in later cases, ESD shifted course and took the position

that compliance with its manuals was optional. Brian Sonntag,

Washington’s elected State Auditor for 20 years, observed that

ESD created a system of no standards, no supervisory or peer

review, no quality control, and institutional interference with

auditor objectivity.

Ultimately, based on these so-called “audits,” ESD

issued notices of assessment against the carriers (for

taxes, penalties, and interest. ESD assessed taxes on

equipment payments made by some of the carriers when

state law expressly limited the tax to the wages paid to

the covered worker. Wash. Rev. Code § 50.24.010. The

carriers filed administrative appeals.

(4) Procedural History

The petitioning carriers were subjected to lengthy

administrative proceedings in which ESD ultimately

backed down on assessing unemployment taxes on the

equipment the owner/operators leased to petitioners. In

Gulick’s case, ESD’s Commissioner eventually affirmed

the assessment, a final agency action for purposes of

judicial review, app. B, and Gulick sought review in the

superior court. The court affirmed the assessments. App.

On appeal, the Washington Court of Appeals affirmed

the trial court decision. App. A. That opinion effectively

upheld an interpretation of Wash. Rev. Code § 50.04.140,

relating to independent contractors, that makes it

impossible for an owner/operator to be anything but a

trucking carrier employee. The Washington Supreme

Court denied review. App. D.

REASONS FOR GRANTING THE PETITION

Washington State targeted Washington’s trucking

in hundreds of “audits,” as part of a politically-motivated

effort to restructure Washington’s federally-regulated

trucking industry by eliminating the industry’s historical

use of owner/operators. Indeed, federal motor carrier law

specifically authorizes owner/operators and specifies the

contents of the carrier-owner/operator equipment-leasing

agreements.

When Congress deregulated interstate trucking

in 1980 and intrastate trucking in 1994, it enacted the

FAAAA, 49 U.S.C. § 14501(c)(1), a statute that broadly

preempts any local or state laws that affect routes, prices,

or services in the trucking industry.

The Washington courts’ interpretation of Wash.

Rev. Code § 50.04.140, the definition of an independent

contractor for purposes of unemployment compensation

taxation, makes it impossible for an owner/operator

to be an independent contractor, just as occurred in

Massachusetts by statute and California by judicial

decision, as will be discussed infra. The Washington

courts’ decisions condone the effective elimination of the

owner/operator business model in the trucking industry

for purposes of unemployment compensation taxation.

Those courts failed to apply the FAAAA as Congress and

this Court’s precedents direct. The Washington courts’

decisions permit a backdoor attempt by state authorities

to disrupt the modern American trucking industry,

and create a patchwork of inconsistent state-by-state

regulations of interstate trucking, something Congress

emphatically rejected.

(1) Washington State’s Effective Elimination of the

Owner/Operator Business Model Is Federally

Preempted

The Washington courts’ opinions are consistent in

certain key respects. First, they interpret Wash. Rev.

Code § 50.04.140, the statute dealing with independent

contractor status for unemployment compensation taxes

that mirrors the so-called ABC test for independent

contractor status, in a fashion that renders it impossible for

an owner/operator to ever be an independent contractor for

unemployment compensation tax purposes. In particular,

no owner/operator will ever have an independently

established business because such owner/operators

function under a carrier’s federal operating authority.

App. 19a-21a. Second, the opinions all adopt the Ninth

Circuit’s limitation on FAAAA preemption with regard

to statutes of “general applicability.” App. 9a-10a. Finally,

all three opinions allow federally-mandated equipment

leasing contract terms to be used as evidence of control

by carriers over owner/operators. App. 14a-15a.

(a) The Washington Courts Failed to Apply This

Court’s FAAAA Jurisprudence Providing

Expansive Federal Preemption of Local

Laws Affecting Prices, Routes, or Services in

Trucking

The Washington court decisions are but further

evidence of a split of authority on the proper interpretation

of the FAAAA. Those decisions join the courts who have

found what amounts to a nonexistent FAAAA exception

for “background laws of general applicability.”

When Congress de-regulated interstate trucking in

1980 and intrastate trucking in 1994, it sought to remove

obstacles to “national and regional carriers attempting

to conduct a standard way of doing business.” Cole v.

City of Dallas, 314 F.3d 730, 734 (5th Cir. 2002) (quoting

H. R. Conf. Rep. No. 103-677, at 87, reprinted in 1994

U.S.C.C.A.N. at 1759). It enacted the FAAAA’s express

preemption to make sure market forces would prevail and

that local jurisdictions would not re-regulate the trucking

industry in a “patchwork of state-service determining

laws, rules, and regulations.” Rowe v. New Hampshire

Motor Transp. Ass’n, 552 U.S. 364, 367-68, 370-71, 378

(2008).10 The FAAAA’s preemptive language bars states

from “enacting or enforcing a law, regulation, or other

provision . . . related to a price, route, or service” of any

carrier with respect to the transportation of property.

49 U.S.C. § 14501(c)(1) (emphasis added). This Court has

mandated that FAAAA preemption must be construed

broadly, consistent with its broad interpretation of

similar preemptive language enacted by Congress for

airline deregulation. Morales v. Trans World Airlines,

Inc., 504 U.S. 374, 383-84 (1992); Rowe, 552 U.S. at 370-71

(Congress adopted FAAAA preemptive language knowing

of broad construction of same language in Morales).11

Given this broad federal preemption and the

importance of owner/operators to the trucking industry,

10. Congress also specifically directed USDOT to regulate

lease agreements between carriers and owner/operators. 49 U.S.C.

§ 14102(a). In the interest of public safety, the regulations also

mandate that trucking carriers provide liability insurance and

ensure that drivers have undergone mandatory drug testing. 49

C.F.R. §§ 376.11, 376.12, 382.601

11. In Dan’s City Used Cars, Inc. v. Pelkey, 569 U.S. 251

(2013), this Court held that the FAAAA did not preempt a state

law damages claim arising from storage and disposal of towed

vehicle because FAAAA preempted only local laws addressing the

transportation of property, but it also re-affirmed the holding in

Rowe that the FAAAA’s preemption is broad, and encompasses

even local laws indirectly affecting carrier prices, routes, or

services. Id. at 260.

every time a state or local government has attempted to

directly ban owner/operators in the industry, courts have

held such efforts to be FAAAA-preempted.12

As noted supra, the Washington courts concluded,

however, that if the governmental action involves a law of

“general applicability,” even if carrier routes, prices, or

services are affected, the law is not federally-preempted.

This holding contradicts this Court’s FAAAA preemption

decisions. In Rowe, the Court made clear that even laws

that indirectly impact prices, routes, or services are

preempted, provided they have a significant impact. Even

if a law can be characterized as “generally applicable,” it

is preempted if its effect intrudes upon trucking carrier

routes, prices, and services, as this Court has made

clear. E.g., American Airlines v. Wolens, 513 U.S. 219

(1995) (preempting Illinois consumer protection statute,

a statute of general applicability); Nw., Inc. v. Ginsberg,

572 U.S. 273 (2014) (preempting general common-law claim

for breach of the implied covenant of good faith and fair

dealing, principles of general applicability); United Parcel

Serv., Inc. v. Flores-Galarza, 318 F.3d 323 (1st Cir. 2003)

(Puerto Rico’s enforcement of excise tax against airlines

was ADA-preempted).

12. E.g., American Trucking Ass’ns, Inc. v. City of Los

Angeles, 596 F.3d 602, 604-05 (9th Cir. 2010) (local regulation

developed in the guise of promoting port environmental policies

prohibiting use of independent contractor drivers at port was

preempted); In re Federal Preemption of Provisions of the Motor

Carrier Act, 566 N.W.2d 299, 308–09 (Mich. App. 1997), review

denied, 587 N.W.2d 632 (Mich. 1998), cert. denied, 525 U.S. 1018

(1998) (striking down as preempted a regulation mandating that

a truck be operated only by persons who were employees of the

trucking carrier).

The Washington courts’ misinterpretation of the

FAAAA and this Court’s precedents is not isolated. Other

courts continue to mistakenly suggest that “general” state

laws are not subject to the FAAAA’s broad preemption,

creating an exception found nowhere in the FAAAA’s

actual statutory language. Those courts failed to faithfully

apply this Court’s requisite analysis of the law’s impact

on carrier prices, routes, or services.13 This Court has

expressly rejected attempts to imply exceptions to the

broad scope of the FAAAA preemptive language not found

in the FAAAA itself. Rowe, 552 U.S. at 374 (rejecting

public health exception to FAAAA preemption – “The Act

says nothing about a public health exception.”).

This Court should grant review to make it clear that

there is no “generally applicable statute” exception to the

broad sweep of FAAAA preemption. The Washington

Supreme Court has joined the Seventh and Ninth Circuits

(Costello, 810 F.3d at 1055; Dilts, 769 F.3d at 650) in an

interpretation of the FAAAA that is directly at odds with

this Court’s expansive interpretation of that express

federal preemption statute in Rowe. Rule 10(c). Those

courts’ FAAAA preemption interpretation simply cannot

be squared with that of the First Circuit. Rule 10(b). This

Court should reaffirm the Rowe court’s holding that local

13. E.g., Californians for Safe & Competitive Dump Truck

Transp. v. Mendonca, 152 F.3d 1184 (9th Cir. 1998), cert. denied,

526 U.S. 1060 (1999) (FAAAA does not preempt employee drivers’

claims for violations of prevailing wage laws); Dilts v. Penske

Logistics, LLC, 769 F.3d 637 (9th Cir. 2014), cert. denied, 135

S. Ct. 2049 (2015) (FAAAA does not preempt employee drivers’

claims for violations of meal and rest-break laws); Costello v.

BeavEx Corp., 810 F.3d 1045 (7th Cir. 2016), cert denied, 137 S.

Ct. 2289 (2017).

laws indirectly affecting prices, routes, or services in more

than a tenuous fashion are preempted.

(b) Washington State’s Effective End to the Owner/

Operator Business Model for Unemployment

Compensation Tax Purposes Affects Prices,

Routes, or Services in the Trucking Industry

The Washington courts’ interpretation of Wash. Rev.

Code § 50.04.140 makes it impossible for any owner/

operator to ever qualify as an exempted independent

contractor in the unemployment compensation tax

context. Indeed, ESD never disputed this fact below.

The Washington courts’ decisions make such an outcome

crystal clear. In this way, a state has deprived a federallyregulated industry of the right to use the owner/operator

business model.14 As such, the State’s actions affect

14. Ultimately, at its most basic, under a conflict preemption

type of analysis that is at the core of the FAAAA’s express

preemptive language, the Washington courts’ interpretation of

Wash. Rev. Code § 50.04.140 re-regulates (and makes illegal) what

federal law specifically has determined is legal in the trucking

industry (the owner/operator business model). Hillman v. Maretta,

569 U.S. 483, 490 (2013) (a conflict is present “when compliance

with both federal and state regulations is impossible.”). Stated

another way, preemption is required if the state law is an obstacle

to the accomplishment of the purposes and objectives of Congress.

Id. at 1950. See also, Remington v. J.B. Hunt Transport, Inc.,

2016 WL 4975194 (D. Mass. 2016) (claim that the deduction of

expenses for repairs, cargo losses, insurance, or administrative

fees from owner/operator compensation constituted “control” by

carriers where the owner/operator regulations of 49 C.F.R. Part

376 authorized such deductions was preempted; as the court

succinctly observed: “What is explicitly permitted by federal

regulations cannot be forbidden by state law.” Id. at *4.); Rodriguez

prices, routes, and services in the industry. Washington

State’s action here as to unemployment compensation

taxation is no different than the outright ban of owner/

operators by the Ports of Los Angeles/Long Beach or the

Michigan Legislature. For example, in finding that the

control element of Wash. Rev. Code § 50.04.140 cannot be

met, as noted supra, the Washington courts emphasized

the fact that owner/operators must operate under a

trucking carrier’s federal authority or permit. But federal

regulations require that leased equipment be operated

under the carrier’s USDOT authority.15 This fact alone

makes it impossible for an owner/operator ever to meet

the test of Wash. Rev. Code § 50.04.140. The Washington

courts also ruled that other federally-mandated terms in

an equipment lease may be evidence of carrier direction

or control.16 As will be established infra, that decision

v. RWA Trucking Co., 219 Cal. App. 4th 692, 710 (Cal. App. 2013)

(California insurance law could not prohibit charge back to truck

drivers of insurance costs in light of federal law). That there is

confusion on the scope of FAAAA preemption is supported by

the decision on Truth-in-Lending deductions in Goyal v. CSX

Intermodal Terminals, Inc., 2018 WL 4649829 (N.D. Cal. 2018)

that arrives at a contradictory result to that of the Remington

and Rodriguez courts.

15. See 49 C.F.R. § 390.21(b)(2) (requiring all commercial

motor vehicles to bear the carrier’s FMCSA identification number

preceded by the letters “USDOT”); see also, 49 C.F.R. § 376.11(c)

(1) (requiring carrier during lease period to identify equipment

in accordance with 49 C.F.R. part 390).

16. Compare App. 5a-6a, 12a-19a with 49 C.F.R. §§ 376.11(c)

(1) (requiring proper identification), 376.11(d)(1) (documentation

must clearly indicate that the transportation is under the carrier’s

responsibility), 376.12(c)(1) (requiring carrier to take exclusive,

use, possession, and control of and full responsibility for the leased

equipment), 376.12(e) (requiring the lease to clearly specify which

is contrary to federal law. All of these lease terms are

required by federal regulations for an owner/operator to

have a valid contract with a trucking carrier; a carrier

complying with federal law will never meet the test of

Wash. Rev. Code § 50.04.140.

The Washington courts’ interpretation of local laws

to effectively bar the owner/operator business model in

the trucking industry is not an isolated phenomenon. That

business model is under attack in numerous states. For

example, Massachusetts enacted a statute, Mass. Gen.

Laws, ch. 149 § 148B, to distinguish between employees

and independent contractors for a variety of its labor

laws that adopted what amounts to the same standard

Washington courts have adopted for independent

contractors in Wash. Rev. Code § 50.04.140. 17 The

party is responsible for removing identification devices from the

equipment upon lease termination), 376.22 (requiring written

agreement for a carrier to lease equipment that is under lease

to another carrier), 379 app. A (specifying required retention

periods for various categories of records and reports, including

shipping documents and inspection and repair reports), 382.601

(requiring carriers to institute drug and alcohol testing policy

applicable to all “drivers”), 382.107 (defining “driver” as including

“independent owner-operator contractors”), 385.5 (unqualified

drivers and improperly driven vehicles adversely affect carrier’s

safety rating), 390.11 (carrier must require drivers to observe

all duties imposed by federal motor carrier safety regulations);

392.60 (requiring carrier to give written authorization for any

passengers), 396.3 (carriers must systematically inspect or cause

to be inspected all vehicles subject to their control and keep

inspection and maintenance records).

17. The Massachusetts statute sets out three elements that

must be proven for an individual to be considered an independent

contractor. It is a statute of general applicability, applying to various

Massachusetts employment statutes.

California Supreme Court held in Dynamex Operations

West, Inc. v. Superior Court, 416 P.3d 1 (Cal. 2018) that

the so-called ABC test for determining if carrier drivers

were independent contractors or carrier employees

compelled the conclusion that they were employees. In

particular, under category B of the test, because drivers

were in the same general business as the carriers, they

were employees. Id. at 38-39.18

In extended litigation over the Massachusetts statute

that essentially incorporated the ABC test into the

analysis of any labor statute, courts interpreting it have

held that it is FAAAA-preempted with regard to its second

statutory element as it relates to the trucking industry

because it affects prices, routes, or services by effectively

eliminating a particular employment or business model in

the trucking industry, and creating a patchwork of state

laws, contrary to the deregulation intent of Congress.

Sanchez v. Lasership, Inc., 937 F. Supp. 2d 730 (E.D. Va.

2013); Mass. Delivery Ass’n v. Coakley, 769 F.3d 11, 17

(1st Cir. 2014); Schwann v. FedEx Ground Package Sys.,

Inc., 813 F.3d 429 (1st Cir. 2016); Mass. Delivery Ass’n v.

Healey, 821 F.3d 187 (1st Cir. 2016).

18. In California Trucking Ass’n v. Su, __ F.3d __, 2018 WL

4288953 (9th Cir. 2018), the Ninth Circuit held that California’s

common law definition of an independent contractor, applied

generally by that State’s labor laws, was not FAAAA-preempted,

concluding that the FAAAA principally addressed barriers to

entry in trucking, tariffs, price regulations, and laws governing the

types of commodities carriers could transport. Id. at *4. The court

consequently reaffirmed Dilts, ruling that FAAAA preemption

did not extend to generally applicable “background regulation

in an area of traditional state power.” Id. The court determined

Dynamex to be inapplicable to its analysis. Id. at *3 n.4.

Although this case pertains only to the trucking

industry’s use of the owner/operator business model in the

unemployment compensation tax context, there is little

doubt that the assault on such a model is more general

both in Washington State and other states, requiring

this Court to articulate the correct FAAAA test so that

state re-regulation of the trucking industry in the guise

of applying state wage and hour, worker compensation,

or other laws will not continue unabated.19 Indeed, one of

the courts conceded that there is advocacy “from some

quarters” for applying ESD’s analysis of independent

contractors elsewhere. Swanson Hay, 404 P.3d at 528-29.

Effectively Ban the Use of the Owner/Operator

Business Model Affect Carrier Prices, Routes,

or Services and Are FAAAA- Preempted

Even if this Court’s analysis focuses solely on an

effective ban on the owner/operator business model in

19. As noted supra at n.10, Washington State’s effort to deny

trucking firms the use of the owner/operator model in wage and

hours laws and worker compensation, denominating those firms

a part of the “underground economy” persists. See also, e.g., Filo

Foods, LLC v. City of Sea-Tac, 357 P.3d 1040 (Wash. 2015) (local

minimum wage ordinance for airport-related hospitality and

transportation industries not ADA preempted); Henry Indus.,

Inc. v. Dep’t of Labor & Indus., 381 P.3d 172 (Wash. App. 2016)

(courier’s owner/operator drivers were carrier employees for

worker compensation purposes).

Moreover, the cases cited supra document that states like

California similarly assault the owner/operator business model

outside the narrow setting of unemployment compensation. See

Dynamex, Su, supra.

the unemployment compensation setting alone, those

statutes are preempted under the FAAAA and Rowe. The

Washington courts found insufficient impact on trucking

prices, routes, or services, despite unrebutted contrary

evidence that ESD’s conduct affected routes, prices, and

services. App. 42a-43a.

Larry Pursley, Executive Vice President of the

Washington Trucking Associations, Washington’s principal

trade organization for trucking firms, who has 33 years of

experience in the trucking industry, testified that ESD’s

assessments would imperil the structure of Washington’s

trucking industry. He explained that owner/operators

provide a flexible supply of equipment in an industry with

volatile demand. To meet this demand with employees,

carriers would need to maintain higher equipment and

personnel levels than the market calls for normally. The

added costs—not just of the equipment and the personnel,

but also of the associated expenses—would necessarily be

passed on to customers in the form of higher prices. Id.

Joe Rajkovacz, formerly OOIDA’s Director of Regulatory

Affairs, testified that ESD’s attempt to reclassify owner/

operators will undoubtedly lead to diminished economic

choices and reduced income for owner/operators. He also

testified that owner/operators located outside Washington

who lease equipment to carriers in Washington will enjoy

a competitive edge in the marketplace.

The reality of ESD’s effective ban on the owner/

operator model for trucking carriers in the unemployment

compensation tax context is that such carriers will be

put to a choice. They can restructure their business

and make all drivers company employees. 20 If they do

so, the impact on prices, routes, or services is manifest.

Trucking companies will face the expense of permanent

compensation and benefits for drivers as employees, even

when there are times when such permanent drivers are

unneeded due to the cyclical nature of service demand

for such companies. The carriers will be obliged to pay

state-mandated unemployment compensation taxes and

worker compensation premiums. 21 If trucking carriers

cannot use owner/operators, they will need to purchase

equipment for company drivers. Such equipment is not

cheap and may often sit idle as cargo needs fluctuate.

These are real costs.

This interference also has a logical effect on routes.

As the First Circuit in Schwann explained, independent

contractors assume “the risks and benefits of increased

20. In seeking to uphold ESD’s assertion, its counsel argued

below that trucking carriers could restructure their businesses

to treat owner/operators as employees in some contexts and

independent contractors in others. But that argument is unrealistic,

and impractical as the district court in Healey noted in rejecting

a similar argument, that such an approach was a “significant

burden,” that could be found nowhere in actual practice. Mass.

Delivery Ass’n v. Healey, 117 F. Supp. 3d 86, 95 (D. Mass), aff’d,

821 F.3d 187 (1st Cir. 2016). This fact alone makes crystal clear

the impact of Washington State’s regulation on carrier services.

21. The district court in Healey explained that the “potential

logical, if indirect, effect of Section 148B is to increase [the

carrier’s] prices by increasing its costs.” Healey, supra at 93. The

court ruled that the logical relation to prices could not be averted

simply by claiming that cost increases were slight. Id. Likewise,

the unemployment taxes here increase carriers’ costs now and in

the future.

or decreased efficiencies achieved by the selected routes,”

while employees would likely “have a different array of

incentives that could render their selection of routes less

efficient.” 813 F.3d at 439. Forcing a carrier to treat owner/

operators as employees relates to routes, in addition to

prices and services.

Finally, the states’ imposition of an unwanted

business model – employees rather than owner/operators

– on trucking firms impact trucking industry services. 22

FAAAA preemption is intended to prevent states from

substituting their “own governmental commands for

‘competitive market forces’ in determining (to a significant

degree) the services that motor carriers will provide.”

Rowe, 552 U.S. at 372 (quoting Morales, 504 U.S. at 378).

As the district court in Healey explained, if a carrier

wishes to fulfill on-demand requests for unscheduled

deliveries with employee drivers, it necessarily must have

on-call employees available. “Retaining on-call employees

22. Such a state effort to supplant the owner/operator

business model for trucking companies with a model of the

government’s choosing necessarily constitutes an effort by

Washington State to supplant market forces with State regulation,

something the FAAAA was specifically designed to forestall. As

the First Circuit noted in Schwann, whether to provide services

through employees or through independent contractors is a

significant business decision which “implicates the way in which

a company chooses to allocate its resources and incentivize

those persons providing the service.” Schwann, 813 F.3d at 438.

Washington State’s interference with carriers’ decision to lease

equipment would pose “a serious potential impediment to the

achievement of the FAAAA’s objectives because a court, rather

than the market participant, would ultimately determine what

services that company provides and how it chooses to provide

them.” Id.

forces [the carrier] to incur costs that translate into

increased prices. . . . Conversely, if [the carrier] endeavors

to maintain its current prices, then the practical effect

of [the statute] is to force it to abandon a service now

demanded by the competitive marketplace.” 117 F. Supp.

3d at 93.

The other option available to trucking carriers faced

with an interpretation of unemployment compensation tax

laws like that of the Washington courts is to retain the

owner/operator model for unemployment compensation

taxation and then risk whether such an admission that

owner/operators are carrier employees in that setting will

not be used against them in other settings like wage and

hours laws or worker compensation. Such an uncertain

prospect is a nightmare for carriers.

To remain competitive, trucking firms that rely on

owner/operators as a flexible supply of equipment will

have to change how they do business, adopting some

combination of: (a) reducing their capacity to respond

to f luctuating demand for transportation services;

(b) increasing their operating costs by adding new

employees and equipment, which would sit idle during

leaner times; or (c) raising prices to account for increased

costs and/or taxes. In fact, further evidencing the adverse

impact of ESD’s actions, Washington State even imposes

a higher tax rate on businesses using a flexible personnel

model. ESD punishes businesses using a flexible personnel

model with short-term employees to fill temporary surges

in demand, by increasing their tax rate whenever their

employees file for unemployment compensation. See Wash.

Rev. Code § 50.29.021(2), .025; Wash. Admin. Code § 192320-005. Indeed, a trucking carrier would be at risk of

an unemployment claim, and corresponding tax increase,

any time an owner/operator’s income is reduced by 25%

or more. See Wash. Rev. Code § 50.20.050(2)(b)(v). ESD

incentivizes businesses that favor permanent employees

and discourages businesses that seek to use a flexible

workforce. All of these changes from the owner/operator

business model constitute a direct interference with

carriers’ services.

In sum, the Washington courts interpretation of state

unemployment compensation laws joins an interpretation

of such laws by other states that affects carrier prices,

routes, or services within the meaning of the FAAAA.

This Court should grant review to vindicate the critical

federal policy of deregulation in the trucking industry

and to avoid the effective state re-regulation of trucking. 23

(2) Compliance with Federally-Mandated Lease Terms

in 49 C.F.R. § 376.12 Is Not Evidence of Carrier

Control over Owner/Operators for State Law

Purposes

Despite a contrary federal regulation, the Washington

courts held that state agencies could treat federallymandated elements in equipment leases as evidence of

23. A patchwork of state laws is not mere rhetoric.

Washington’s neighboring states, Oregon and Idaho, for example,

have held carriers to be exempt from taxation for owner/operators.

See CEVA Freight, LLC v. Employment Dep’t, 279 Or. App. 570,

379 P.3d 776, review denied, 360 Or. 751 (2016); Home Transp.,

Inc. v. Idaho Dep’t of Labor, 318 P.3d 940 (Ida. 2014). As noted

supra, Gulick has its headquarters near Oregon

carrier direction or control over owner/operators. 24 Such a

determination flouts federal law. This Court should grant

review to make clear that this is impermissible.

Wash. Rev. Code § 50.04.140(1)(a) required the

carriers to document that the owner/operators have been

“and will continue to be free from control or direction over

the performance of such service, both under his contract of

service and in fact.” The leasing agreements with owner/

operators utilized by all of the petitioners contained terms

mandated by 49 C.F.R. Part 376.

Those federally-mandated lease terms governing the

relationship between carriers and owner/operators are

extensive. 25 ESD concluded in each case that federally24. The Swanson Hay court focused on the fact that owner/

operators do not operate under their federal licenses. 404 P.3d at

540-41. But federal law requires owner/operators to operate under

a trucking carrier’s FMCSA license. See 49 C.F.R. § 376.11(c).

Simply put, owner/operators are not owner/operators if they

operate under their own federal authority.

25. In addition to the provisions of 49 C.F.R. §§ 376.11 and

376.12 referenced supra, federal law even dictates that carriers must

give written authorization for owner/operators to have passengers

in a truck. 49 C.F.R. § 392.60. ESD used that fact against Gulick.

App. 57a. ESD highlighted the fact that the petitioners must provide

written authorization for equipment to be leased to other carriers. Id.

This is a federal requirement, 49 C.F.R. § 376.22, designed to ensure

accountability for the leased equipment. ESD also highlighted such

cargo-protection requirements as owner/operators’ responsibility to

maintain equipment in good operating condition and supply safety

devices. App. 58a. But properly functioning equipment that does

not break down en route is important to the safety of the motoring

public, ensures that a carrier’s contractual purpose is achieved,

and avoids liability exposure for the trucking carrier. ESD noted

mandated lease provisions established “control” by the

petitioners, even though those trucking carriers exerted

little actual control over how the owner/operators

performed the trucking services in question. The owner/

operators decided whether to take a load, who would

drive the truck, the route the truck would take, and the

hours of truck operation, to name a few. ESD’s conclusion

fundamentally misstates the law in two very key respects.

The carrier petitioners did not exercise control over

the owner/operators merely because they complied with

federally-mandated equipment lease terms. 49 C.F.R.

Part 376. 26 Western Ports v. Emp’t Sec. Dep’t, 41 P.3d 510

(Wash. App. 2002), affirmed by the Washington court

decisions here, was wrong as to this issue.

Those mandatory federal equipment lease terms

carry out federal motor carrier safety policy. Anticipating

that states would attempt to do exactly what ESD has

done here, the federal government dealt with one of the

mandatory lease terms – mandating that the carrier

have exclusive control over the leased equipment – by

expressly providing that “[n]othing” in the “exclusive use”

further that the petitioners have the right to take possession of the

equipment to complete a shipment if the owner/operator breaches the

contract. App. 57a-58a. But completion of contracts is not just related

to services––it is the service that carriers offer their customers.

26. 49 U.S.C. § 14102(a) provides for federal regulation of

a carrier’s lease of motor vehicle equipment. This regulation

is necessary for the efficient management of the motor carrier

industry. Jessica Goldstein, The Lease and Interchange of Vehicles

in the Motor Carrier Industry, 32 Transp. L.J. 131 (Spring 2005).

49 C.F.R. § 376.11 et seq. dictates the specific terms and conditions

by which a carrier may perform authorized transportation in

equipment it does not own

requirement “is intended to affect whether the lessor or

driver provided by the lessor is an independent contractor

or an employee of the authorized carrier lessee.” 49 C.F.R.

§ 376.12(c)(4).

Recognizing that state authorities were confused

about the impact of federally-mandated exclusivity

on state law control issues, before the full federal

deregulation of trucking, the Interstate Commerce

Commission promulgated the predecessor to 49 C.F.R.

§ 376.12(c)(4), and issued an explanation for that regulation,

emphasizing that “exclusive possession, control, and use”

of an owner/operator’s equipment was to have no impact on

state law determinations of control over owner/operators.

1992 WL 17965. That agency reinforced that position in

a subsequent 1994 declaratory order. 1994 WL 70557. 27

27. The court in Swanson Hay asserted that the ICC’s

ostensible rationale for its rule was incorrect. 404 P.3d at 532. But

that court neglected to reference the 1992 ICC guidance, published

when § 376.12(c)(4) was promulgated, which stated that “most

courts have correctly interpreted the appropriate scope of the

control regulation and have held that the type of control required

by the regulation does not affect ‘employment’ status....” Petition

to Amend Lease & Interchange of Vehicle Regulations, 8 I.C.C.2d

669, 671 (I.C.C. June 29, 1992) (emphasis added). But “some courts

and State workers’ compensation and employment agencies”

had improperly used compliance with the leasing regulations as

“prima facie evidence of an employer-employee relationship” and

had erroneously found that it “evidences the type of control that

is indicative of an employer-employee relationship.” Id. (emphasis

added). The intent of this section was not limited to rejecting some

notion of federal vicarious liability. It was to disabuse courts and

state administrative agencies of the notion that compliance with

the federal requirement was prima facie evidence of an employeremployee relationship between carriers and owner/operators.

With regard to the other specific lease terms mandated

in 49 C.F.R. Part 376 for inclusion in a carrier-owner/

operator equipment lease agreement it is no different.

The federal government, not the carrier, imposes the lease

requirements on both the carrier and owner/operator.

Thus, any “control” exercised is that of the federal

government, not the carrier, and it is exercised over both

parties. Ensuring compliance with federal regulatory and

safety requirements is not evidence of a carrier right to

control the owner/operator. 28

In Western Ports, the Washington court determined

that ESD could properly consider all such federallymandated controls in applying the statutory test for

exemption. Western Ports is wrong in light of the specific

language of 49 C.F.R. § 376.12(c)(4) and the reason for

the federal mandate of lease terms in 49 C.F.R. Part 376.

Plainly, the carriers did not mandate such factors. When

28. See, e.g., Reed v. Indus. Comm’n, 534 P.2d 1090 (Ariz.

App. 1975) (government regulations imposed on carriers and, in

turn, applied to owner/operators do not indicate control); Sida

of Hawaii, Inc. v. NLRB, 512 F.2d 354, 359 (9th Cir. 1975) (“fact

that a putative employer incorporates into its regulations controls

required by a government agency does not establish an employeremployee relationship.”); Pouliot v. Paul Arpin Van Lines, Inc.,

292 F. Supp. 2d 374, 383 (D. Conn. 2003) (lease regulations have no

impact on the type of relationship that exists between the parties

to the lease); Tamez v. S.W. Motor Transp., Inc., 155 S.W.2d 564,

573 (Tex. Civ. App. 2004) (existence of lease does not have any

impact on relationship between owner/operator and trucking firm);

Hernandez v. Triple Ell Transp., Inc., 175 P.3d 199, 205 (Idaho

2007) (adherence to federal law” was not evidence of a carrier’s

control over an owner/operator); Wilkinson v. Palmetto State

Transp. Co., 676 S.E.2d 700, 705 (S.C. 2009), cert. denied, 130 S.

Ct. 741 (2009) (federal regulation “is not intended to affect” the

independent contractor determination under state law).

the government controls the contract provisions, it is

the government, not the contracting parties, exercising

control. Western Ports also missed the point recognized

by the Remington court that the FAAAA itself may also

preempt its analysis. 2016 WL 4975194 at *5.

As evidenced by the terms of 49 C.F.R. § 376.12(c)(4)

on exclusivity, the case law from numerous jurisdictions

opining that compliance w ith federally-mandated

directives is not evidence of control for state law purposes,

and Western Ports, there is a split of authority on the

question of whether compliance with federal law mandates

may, in effect, be used against parties under state law.

This Court should grant review to vindicate the federal

policy and to prevent states from using the federallyrequired provisions of 49 C.F.R. Part 376 in equipment

leases against carriers in determining if they control

owner/operators for state law purposes.

CONCLUSION

Lower courts are misapplying this Court’s FAAAA

precedents, creating an exemption from the broad federal

preemption of local laws directed by Congress in that

statute for “background laws of general applicability.” The

FAAAA’s language does not authorize such an exception

to Congressional policy any more than did “public health”

in Rowe.

The business model for an entire industr y is

implicated by the Washington courts’ decisions here.

That business model drives today’s modern trucking

industry. Washington, like many other states utilizing a

similar definition of an independent contractor, effectively

eliminates the use of owner/operators in the unemployment

compensation tax setting, adversely affecting carrier

prices, routes, and services. Washington’s Wash. Rev.

Code § 50.04.140 is preempted by the FAAAA, when

properly analyzed.

Further, state courts are using trucking carrier

compliance with federally-mandated equipment lease

provisions to find that carriers “control” independent

contractors for state law purposes. This is but an aspect

of attempted re-regulation of trucking carriers despite

Congressional de-regulation policy.

This Court should grant Gulick’s petition and reverse

the decision of the Washington court.

DATED this 10th day of October, 2018.

Respectfully submitted,

A aron Riensche

Philip A. Talmadge

Ogden Murphy

Counsel of Record

Wallace, P.L.L.C.

Talmadge/Fitzpatrick /Tribe

901 Fifth Avenue, Suite 3500 2775 Harbor Avenue SW

Seattle, WA 98164

Third Floor, Suite C

(206) 447-7000

Seattle, WA 98126

(206) 574-6661

phil@tal-fitzlaw.com

Attorneys for Petitioner

APPENDIX

Appendix A

APPENDIx A — UNPuBLISHED

OPINION IN

THE COuRT OF aPPEaLS OF THE STaTE OF

WaSHINGTON, DIVISION II,

FILED JaNuaRY 23, 2018

IN COURT OF APPEaLS OF THE STATE

OF WaShinGTOn, DiViSiOn ii

December 7, 2017, Oral Argument;

January 23, 2018, Filed

No. 49646-1-II

GULicK TRUcKinG, Inc.,

A WASHINGTON CORPORATION,

Appellant,

STATE OF WASHINGTON EMPLOYMEnT

SEcURiTY DEPaRTMEnT,

Respondent.

UNPUBLISHED OPINION

JohAnson, J. — Gulick Trucking Inc. seeks review

of the Employment Security Department’s (ESD)

assessment of delinquent unemployment insurance taxes

on the basis that Gulick’s truck drivers were covered

employees, rather than independent contractors, under

Washington’s Employment Security Act (ESA), Title

50 RCW. Gulick argues that federal law preempts the

Appendix A

ESD from reclassifying Gulick’s owner-operator drivers

as covered employees and, alternatively, that Gulick

established all three prongs of the ESA’s independent

contractor exemption. We follow the decision of Division

Three of this court in Swanson Hay Co. v. Employment

Security Department, 1 Wn. App. 2d 174, 404 P.3d 517

(2017), and affirm the ESD commissioner’s decision.

FACTS

I. BaCkgrOunD

Gulick is an interstate motor carrier based in

Vancouver, Washington that provides refrigerated carrier

services. Gulick employs both company drivers, who

drive equipment leased by Gulick, and owner-operators,

who drive equipment that they either own or lease from

third parties. The majority of Gulick’s drivers are owneroperators, and by relying on owner-operators, Gulick

ensures that it has the flexibility to meet fluctuating

demand without having to purchase trucks and trailers

or terminate employees when demand lags.

II. esD AuDit anD AssessMent OrDer

In 2012, the ESD audited Gulick and reclassified

120 ow ner-operators as Gulick’s “employees” for

unemployment insurance tax purposes under the ESA.

The ESD issued an order and notice of assessment

for delinquent contributions, penalties, and interest.

Stipulations between the parties subsequently reduced

the total amount owed.

Appendix A

III. OffiCe Of ADMinistrative hearings PrOCeeDings

Gulick appealed the ESD’s order and assessment

notice to the Office of Administrative Hearings (OAH).

Before Gulick’s hearing, it moved for summary judgment,

arguing that the Federal Aviation Administration

Authorization Act of 1994 (FAAAA), 49 U.S.C. § 14501,

preempted reclassification of its owner-operators under

the ESA.1

An administrative law judge (ALJ) denied Gulick’s

summary judgment motion regarding federal preemption

as a matter of law, and the parties stipulated that Gulick’s

supporting declarations would be included in the record

for purposes of appeal. Regarding the reclassification of

Gulick’s owner-operators as covered “employees,” after

an evidentiary hearing, the ALJ also entered an initial

order that Gulick’s owner-operators were in Gulick’s

employment and that they were not exempt independent

contractors.

1. The FAAAA’s preemption statute applies to motor carriers

of property and subject to exceptions not relevant here says that

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 any motor

carrier (other than a carrier affiliated with a direct

air carrier …) or any motor private carrier, broker, or

freight forwarder with respect to the transportation

of property.

49 U.S.C. § 14501(c)(1).

Appendix A

IV. eSD COMMissiOner PrOCeeDings

Gulick then petitioned the commissioner for review

of the OAH’s summary ruling and initial order. The

commissioner affirmed the OAH’s decision. 2

First, the commissioner addressed Gulick’s federal

preemption argument. The commissioner summarized

Gulick’s declarations submitted in support of its OAH

summary judgment motion, in which various industry

authorities described the reclassification’s impact. The

commissioner then adopted the OAH’s analysis that the

FAAAA did not preempt the ESA, as applied to motor

carriers in the trucking industry.

Second, the commissioner concluded that the owneroperators were in Gulick’s “employment,” as defined by

the ESA.

Third, the commissioner examined whether the

ESA’s independent contractor exemption applied and

analyzed each of the exemption’s three prongs. In doing

so, the commissioner relied extensively upon the owneroperators’ contracts with Gulick. 3

Under the first prong, “freedom from control or

direction,” the commissioner noted “some autonomy” of

2. The commissioner’s 33-page order did not delineate

individually numbered findings and conclusions.

3. The parties agree that the contracts in our record are

materially identical.

Appendix A

owner-operators. Administrative Record (AR) at 1128.

Namely, owner-operators could reject loads offered by

Gulick; could arrange for loads with other brokers; selected

their own routes; were responsible for proper and secure

loading and providing labor to load, transport, and unload

commodities; paid equipment operation, maintenance, and

repair costs; maintained various insurances; and had the

right to employ drivers and had sole responsibility over

their employees.

However, the commissioner concluded that Gulick

failed to show that its owner-operators were free from

Gulick’s control or direction. Gulick “exert[ed] extensive

controls over the methods and details of how the driving

services are to be performed” that were “generally

incompatible with freeing the owner-operators from

[Gulick’s] control and direction.” AR at 1129, 1130. That

is, Gulick exclusively possessed, controlled, and used

trucking equipment during the agreement’s term, and

owner-operators could not transport unauthorized

passengers or property and had to display identification

showing that Gulick was operating the equipment and

immediately remove the identification from the equipment

when the agreement terminated. Gulick could fine owneroperators for failure to meet appointments or follow

temperature requirements and could retake possession

of equipment and complete a failed delivery.

Further, Gulick required owner-operators to conduct

daily equipment inspections and deliver vehicle inspection

reports. Gulick required that owner-operators furnish

accessories to load and transport freight, contact Gulick

Appendix A

immediately in event of incidents, check that cargo

conformed to the loading manifest, and notify Gulick of

discrepancies or be fined. Gulick also required owneroperators to pay usage fees and furnish accessories to

install a telecommunication device in their trucks and to

cooperate fully with dispatch and transport commodities

in a manner that promoted Gulick’s goodwill and

reputation. Finally, Gulick could terminate the agreement

upon a number of conditions, including failure to maintain

equipment as defined by Gulick’s maintenance guidelines.

Under the second prong, the commissioner concluded

that Gulick failed to meet either alternative: that the

services be performed outside Gulick’s usual course of

business or all places of business of Gulick for which such

service was performed.

Under the third prong, whether owner-operators were

independently established businesses, the commissioner

noted that “some of the traditional factors” weighed in

favor of finding independently established businesses.

AR at 1138. For instance, some owner-operators had

registered sole proprietorships. And owner-operators

provided their own trucks and other supplies, made

substantial investments in their businesses by purchasing

trucks or trailers, and operated their businesses in their

trucks. Other traditional factors weighed against such

a finding—Gulick provided protection from customers’

nonpayment, owner-operators could not haul third-party

loads without Gulick’s permission, owner-operators had

to display Gulick’s identification on their equipment, and

Gulick prohibited owner-operators from competing or

Appendix A

soliciting customers for the term of an agreement plus

five years.

Ultimately, the commissioner concluded that

the evidence weighed against owner-operators being

independent contractors based on an additional, industryspecific consideration: “whether an owner-operator has his

or her own [federal] operating authority so as to be able

to independently engage in interstate transportation of

goods.” AR at 1139. Because owner-operators did not have

operating authority to independently engage in interstate

transportation of goods, this “paramount” factor weighed

against them being independent contractors. Having

concluded that the reclassification was not preempted and

that Gulick failed to meet any of the three prongs for the

independent contractor exemption under the ESA, the

commissioner affirmed the OAH.

V. JuDiCial RevieW

Gulick sought review of the commissioner’s decision

in the superior court. After the superior court affirmed

the commissioner’s decision, Gulick appealed.

ANALYSIS

I. eSA BaCkgrOunD anD StanDarDs Of RevieW

The ESA requires “employers” to pay unemployment

insurance taxes for persons engaged in “employment.”

Wash. Trucking Ass’ns v. Emp’t Sec. Dep’t, 188 Wn.2d

198, 203, 393 P.3d 761, cert. denied, 138 S. Ct. 261 (2017).

Appendix A

Under RCW 50.04.100, “employment” includes “personal

service, of whatever nature” performed under a contract.

The ESA definition of employment is “exceedingly

broad” and includes even those who are “independent

contractors” at common law, W. Ports Transp., Inc. v.

Emp’t Sec. Dep’t, 110 Wn. App. 440, 458, 41 P.3d 510

(2002), “so long as they perform ‘personal services’ under

a contract and an exemption does not apply.” Wash.

Trucking Ass’ns, 188 Wn.2d at 203. In the employment

security context, the relationship between two parties “is

more likely … to be viewed as employment [than in any

other context].” Swanson Hay, 1 Wn. App. 2d at 181.

A n agg r ieved employer may appeal an ESD

assessment to an ALJ. RCW 50.32.010, .030. Review

of the ALJ’s decision is by the commissioner, and the

commissioner’s ruling is subject to judicial review under

the Administrative Procedures Act (APA), ch. 34.05 RCW.

RCW 50.32.070, .120. Under the APA, we review the

commissioner’s ruling, not the ALJ’s or superior court’s

ruling. Campbell v. Emp’t Sec. Dep’t, 180 Wn.2d 566, 571,

326 P.3d 713 (2014). “[W]e apply the appropriate standards

of review from [the APA,] RCW 34.05.570[,] directly to the

agency record.” Affordable Cabs, Inc. v. Dep’t of Emp’t

Sec., 124 Wn. App. 361, 366, 101 P.3d 440 (2004).

The party challenging the agency’s action bears the

burden of demonstrating its invalidity. RCW 34.05.570(1)

(a). Our review is de novo, and we grant relief if “[t]he

agency has erroneously interpreted or applied the law.”

RCW 34.05.570(3)(d); Affordable Cabs, 124 Wn. App. at

367.

Appendix A

II. Swanson Hay

Swanson Hay addresses the same issues on virtually

identical facts to those presented here. See 1 Wn. App. 2d

174, 404 P.3d 517. Although opinions of other divisions of

this court are not binding on us, we should follow them if

their reasoning is sound. West v. Pierce County Council,

197 Wn. App. 895, 899, 391 P.3d 592 (2017). We agree

with Swanson Hay’s analysis, and, accordingly, we adopt

its reasoning and result to resolve the primary issues

presented here, as set forth below.

III. FeDeral PreeMptiOn

The parties dispute whether the FAAAA preempted

reclassification of Gulick’s owner-operators for ESA

purposes. We agree with Swanson Hay that the FAAAA

does not preempt the reclassification.

The FAAAA’s preemption statute prohibits states

from enacting or enforcing “a law, regulation, or other

provision having the force and effect of law related to

a price, route, or service of any motor carrier … or any

motor private carrier, broker, or freight forwarder with

respect to the transportation of property.” 49 U.S.C.

§ 14501(c)(1). Swanson Hay held that this statute did not

preempt the ESD from assessing unemployment taxes

on amounts paid to owner-operators. 1 Wn. App. 2d at

198. Swanson Hay reached this conclusion after rejecting

reliance on Western Ports and determining that the ESA’s

definition of “employment” applied only to the imposition

of unemployment insurance taxes. 1 Wn. App. 2d at 190-92,

194. The carriers failed to show that the reclassification

10a

Appendix A

essentially dictated their prices, routes, or services, so

that their preemption arguments failed. Swanson Hay, 1

Wn. App. 2d at 196-98.

We adopt this analysis, and we hold that as a matter

of law, the FAAAA does not preempt the reclassification

at issue here.

IV. InDepenDent COntraCtOr exeMptiOn

Gulick does not assert that the commissioner erred

when it determined that the owner-operators were in

Gulick’s “employment” under the ESA. Rather, the

parties dispute whether the commissioner erred when

it determined that Gulick failed to meet any of the three

prongs of the independent contractor exemption to the

ESA. We hold that the commissioner correctly determined

that Gulick failed to meet the first and third prongs and,

accordingly, we affirm the commissioner’s decision.4

In addition to reviewing questions of law de novo, we

review the commissioner’s factual findings for substantial

evidence—that which is sufficient to persuade a fairminded person of the truth or correctness of the agency’s

order. Affordable Cabs, 124 Wn. App. at 367; RCW

34.05.570(3)(e).

To show that an owner-operator fits within the

independent contractor exemption, the carrier must show

that

4. We do not reach the second prong.

11a

Appendix A

(1)(a) [s]uch individual has been and will

continue to be free from control or direction

over the performance of such service, both

under his or her contract of service and in fact;

and

(b) Such service is either outside the usual

course of business for which such service is

performed, or that such service is performed

outside of all the places of business of the

enterprises for which such service is performed;

and

an independently established trade, occupation,

profession, or business, of the same nature as

that involved in the contract of service.

RCW 50.04.140. The carrier must establish all three

prongs. W. Ports, 110 Wn. App. at 452. We must construe

exemptions to the ESA narrowly. RCW 50.01.010; Wash.

Trucking Ass’ns, 188 Wn.2d at 203.

In Swanson Hay, the carriers failed to show that

owner-operators met the first or third prongs of the

independent contractor exemption so that the owneroperators were not exempt from ESA coverage. 1 Wn.

App. 2d at 215, 219.

12a

Appendix A

A. FreeDOM frOM COntrOl Or DireCtiOn

The first prong of the independent contractor

exemption is whether an “individual has been and will

continue to be free from control or direction over the

performance of such service, both under his or her contract

of service and in fact.” RCW 50.04.140(1)(a). Gulick

asserts that the commissioner erred when it determined

that the owner-operators were not free from Gulick’s

control and direction. Gulick advances several arguments

in support of its position—that the commissioner (1)

mischaracterized lease terms and misapplied the law by

relying on (2) federally required terms, (3) terms showing

“general contractual rights,” and (4) terms showing mere

obligations or liquidated damages. Br. of Appellant at 15.

These arguments fail for the reasons set forth below.

1. Legal PrinCiples

Related to the first prong of the independent

contractor exemption, the commissioner may consider

federally mandated terms in carriers’ contracts with

owner-operators to determine whether the owneroperators were free from control or direction. Swanson

Hay, 1 Wn. App. 2d at 212. A federal regulation, 49 C.F.R.

§ 376.12(c)(4), states that certain federally required

provisions are not intended to affect whether the driver

is an independent contractor of the authorized carrier

lessee. This regulation does not dictate what terms states

may consider when determining whether a carrier has

shown that its drivers are free from control or direction.

Swanson Hay, 1 Wn. App. 2d at 203.

13a

Appendix A

Additionally, statutory, not common law, definitions

are applicable to the definitions of “‘employment’” and

“‘freedom from control’” under the ESA. Swanson Hay,

1 Wn. App. 2d at 206-08.

2. MisCharaCterizatiOn Of Lease TerMs

Gulick argues that certain contract provisions’

references to “equipment” show that the provisions

were evidence of control over the equipment, not over

the owner-operators. Thus, Gulick argues that the

commissioner erred when it relied on these provisions to

show control over owner-operators. 5 We disagree.6

The commissioner found that many lease terms that

referred to the “equipment” showed control over owneroperators. The provisions allowed Gulick to complete a

delivery if an owner-operator failed to deliver a shipment,

required owner-operators to complete inspections of

the equipment at certain times, allowed Gulick to place

equipment out of service that did not meet federal or

Gulick’s standards, required owner-operators to provide

loading and transportation accessories, forbade owneroperators from transporting unauthorized people or

property, required owner-operators to display Gulick’s

5. Gulick argues that the commissioner improperly relied

upon terms showing control over equipment as showing control

over owner-operators. Gulick provides no legal argument, and its

argument is an attack on whether substantial evidence supports the

commissioner’s determination in this regard. Thus, it is addressed

first.

6. Swanson Hay did not address a similar argument.

14a

Appendix A

identification during the term of the agreement, allowed

Gulick to terminate an agreement for reasons including

an owner-operator’s failure to maintain the equipment

by Gulick’s guidelines, and required owner-operators to

install a communications device in the equipment.

Nearly all of these provisions also expressly reference

the owner-operator. By requiring the owner-operator to

do something, these provisions are evidence of control

over the owner-operator. Further supporting that the

contracts contemplate control over the owner-operators

is that the first section of the contract is titled “furnishing

of transportation service.” AR at 327 (capitalization and

underlining omitted). The cited contract provisions and

the contract as a whole thus provide evidence sufficient

to persuade a fair-minded person that the contract

contemplated control over the owner-operators. The

commissioner’s finding that the contract was evidence of

control over “driving services” is accordingly supported

by substantial evidence. See Affordable Cabs, 124 Wn.

App. at 367. The commissioner did not err when it relied

on contract provisions that showed control over the

equipment as well as over owner-operators.

3. FeDerally RequireD TerMs

Gulick argues that the commissioner misapplied the

law when it relied on federally required terms.7 But in

7. These terms included the following: furnish and display

Gulick’s identification, 49 C.F.R. § 376.11(d)(1); Gulick’s exclusive

possession, control, and use of the equipment during the agreement,

49 C.F.R. § 376.12(c)(1); daily equipment inspections and delivery

15a

Appendix A

Swanson Hay, Division Three of this court rejected the

same argument and held that RCW 50.04.140 has “no

textual basis for concluding that the control exercised

by the employer must be control it has freely chosen to

exercise, as opposed to control it is required to exercise

by law.” 1 Wn. App. 2d at 210. We follow Division Three’s

reasoning that “federally mandated control counts” and

reject Gulick’s argument to the contrary. Swanson Hay,

1 Wn. App. 2d at 212. RCW 50.04.140 does not limit the

evidence of freedom from control or direction to only

freely chosen employer control. Swanson Hay, 1 Wn. App.

2d at 211.

Gulick also identifies a specific federal regulation,

49 C.F.R. § 376.12(c), that Gulick claims bars the ESD

from looking to federally required contract provisions.

But again, Swanson Hay examined and rejected this

argument. 1 Wn. App. 2d at 201-03. Swanson Hay

identified the provision, which states that certain required

provisions are not intended to affect whether the driver is

an independent contractor, as showing that the provisions

were not intended to create “federal-law based vicarious

liability.” 1 Wn. App. 2d at 201. We agree that 49 C.F.R.

§ 376.12(c)’s language does not bar the ESD from looking to

federally required contract provisions when determining

employer control. Thus, we reject Gulick’s argument. 8

of reports, 49 C.F.R. § 379 app. A, part K(2); 49 C.F.R. § 396.11; 49

C.F.R. §§ 396.3, .13; and Gulick’s right to place equipment out of

service that did not meet federal standards, 49 C.F.R. § 385.5.

8. At oral argument, Gulick faulted Swanson Hay’s analysis

of this issue because Gulick claimed that the Swanson Hay decision

16a

Appendix A

4. “General COntraCtual Rights”

Gulick argues that the commissioner erred because

it relied on “general contractual rights”—the rights

to supervise and ensure compliance. Br. of Appellant

at 19. This argument derives from Seattle Aerie No. 1

of the Fraternal Order of Eagles v. Commissioner of

Unemployment Compensation & Placement, 23 Wn.2d

167, 160 P.2d 614 (1945). But as Swanson Hay recognized,

Seattle Aerie’s reliance upon common law principles to

define an independent contractor was overruled by the

legislature when it enacted RCW 50.04.100. 1 Wn. App. 2d

at 205. That statute defines ESA-covered “employment”

as “unlimited by the relationship of master and servant as

known to the common law or any other legal relationship.”

RCW 50.04.100. We agree with Swanson Hay on this

point.

failed to consider the Interstate Commerce Commission’s 1992

statement that federally required control does not affect employment

status and is meant to have a neutral effect. Wash. Court of Appeals

oral argument, Gulick Trucking, Inc. v. Emp’t Sec. Dep’t, No. 496461-II (Dec. 7, 2017) at 13 min., 44 sec. (on file with court); see Petition

to Amend Lease & Interchange of Vehicle Regulations, 8 I.C.C.2d

669, 671 (I.C.C. June 29, 1992). But Swanson Hay relied upon the

language of the neutrality provision itself, which similarly expresses

that the regulations are not intended to affect “employment” status.

49 C.F.R. 376.12(c)(4). Further, the 1992 statement that Gulick points

out is consistent with Swanson Hay’s reasoning that the neutrality

provision takes a “‘hands off’ approach … to deciding matters of

state law.” 1 Wn. App. 2d at 202. Gulick’s argument is unpersuasive

as a reason to depart from Swanson Hay’s holding that federally

required terms count when determining control under the ESA.

17a

Appendix A

Relatedly, Gulick argues that the term “control or

direction” in RCW 50.04.140(1)(a) is undefined so that

common-law tests apply. Again, Swanson Hay rejects

this argument by correctly reasoning that the common

law understanding of control does not apply to cases

under Title 50 RCW because the legislature chose to

abandon common law definitions when it adopted RCW

50.04.140(1)(a). 1 Wn. App. 2d at 207. We adopt Swanson

Hay’s reasoning and reject Gulick’s arguments about

“general contractual rights.”

5. COntraCtual ObligatiOns anD LiquiDateD DaMages

Gulick contends that something more than contractual

obligations must be identified in order to conclude that

an individual is subject to control or direction. And

Gulick argues that liquidated damages cannot be used as

evidence of control. We reject Gulick’s arguments.9

A contractual obligation is a legal duty that arises

from a contract. blAck’s LAW dIctIonAry 1242-43 (10th

ed. 2014). Liquidated damages are amounts contractually

stipulated as a reasonable estimation of damages in the

event of a breach. blAck’s 473.

Gulick provides no authority or legal argument for why

contractual obligations and liquidated damages cannot be

evidence of control or direction under RCW 50.04.140(1)

(a). Rather, Gulick relies upon speculation that only an

illusory contract would not contain evidence of control and

9. Swanson Hay did not address a similar argument.

18a

Appendix A

argument that it is commercially reasonable to include

liquidated damages clauses. Because Gulick bears the

burden to show that the independent contractor exemption

applies, its arguments fail. See Swanson Hay, 1 Wn. App.

2d at 215.

Further, it is logical that contractual obligations

are evidence of control if they are obligations to perform

some aspect of the service for which an individual is

compensated. Similarly, by incentivizing compliance with

contractual obligations, liquidated damages provisions can

also be evidence of control. We reject Gulick’s arguments.

6. COnClusiOn RegarDing FreeDOM frOM COntrOl anD

DireCtiOn

Gulick’s arguments that the commissioner erred

when it determined that Gulick failed to show that the

owner-operators were free from control or direction all

fail. The commissioner properly relied upon evidence

that Gulick exerted control and direction over the owneroperators—Gulick’s exclusive possession, control, and

use of the trucking equipment during the agreement’s

term; fines for failure to meet appointments or follow

temperature requirements; Gulick’s ability to retake

possession of equipment and complete a failed delivery

and to terminate the agreement upon a number of

conditions; the prohibition against owner-operators

transporting unauthorized passengers or property; and

the requirements that owner-operators had to display

identification showing Gulick operated the equipment,

remove the identification when the agreement terminated,

19a

Appendix A

conduct daily equipment inspections, deliver vehicle

inspection reports, furnish accessories to load and

transport freight, contact Gulick immediately in event of

incidents, check that cargo conformed to loading manifests,

notify Gulick of discrepancies or be fined, pay usage fees

and furnish accessories to install a telecommunication

device in their trucks, cooperate fully with dispatch, and

transport commodities in a manner that promoted Gulick’s

goodwill and reputation.

Accord i ngly, we a f f i r m the com m issioner ’s

determination that Gulick failed to establish the

independent contractor exemption under the first prong.

Thus, the owner-operators were covered employees under

the ESA.

B. CustOMarily engageD in an InDepenDently

establisheD Business

The third prong of the independent contractor

exemption is whether “[s]uch individual is customarily

engaged in an independently established trade, occupation,

profession, or business, of the same nature as that involved

in the contract of service.” RCW 50.04.140(1)(c). Gulick

argues that the commissioner erred under this prong

when it overlooked evidence of independently established

businesses and instead relied upon evidence that owneroperators did not have their own federal operating

authority. Based on Swanson Hay, we disagree.

We traditionally rely upon a seven-factor test to

determine whether an alleged employee was engaged in

an independently established business:

20a

Appendix A

(1) [W]orker has separate office or place of

business outside of the home; (2) worker has

investment in the business; (3) worker provides

equipment and supplies needed for the job; (4)

the alleged employer fails to provide protection

from risk of injury or non-payment; (5) worker

works for others and has individual business

cards; (6) worker is registered as independent

business with state; and (7) worker is able to

continue in business even if relationship with

alleged employer is terminated.

Swanson Hay, 1 Wn. App. 2d at 216 (quoting Penick v.

Emp’t Sec. Dep’t, 82 Wn. App. 30, 44, 917 P.2d 136 (1996)).

The seventh factor is the most important. Swanson Hay,

1 Wn. App. 2d at 216. Further, in the trucking industry,

whether the owner-operators have independent federal

operating authority is relevant under the third prong.

Swanson Hay, 1 Wn. App. 2d at 218.

Here, the commissioner determined that some

factors weighed in favor of owner-operators having

independently established businesses: their places of

business were outside their homes, in their trucks (factor

1); they made substantial investments (factor 2); they

provided equipment and supplies (factor 3); and some

had registered sole proprietorships during the covered

period (factor 6). But the remaining factors, including the

most important factor, weighed against owner-operators

having their own businesses: Gulick provided protection

against nonpayment (factor 4), and Gulick forbade its

owner-operators from working for other carriers without

21a

Appendix A

permission or competing with Gulick during or for five

years following the agreement (factor 5).

Most importantly, none of the owner-operators had

their own operating authority because they all chose to

operate under Gulick’s authority (factor 7). See Swanson

Hay, 1 Wn. App. 2d at 218. The commissioner explained

that “one of the unique characteristics about the trucking

industry is the federal requirement that an owneroperator obtain an operating authority … in order to

engage in the business of transporting goods in interstate

commerce.” AR at 1137. “[O]therwise, the owner-operator

must operate under another carrier’s operating authority.”

AR at 1137.

Gulick’s argument that the commissioner should

not have relied upon whether the owner-operators had

independent operating authority fails. See Swanson Hay,

1 Wn. App. 2d at 218. The commissioner did not overlook

evidence favoring Gulick but made findings related to each

prong and carefully weighed the evidence. Swanson Hay

also rejected the out-of-state authority upon which Gulick

relies. 1 Wn. App. 2d at 217. We affirm the commissioner’s

determination that Gulick failed to meet the third prong

of the independent contractor exemption.10

10. Gulick argues that we should not defer to the commissioner.

But no deference to the commissioner is required to affirm its

decision as set forth above.

22a

Appendix A

CONCLUSION

We affirm the ESD commissioner’s decision that the

FAAAA did not preempt the reclassification and that

Gulick failed to establish the first and third prongs of the

independent contractor exemption under RCW 50.04.140.

A majority of the panel having determined that this

opinion will not be printed in the Washington Appellate

Reports, but will be filed for public record in accordance

with RCW 2.06.040, it is so ordered.

/s/

JOhanSOn, J.

We Concur:

/s/

MAXA, A.C.J.

/s/

Sutton, J.

23a

Appendix OF

B COMMISSIONER

APPENDIx B — DECISION

BEFORE THE COMMISSIONER OF THE

EMPLOYMENT SECURITY DEPARTMENT OF

THE STATE OF WASHINGTON, DatED

August 28, 2015

BEFORE THE COMMISSIONER OF THE

EMPLOYMENT SECURITY DEPARTMENT

OF THE STATE OF WASHINGTON

Review No. 2015-0110

Docket No. 012014-01281

In re:

GULICK TRUCKING, INC.

Tax ID No. 827604-00-8

DECISION OF COMMISSIONER

This is an unemployment insurance tax dispute between

the Employment Security Department (“Department”)

and the interested employer, Gulick Trucking, Inc.

(“Gulick”). The Department conducted an audit of Gulick

for the period of 2009, 2010, 2011, and the first three

calendar quarters of 2012. As a result of the audit, 120

individuals (i.e. owner-operators) hired by Gulick were

reclassified as employees of Gulick and their wages were

deemed reportable to the Department for unemployment

insurance tax purposes. See Department’s Exhibit 15;

see also Stipulations, Attachment A. The Department

issued an Order and Notice of Assessment on May 17,

2013, assessing Gulick contributions, penalties, and

interest in the amount of $155,133.33. See Department’s

24a

Appendix B

Exhibit 1. Gulick filed a timely appeal from the Order

and Notice of Assessment. See Department’s Exhibit 2.

Subsequently, the Department stipulated that it would

remove the contributions, penalties, and interest assessed

for all quarters of 2009 and the first quarter of 2010, see

Stipulations ¶ 3; and Gulick stipulated to the correctness

of the amount of wages for the remaining quarters (i.e.

the second, third, and fourth quarters of 2010; the first,

second, third, and fourth quarters of 2011; and the first,

second, and third quarters of 2012). See Stipulations ¶ 6.

As a result of the parties’ stipulations, the total amount

of the assessment in dispute became $112,855.17 for the

period in question. See Situations ¶ 6.

Prior to the evidentiary hearing held on September 8

and 9, 2014, Gulick moved the Office of the Administrative

Hearings (“OAH”) for summary judgment on federal

preemption ground. The OAH denied Gulick’s motion,

holding that the unemployment insurance taxation was

not subject to federal preemption. See Order on Motion

for Summary Judgment ¶ 7. Thereafter, the parties

proceeded to the evidentiary hearing on the remaining

issues of whether the owner-operators in dispute were in

“employment’’ of Gulick pursuant to RGW-50.04.100 and,

if so, whether their services were exempted from coverage

pursuant to RCW 50.04.140. After the evidentiary

hearing, the OAH issued an Initial Order on November

26, 2014, holding that the disputed owner-operators were

in “employment” of Gulick pursuant to RCW 50.04.100

and that their services were not exempted from coverage

pursuant to RCW 50.04.140. On December 23, 2014,

Gulick timely petitioned the Commissioner for review of

the Initial Order. Pursuant to chapter 192-04 WAC this

25a

Appendix B

matter has been delegated by the Commissioner to the

Commissioner’s Review Office. On January 30, 2015, the

Commissioner’s Review Office received a reply filed by the

Department. Having reviewed the entire record (including

the audio recording of the various hearings) and having

given due regard to the findings of the administrative law

judge pursuant to RCW 34.05.464(4), we adopt the OAH’s

findings of fact and conclusions of law in the Initial Order,

subject to the following additions and modifications.

PrEEmPtIoN

The Social Security Act of 1935 (Public Law 74-271)

created the federal-state unemployment compensation

program. The program has two main objectives: (1)

to provide temporary and partial wage replacement

to involuntarily unemployed workers who have been

recently employed; and (2) to help stabilize the economy

during recessions. The Federal Unemployment Tax

Act of 1939 (“FUTA”) and Titles III, IX, and XII of the

Social Security Act (“SSA”) form the basic framework

of the unemployment compensation system. The U.S.

Department of Labor oversees the system, with each state

administering its own program.

Federal law defines certain requirements for the

unemployment compensation program. For example, SSA

and FUTA set forth broad coverage provisions, some

benefit provisions, the federal tax base and rate, and

administrative requirements. Each state then designs

its own unemployment compensation program within

the framework of the federal requirements. The state

statute sets forth the benefits structure (e.g., eligibility/

26a

Appendix B

disqualification provisions, benefit amount) and the state

tax structure (e.g., state taxable wage base and tax rates).

Generally speaking, FUTA applies to employers who

employ one or more employees in covered employment in

at least 20 weeks in the current or preceding calendar

year or who pay wages of $1,500 or more during any

calendar quarter of the current or preceding calendar

year. See 26 U.S.C. § 3306(a)(1). Under FUTA, the term

“employee” is defined by reference to section 3121(d)

of the Internal Revenue Code. See 26 U.S.C. § 3306(i).

In turn, 26 U.S.C. § 3121(d)(2) defines “employee” to

be any individual who, under the usual common law

rules applicable in determining the employer-employee

relationship, has the status of an employee. In 1987, the

IRS issued Revenue Ruing 87-41, distilling years of case

law interpreting “usual common law rules” into a more

manageable 20-factor test.1 While these 20 factors are

commonly relied upon, it is not an exhaustive list and other

factors may be relevant. Furthermore, some factors may

be given more weight than others in a particular case.

In 1996, the IRS reorganized the 20 factors into three

broad categories: behavioral control, financial control,

and relationship of the parties. See IRS, Independent

1. The 20 factors are instructions; training; integration;

services rendered personally; hiring, supervising, and paying

assistants; continuing relationship; set hours of work; full time

required; doing work on employer’s premises; order or sequence set;

oral or written reports; payment by hour, week, month; payment of

business and/or traveling expenses; furnishing of tools and materials;

significant investment; realization of profit or loss; working for more

than one firm at a time; making service available to general public;

right to discharge; and right to terminate. See Rev. Rul. 87-41,

1987-1 C.B. 296.

27a

Appendix B

Contractor or Employee? Training Materials, Training

3320-102 (October 30, 1996). However, regardless of the

length and complexity of the tests developed by the IRS

to clarify coverage issues for federal taxation purposes,

we have cautioned that FUTA does not purport to fix the

scope of coverage of state unemployment compensation

laws. See In re Coast Aluminum Products, Inc., Empl.

Sec. Comm’r Dec. 817 (1970) (“A wide range of judgment

is given to the several states as to the particular type of

statute to be spread upon their books.” (quoting Steward

Machine Co. v. Davis, 301 U.S. 548, 593 (1937))).

State legislatures tend to cover employers and

employment that are subject to the federal taxation.

Although the extent of state coverage is greatly influenced

by federal statute, each state is free to determine the

employers who are liable for contributions and the

workers who accrue rights under its own unemployment

compensation laws. Here in Washington, the first version

of the Employment Security Act (or “Act”), which was then

referred to as “Unemployment Compensation Act,” was

enacted by the state legislature in 1937. See Laws of 1937,

ch. 162. This first version of the Act contained a definition

of “employment,” see Laws of 1937, ch. 162, § 19(g)(1)2; and

a three-prong “independent contractor” or ABC test. See

Laws of 1937, ch. 162, § 19(g)(5). 3

2. In the first version of the Act, “employment” was defined to

mean “service, including service in interstate commerce, performed

for wages or under any contract of hire, written or oral, express or

implied.” See Laws of 1937, ch. 162, § 19(g)(1).

3. In the first version of the Act, the “independent contractor”

or ABC test read as follows:

28a

Appendix B

The legislature introduced major revisions to the

definition of “employment” in 1945 by adding; among

other things, the phrase “unlimited by the relationship

of master and servant as known to the common law

or any other legal relationship.” See Laws of 1945, ch.

35, § 11 (emphasis added). The added language greatly

expanded the scope of the employment relationship as

covered by the Employment Security Act beyond the

scope of the employment relationship as covered by FUTA

Compare RCW 50.04.100 with 26 U.S.C. § 3306(i) and

26 U.S.C. § 3121(d)(2); see also In re All-State Constr.

Co., 70 Wn.2d 657, 664, 425 P.2d 16 (1967) (the test to be

applied in determining the employment relationship under

the Act is a statutory one; and common law distinctions

between employees and independent contractors are

inapplicable); Skrivanich v. Davis, 29 Wn.2d 150, 158,

186 P.2d 364 (1947) (the 1945 legislature intended and

Services performed by an individual for remuneration

shall be deemed to be employment subject to this act

unless and until it is shown to the satisfaction of the

director that: (i) Such individual has been and will

continue to be free from control or direction over the

performance of such service, both under his contract

of service and in fact; and (ii) Such service is either

outside the usual course of the business for which such

service is performed, or that such service is performed

outside of all the places of business of the enterprises

for which such service is performed; and (iii) Such

individual is customarily engaged in an independently

established trade, occupation, profession or business,

of the same nature as that involved in the contract of

service.

See Laws of 1937, ch. 162, § 19(g)(5).

29a

Appendix B

deliberately concluded to extend the coverage of the Act

and by express language to preclude any construction that

might limit the operation of the Act to the relationship of

master and servant as known to the common law or any

other legal relationship); Unemp’t Comp. Dep’t v. Hunt,

17 Wn.2d 228, 236, 135 P.2d 89 (1943) (our unemployment

compensation act does not confine taxable employment to

the relationship of master and servant, but brings within

its purview many individuals who would otherwise have

been excluded under common law concepts of master and

servant, or principal and agent). Since then, the definition

of “employment” under the Act has remained largely

unchanged. Moreover, the “independent contractor” or

ABC test has also remained the same, except that in

1991 the legislature added a separate, six-prong test to

the traditional three-prong test See ESSB 5837, ch. 246

§ 6, 52nd Leg., Reg. Sess. (Wash. 1991); compare RCW

50.04.140(1) with RCW 50.04.140(2).

Over the years; the appellate courts in Washington

as well as the Commissioner’s Review Office (as the final

agency decision-maker on behalf of the Department)

have grappled with the concept of “employment” under

RCW 50.04.100 and applied the “independent contractor”

test under RCW 50.04.140 in various factual scenarios,

finding any given relationship either within or outside the

intended scope of the Act. See, e.g., State v. Goessman,

13 Wn.2d 598, 126 P.2d 201 (1942) (barbers were held to

be in employment of the barber shop; but the legislature

later enacted RCW 50.04.225 to exempt barbers from

covered employment); Skrivanich, 29 Wn.2d 150 (crew

members were in employment of the fishing vessel); All-

30a

Appendix B

State Constr. Co., 70 Wn.2d 657 (siding applicators were

in employment of the construction company); Miller v.

Emp’t Sec. Dep’t, 3 Wn. App. 503, 476 P.2d 138 (1970)

(individuals performing bucking and falling activities were

in employment of the logging contractor); Schuffenhauer

v. Emp’t Sec. Dep’t, 86 Wn.2d 233, 543 P.2d 343 (1975)

(clam diggers were in employment of the wholesaler of

clams); Daily Herald Co. v. Emp’t Sec. Dep’t, 91 Wn.2d

559, 588 P.2d 1157 (1979) (bundle droppers were in

employment of the newspaper publisher); Jerome v.

Emp’t Sec. Dep’t, 69 Wn. App. 810, 850 P.2d 1345 (1993)

(food demonstrators were in employment of the food

demonstration business); Affordable Cabs, Inc. v. Emp’t

Sec. Dep’t, 124 Wn. App. 361, 101 P.3d 440 (2004) (taxicab

drivers were in employment of the taxicab company); but,

see, e.g., Cascade Nursing Serv., Ltd. v. Emp’t Sec. Dep’t,

71 Wn. App. 23, 856 P.2d 421 (1993) (nurses were not in

employment of the nurse referral agency); In re Judson

Enterprises, Inc., Empl. Sec. Comm’r Dec.2d 982 (2012)

(no employment relationship was found because a business

entity could not be an employee unless it was shown that

the business entity is actually an individual disguised as

a business entity).

Two state appellate decisions pertained specifically

to the trucking industry. In Penick v. Emp’t Sec. Dep’t,

82 Wn. App. 30, 917 P.2d 136 (1996), Division Two of the

Court of Appeals dealt with the relationship between

a motor carrier who owned the trucks and the drivers

who were hired to drive the trucks (“contract drivers”).

In that case, the motor carrier owned the trucks and

operated them under its authority from the Interstate

31a

Appendix B

Commerce Commission. The carrier supplied fuel,

repairs and maintenance, license, and insurance; and it

also handled state and federal reporting requirements.

The contract drivers paid their own federal income tax,

social security and medicare taxes, and motel and food

expenses; they did not receive sick leave, vacations, or

other benefits. The contract drivers could hire a “lumper”

if they needed help in loading or unloading. The contracts,

which could be terminated by either party at any time,

entitled the contract drivers to 20 percent of the gross

revenue generated by the loads they hauled. In the event

of an accident, the contract drivers were required to

pay damages not covered by the $2,500 deductible of the

carrier’s insurance policy. The contract drivers were also

liable for shortage and cargo damage. The drivers often

installed a variety of amenities on their assigned trucks to

make life on the road more comfortable. The motor carrier

secured the load for the outgoing trip, and the contract

drivers occasionally obtained their own loads. Any driver

was free to reject an offer to haul a load secured by the

carrier and, instead, could choose to haul a load obtained

by the driver. The carrier obtained return loads for about

half the trips, and the drivers found their own return loads

for the other half of the trips. The motor carrier handled

the billing and collection and provided bi-weekly draws

for trip expenses to the drivers. It also made bi-weekly

payments to the drivers for their share of the payment

for a particular haul. The carrier required its drivers to

clean the inside and outside of the truck, adhere to all

federal and state laws and safety regulations, and to call

in every day by 10 a.m. while en route. But the motor

carrier allowed the drivers to select their own routes

32a

Appendix B

and to select their driving hours, so long as the hours

complied with legal requirements regarding maximum

driving time and rest periods. The carrier also permitted

the drivers to take other people with them. Id. at 34-35.

After examining all relevant facts, the Penick court held

that the contract drivers were in employment of the motor

carrier pursuant to RCW 50.04.100 and that their driving

services were not exempted from coverage under the

“independent contractor” test pursuant to RCW 50.04.140.

Id. at 39-44. However, the Penick court did not address

the coverage issue pertaining to the owner-operators

(who owned the trucks but leased them to the carrier)

because the motor carrier prevailed on that issue before

the Commissioner’s Review Office and did not appeal. Id.

at 39. Because the Commissioner’s Review Office did not

publish the decision in the Penick matter, our holdings

in that matter cannot be deemed precedential. See RCW

50.32.095 (commissioner may designate certain decisions

as precedents by publishing them); see also W. Ports

Transp., Inc. v. Emp’t Sec. Dep’t, 110 Wn. App. 440, 459,

41 P.3d 510 (2002) (unpublished decisions of Commissioner

have no precedential value).

Six years later, Division One of the Court of Appeals

spoke on the coverage issue pertaining to the relationship

between a motor carrier and one of its owner-operators. See

W. Ports Transp., 110 Wn. App. 440. In W. Ports, the motor

carrier contracted for the exclusive use of approximately

170 trucks-with-drivers (or owner-operators). The

owner-operators either provided and drove their own

trucks or hired others to drive them exclusively for the

carrier. The standard independent contractor agreement

33a

Appendix B

contained various requirements that were dictated by

federal regulations governing motor carriers that utilized

leased vehicles-with-drivers in interstate commerce;

it also contained the carrier’s own rules and policies.

Pursuant to the independent contractor agreement, the

owner-operators were required to operate their trucks

exclusively for the carrier, have the carrier’s insignia on

the trucks, purchase their insurance through the carrier’s

fleet insurance coverage, participate in all the company’s

drug and alcohol testing programs, obtain the carrier’s

permission before carrying passengers, notify the carrier

of accidents, roadside inspections, and citations, keep the

trucks clean and in good repair and operating condition

in accordance with all governmental regulations, and

submit monthly vehicle maintenance reports. The carrier

determined the owner-operators’ pickup and delivery

points and required them to call or come in to its dispatch

center to obtain assignments not previously scheduled and

to file daily logs of their activities. The owner-operators

received flat rate payments for the loads hauled and were

paid twice per month. The carrier had broad rights of

discharge under the independent contractor agreement,

and could terminate the contract or discipline the owneroperators for tardiness, failure to regularly contact the

dispatch unit, failure to perform contractual undertakings,

theft, dishonest, unsafe operation of the trucks, failure

of equipment to comply with federal or state licensing

requirements, and failure to abide by any written company

policy. The owner-operators, however, did have some

autonomy. For example, the owner-operators decided the

route to take in making deliveries; they also could have

other drivers to operate the trucks in providing services

34a

Appendix B

under terms of the independent contractor agreement.

The owner-operators paid all of their truck operating

expenses and deducted the expenses on their federal

income tax returns. Id at 445-47. Based on these facts, the

W. Ports court found that the carrier exerted considerable

direction and control over the driving services performed

by the owner-operator and, accordingly, it failed the first

prong of the “independent contractor” test under RCW

50.04.140(1)(a). Id at 452-54. The W. Ports court also

considered and rejected the carrier’s contention that

federal transportation law preempted state employment

security law. Id at 454-57.

In this case, the interested employer, Gulick, is

an interstate motor carrier duly licensed by the U.S.

Department of Transportation and the Federal Motor

Carrier Safety Administration (the successor agency

to Interstate Commerce Commission). Gulick operates

throughout the 48 contiguous states and is based in

Vancouver, Washington. See Declaration of Adams in

Support of Petitioner’s Motion for Summary Judgment

(“Decl. of Adams”) ¶ 3. Gulick is a family-owned business

and has been: in operation since approximately 1973. See

Decl. of Adams ¶ 2. Gulick employs company drivers to

drive equipment that it leases; and it currently has four

employee drivers on staff. Besides the employee drivers,

Gulick also uses 152 owner-operators, who either own

their trucking equipment or are leasing or purchasing

their trucking equipment from third parties unrelated

to Gulick. See Decl. of Adams ¶¶ 4 & 5.4 Gulick enters

4. Here, we rely on the record developed in support of the

summary judgment motion. Subsequently, the parties stipulated to

35a

Appendix B

into written contracts with all of the owner-operators

from whom Gulick leases the trucking equipment, see

Decl. of Adams ¶ 6; and it provides owner-operators with

loads, access to insurance, operating authority, billing,

collections and all regulatory support. See Department’s

Exhibit 5, p. 1. According to Adams, the use of owneroperators is a common and widespread practice within the

trucking industry; and it provides Gulick with seasonal

flexibility by allowing Gulick to meet the fluctuating

demand without having to purchase expensive trucks and

trailers and without having to terminate employees when

the demand subsides. Additionally, this business model

provides a market for owner-operators within which they

may establish their own independent businesses; and the

owner-operators will have the same flexibility and are

not subject to termination as a result of a dip in demand

from one carrier as they can provide services to another

carrier. See Decl. of Adams ¶ 4.

As discussed above, the Department conducted an

audit of Gulick for various quarters in 2010, 2011, and

2012; and, subsequently, reclassified the owner-operators

as employees of Gulick and deemed their wages to be

reportable for unemployment insurance tax purposes.

Gulick moved the OAH for summary judgment on federal

preemption ground, essentially arguing that it is entitled

to judgment as a matter of law because RCW 50.04.100

and RCW 50.04.140 as applied to motor carriers of the

the fact that all owner-operators owned their trucking equipment.

See Stipulations ¶ 4. Mr. Adams corrected the number of the owneroperators to be 142. See Testimony of Adams, Transcript of Record

at 157.

36a

Appendix B

trucking industry in Washington is preempted by the

Federal Aviation Administration Authorization Act of

1994 (“FAAAA”). The crux of Gulick’s argument is that

the Department’s efforts in applying RCW 50.04.100 and

RCW 50.04.140 to the trucking industry will eliminate

the use of owner-operators from the trucking industry

and effectively restructure that industry, resulting in a

substantial impact on its prices, routes, and services. The

Department responded by arguing that the Washington’s

leading case, W. Port, has rejected the argument that the

state employment security law is preempted by federal

motor carrier law; and that preemption should not apply

because any impact its application of RCW 50.04.100 and

RCW 50.04.140 may have on motor carriers is far too

tenuous, remote, or peripheral to be preempted.

Federal preemption is based on the United States

Constitution’s mandate that the “Laws of the United

States ... shall be the supreme Law of the Land; and the

Judges in every State shall be bound thereby.” See U.S.

const., art. VI, cl. 2; see also Ameriquest Mortg. Co. v.

Washington State Office of Atty. Gen., 170 Wn.2d 418, 439,

241 P.3d 1245 (2010) (federal law may preempt state law

by force of the Supremacy Clause of the United States

Constitution). A state law that conflicts with federal law is

said to be preempted and is “without effect.” See Cipollone

v. Liggett Group, Inc., 505 U.S. 504, 516, 112 S. Ct. 2608

(1992). Federal law may preempt state law in any of the

three ways: (1) expressly by the federal law’s terms; (2)

impliedly by Congress’ intent to occupy an entire field of

regulation; or (3) by the state law’s direct conflict with

the federal law. See Michigan Canners & Freezers Assoc.

37a

Appendix B

v. Agric. Mktg & Bargaining Bd., 467 U.S. 461, 469,

104 S. Ct. 2518 (1984). There are “two cornerstones” of

federal preemption jurisprudence: First, the purpose of

Congress is the ultimate touchstone in every preemption

case; second, where Congress has legislated in a field

traditionally occupied by states, there is a presumption

against preemption. See Wyeth v. Levine, 555 U.S.

555, 565, 129 S. Ct. 1187 (2009). Where Congress has

superseded state legislation by statute, the courts’ task

is to identify the domain expressly preempted. To do so,

the courts must first focus on the statutory language,

which necessarily contains the best evidence of Congress’

preemptive intent. See Dan’s City Used Cars, Inc. v.

Pelkey, 133 S. Ct. 1769, 1778 (2013) (internal citations and

quotation marks omitted).

Congress enacted the Airline Deregulation Act

(“ADA”) in 1978 with the purpose of furthering “efficiency,

innovation, and low prices” in the airline industry through

“maximum reliance on competitive market forces.” See

49 U.S.C. §§ 40101(a)(6) & (a)(12)(A). The ADA included a

preemption provision that Congress enacted to “ensure

that the States would not undo federal deregulation with

regulation of their own.” See Rowe v. New Hampshire

Motor Transport Ass’n, 552 U.S. 364, 368, 128 S. Ct. 989

(2008) (quoting Morales v. Trans World Airlines, 504 U.S.

374, 378, 112 S. Ct. 2031 (1992)). The provision specifically

provides that “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

....” See 49 U.S.C. § 41713(b)(1).

38a

Appendix B

In 1980, Congress deregulated the trucking industry.

See Rowe, 552 U.S. at 368 (citing Motor Carrier Act of

1980, 94 Stat. 793) Then; a little over a decade later, in

1994; Congress borrowed the preemption language from

the ADA to preempt state trucking regulation and thereby

ensure that the states would not undo the deregulation

of trucking. Id (citing FAAAA, 108 Stat. 1569, 1605-06).

The FAAAA preemption provision states:

... [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 any motor carrier ... with respect to

the transportation of property.

See 49 U.S.C. § 14501(c)(1). Consistent with its text and

history, the U.S. Supreme Court (“Court”) has instructed

that, in interpreting the preemption language of the

FAAAA, courts should follow decisions interpreting the

similar language in the ADA. See Rowe, 552 U.S. at 370.

In Morales, the Court first encountered the identical

preemption provision under the ADA; and the Court

adopted its construction of the term “related to” from

its preemption jurisprudence under the Employee

Retirement Income Security Act of 1974, defining the

term broadly as “having a connection with or reference to

airline rates, routes, or services.” See Morales, 504 U.S. at

384. The Court, however, reserved the question of whether

some state actions may affect airline fares in “too tenuous,

remote, or peripheral a manner” to trigger preemption,

giving as examples state laws prohibiting gambling and

prostitution as applied to airlines. Id. at 390. Over a

39a

Appendix B

decade later, in Rowe, the Court examined whether the

FAAAA preempted a state’s tobacco delivery regulation,

which imposed several requirements on drivers of tobacco

products. See Rowe, 552 U.S. at 369. In holding that the

state’s statute was preempted by FAAAA, the Court

essentially adopted its reasoning in Morales, because ADA

and FAAAA consisted of identical preemption language

and further because “when judicial interpretations have

settled the meaning of an existing statutory provision,

repetition of the same language in a new statute indicates,

as a general matter, the intent to incorporate its judicial

interpretations as well.” Id. at 370 (quoting Merrill Lynch,

Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 85, 126

S. Ct. 1503 (2006)). In reaffirming Morales, the Court in

Rowe explained:

... (1) that “[s]tate enforcement actions having

a connection with, or reference to,” carrier

“‘rates, routes, or services’ are pre-empted”;

(2) that such pre-emption may occur even if a

state law’s effect on rates, routes, or services “is

only indirect”; (3) that, in respect to preemption,

it makes no difference whether a state law is

“consistent” or “inconsistent” with federal

regulation; and (4) that pre-emption occurs

at least where state laws have a “significant

impact” related to Congress’ deregulatory and

pre-emption-related objectives.

Id. (internal citations omitted). Subsequently, the Court

cautioned that the breath of the words “related to” did not

mean the sky was the limit and that the addition of the

40a

Appendix B

words “with respect to the transportation of property”

massively limited the scope of preemption ordered by the

FAAAA. See Pelkey, 133 S.Ct. at 1778 (FAAAA did not

preempt state-law claims for damages against a towing

company regarding the company’s post-towing disposal

of the vehicle) (internal quotation marks omitted). Finally,

in Am. Trucking Ass’n, Inc. v. City of Los Angeles, 133

S. Ct. 2096 (2013), the Court addressed another aspect

of the FAAAA preemption—the “force and effect of law”

language, drawing a distinction between a government’s

exercise of regulatory authority and its own contract-based

participation in the market. The Court held that, when the

government employed the “hammer of the criminal law”

to achieve its intended goals, it acted with the force and

effect of law and thus the concession agreement’s placard

and parking provisions were preempted by the FAAAA

because such provisions had the “force and effect of law.”

Id. at 2102-04.

In the meantime, the Ninth Circuit Court of Appeals has

on several occasions spoken on the FAAAA’s preemptive

effects on state law. For example, in Californians for

Safe & Competitive Dump Truck Transp. v. Mendonca,

152 F.3d 1184, 1189 (1998), the Ninth Circuit held that

California’s prevailing wage law, a state law dealing with

matters traditionally within a state’s police powers, had

no more than an indirect, remote, and tenuous effect on

and, thus, was not “related to” the motor carriers’ prices,

routes, and services within the meaning of the FAAAA’s

preemption clause. Most recently, the Ninth Circuit, in

holding that California’s meal and rest break laws were

not preempted by FAAAA, reasoned that:

41a

Appendix B

[The meal and break laws] do not set prices,

mandate or prohibit certain routes, or tell

motor carriers what services they may or may

not provide, either directly or indirectly. They

are “broad law[s] applying to hundreds of

different industries” with no other “forbidden

connection with prices[, routes,] and services.”

They are normal background rules for almost

all employers doing business in the state of

California. And while motor carriers may have

to take into account the meal and rest break

requirements when allocating resources and

scheduling routes—just as they must take

into account state wage laws or speed limits

and weight restrictions, the laws do not “bind”

motor carriers to specific prices, routes, or

services. Nor do they “freeze into place”

prices, routes, or services or “determin[e] (to

a significant degree) the [prices, routes, or]

services that motor carriers will provide.”

Further, applying California’s meal and

rest break laws to motor carriers would not

contribute to an impermissible “patchwork”

of state-specific laws, defeating Congress’

deregulatory objectives.

See Dilts v. Penske Logistics, LLC, 769 F.3d 637, 647

(2014), cert. denied, 135 S. Ct. 2049 (2015) (internal

citations omitted).

It is against the backdrop of the U.S. Supreme Court’s

decisions in Morales, Rowe, Pelkey as well as the Ninth

42a

Appendix B

Circuit’s decisions in Mendonca and Dilts, that we now

confront Gulick’s federal preemption argument. Gulick

contends that the FAAAA preempts the Washington’s

Employment Security Act as applied to the trucking

industry because it directly affects and therefore, is

“related to” the prices, routes, and services of its motor

carrier business. Gulick introduced four declarations

in its motion for summary judgment to support its

contention: (1) a declaration by Aaron Riensche, Counsel

for Gulick, with attached Exhibits A through I; (2) a

declaration by Larry Pursley, Executive Vice President

of Washington Trucking Association; (3) a declaration by

Donald Adams, Controller for Gulick; and (4) a declaration

by Joe Rajkovacz, Director of Governmental Affairs &

Communications for the California Construction Trucking

Association.

According to Pursley, the owner-operators have long

been an important component of the trucking industry, both

nationally and locally. The owner-operators are utilized

in most, if not all, sectors of the industry, including longhaul trucking, household goods moving, and intermodal

operations. The vast majority of interstate truck load

transportation businesses in Washington operate to

some extent through contractual relationships with

owner-operators for operational flexibility: contracting

with independent owner-operators enables the carriers

to provide on demand and as-needed deliveries and to

address variations in the need to move cargo without

having to purchase expensive equipment. See Declaration

of Pursley in Support of Petitioner’s Motion for Summary

Judgment (“Decl. of Pursley’’) ¶ 7. Pursley asserts that

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the assessments imposed by the Department on motor

carriers will fundamentally change the business models

of both motor carriers and owner-operators throughout

Washington, because the Department will effectively

eliminate a historical cornerstone of the trucking

industry. The effect of this material change will dictate

the employment relationship that motor carriers must

use in their operations going forward, which will impact

their prices; routes; and services. See Decl. of Pursley

¶ 10. Pursley asserts that the assessments will impact

services because the carriers will be forced to provide

trucking services only through employees and to purchase

expensive trucks and trailers and hire drivers to operate

the equipment, which in turn will severely curtail the

carriers’ operational flexibility. See Decl. of Pursley ¶ 11.

The Department’s restructuring of the trucking industry

will also require carriers to alter their routes to avoid

liability under Washington’s Employment Security Act

and will thus prevent carriers from making their own

decisions about where to deliver cargo. See Decl. of Pursley

¶ 12. Finally, Pursley asserts that the assessments will

likely have a significant impact on prices because of the

additional employment-related taxes such as state and

federal social security taxes and unemployment insurance

taxes, which will undoubtedly have to be recouped by

raising prices. See Decl. of Pursley ¶ 13.

According to Adams, the Department’s assessment

will place Gulick at a competitive disadvantage with

carriers outside Washington who are not subject to the

Washington’s Employment Security Act. To remain

competitive, Gulick could be forced to change customer

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lanes, drop customers, and downsize so as to adjust to

the new cost structure. See Decl. of Adams ¶ 11. Adams

asserts that the Department’s actions would have a

negative impact on Gulick’s experience rating by making

the owner-operators potentially eligible for unemployment

insurance benefits. See Decl. of Adams ¶¶ 16-18. According

to Adams, the assessment will impact the services (see

Decl. of Adams ¶ 13), routes (see Decl. of Adams ¶ 14),

and prices (see Decl. of Adams ¶ 15), offered by its motor

carrier business. Adams warns that the Department’s

position may cause interstate carriers, such as Gulick,

to move their businesses out of Washington and owneroperators to move their residences out of Washington. See

Decl. of Adams ¶ 14.

Additionally, Gulick requests us to depart from

our state’s appellate decision in W. Ports, which held

that federal transportation law did not preempt state

employment security law. See W. Ports, 110 Wn. App.

at 454-57. Gulick argues that W. Ports court never

analyzed the FAAAA preemption clause under 49 U.S.C. §

14501(c)(1) and that W. Ports court’s two bases for rejecting

the preemption argument are no longer valid in light of

the subsequent U.S. Supreme Court’s decision in Rowe.

See Gulick’s Petition for Review at 2-3.

While Gulick’s arguments are appealing and we are

tempted to address the merits of the federal preemption

issue, we must be mindful of our limited authority as

a quasi-judicial body. As a general proposition, the

Commissioner’s Review Office, being an office within

the executive branch of the state government, lacks

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the authority or jurisdiction to determine whether the

laws it administers are constitutional; only the courts

have that power. See RCW 50.12.010; RCW. 50.12.020;

Bare v. Gorton, 84 Wn.2d 380, 383, 526 P.2d 379 (1974);

In re Kellas, Empl. Sec. Comm’r Dec.2d 825 (1991)

(Commissioner’s Review Office is part of an administrative

agency in the executive branch of government and is thus

without power to rule on constitutionality of a legislation;

that function is reserved to judicial branch of government);

In re Bremerton Christian Schools, Empl. Sec. Comm’r

Dec.2d 809 (1989); In re Ringhofer, Empl. Sec. Comm’r

Dec.2d 145 (1975). On the other hand, the superior court,

on judicial review of a final agency order issued by the

Commissioner’s Review Office, may hear arguments and

rule on the constitutionality of the Department’s orders.

See RCW 34.05.570(3)(a) (the court shall grant relief

from an agency order in an adjudicative proceeding if the

order, or the statute or rule on which the order is based,

is in violation of constitutional provisions on its face or

as applied). Consequently, in keeping with the authority

of the highest tribunals of Washington State and federal

jurisprudence, we are of the view that, to the extent the

Washington’s Employment Security Act as applied to

motor carriers of the trucking industry implicates the

Supreme Clause of the United States Constitution (on the

basis that the Department’s enforcement effort is allegedly

preempted by the FAAAA), the Commissioner’s Review

Office, as an executive branch administrative office, is not

the appropriate forum to decide such a constitutional issue.

Despite the general prohibition on administrative

agencies from deciding constitutional issues, but with an

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eye toward assuring that the constitutional issue in this

case has been properly addressed at the administrative

level, we have reviewed the entire record developed by the

OAH below and are satisfied that the parties were allowed

to present all evidence (via four declarations with exhibits

filed on behalf of Gulick and one declaration filed on behalf

of the Department) they deemed relevant to the federal

preemption issue. Consequently, we are of the opinion that

the OAH and the parties have developed a substantial and

sufficient record from which a court can make an informed

and equitable decision on the constitutional front.

Finally, the Commissioner’s Review Office, as the

final decision-maker of an executive agency, is bound by

the state appellate court’s decisions; and Gulick has not

supplied any authorities for us to do otherwise. As such, to

the extent that the W. Port court already considered and

rejected the argument that federal transportation laws

preempted state employment security law, see W. Ports,

110 Wn. App. at 454-57, we concur with the OAH that the

Washington’s Employment Security Act as applied to

motor carriers of trucking industry is not preempted by

the FAAAA preemption clause. Accordingly, we will adopt

the OAH’s analysis in its Order on Motion for Summary

Judgment issued in this matter on August 8, 2014.

EmPloymENt

Gillick is liable for contributions, penalties, and

interest as set forth in the Order and Notice of Assessment

if, during the period at issue, the owner-operators are in

“employment” of Gulick as defined in RCW 50.04.100. See

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RCW 50.04.080; RCW 50.24.010. If the owner operators’

employment is not established, Gulick is not liable for the

assessed items. If employment is established, Gulick is

liable unless the services in question are exempted from

coverage.

We consider the issue of whether an individual is in

employment subject to this overarching principle: The

purpose of the Employment Security Act (or “Act”),

Title 50 RCW, is to mitigate the negative effects of

involuntary unemployment. This goal can be achieved only

by application of the insurance principle of sharing the

risks, and by the systematic accumulation of funds during

periods of employment. To accomplish this goal, the Act

is to be liberally construed to the end that unemployment

benefits are paid to those who are entitled to them. See

RCW 50.01.010; Warmington v. Emp’t Sec. Dep’t, 12 Wn.

App. 364, 368, 529 P.2d 1142 (1974). This principle has

been applied so as to generally find the existence of an

employment relationship. See, e.g., All-State Constr. Co.,

70 Wn.2d at 665; Penick, 82 Wn. App. at 36.

“Employment,” subject only to the other provisions

of the Act, means personal service of whatever nature,

unlimited by the relationship of master and servant as

known to the common law or any other legal relationship,

including service in interstate commerce, performed for

wages or under any contract calling for the performance

of personal services, written or oral, express or implied.

RCW 50.04.100. To determine whether a work situation

satisfies the definition of “employment” in RCW

50.04.100, we must determine (1) whether the worker

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performs personal services for the alleged employer; and

(2) whether the employer pays wages for those services.

See Skrivanich, 29 Wn.2d at 157. The test for personal

service is whether the services in question were clearly for

the entity sought to be taxed or for its benefit. See Daily

Herald, 91 Wn.2d at 564. In applying this test, we look for a

clear and direct connection between the personal services

provided and the benefit received by the entity sought to

be taxed. See Cascade Nursing, 71 Wn. App. at 31.

In this case, Gulick is engaged in the business

of transporting goods in interstate commerce for its

customers; and the owner-operators performed truckdriving services for Gulick (in addition to leasing their

equipment to Gulick). As such, the owner-operators’

personal services directly benefited Gulick’s business.

Moreover, it is beyond dispute that Gulick paid wages

for the services provided by the owner-operators. See

Department’s Exhibit 10, p. 5, ¶ 14.1 (“Carrier shall make

settlement payments to Contractor of the rental herein

provided on a per-shipment basis at a rate of eighty

percent (80%) of the total income received by Carrier on

each completed shipment that is using Carrier’s trailer

or eighty-seven percent (87%) if Contractor is using their

own trailer.”); see also Department’s Exhibit 7—Form

1099, Nonemployee compensation. Consequently, the

administrative law judge correctly concluded that the

owner-operators were in employment of Gulick pursuant

to RCW 50.04.100. See adopted Conclusion of Law No. 4

in Initial Order; see also Penick, 82 Wn. App. at 40 (as

transportation of goods necessarily required services of

truck drivers, it was clear that the carrier directly used

and benefited from the drivers’ services).

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In its Petition for Review, Gulick argues that it

essentially acts as a broker who finds loads for the owneroperators and then receives 20% of the fees (paid by the

customers) as commission in exchange for its service and

administrative support. See Gulick’s Petition for Review at

3. We must reject Gulick’s argument as it is not supported

by the record of the case. To be clear, although Gulick may

have a brokerage component to its business, it is first and

foremost a common, for hire carrier who transports goods

in interstate commerce for its customers:

Q. What type of business is Gulick in?

A. We are a common carrier.

See Testimony of Adams, Transcript of Record at 154.

Q. You stated yesterday that Gulick is a common

carrier; is that correct?

A. Yes.

Q. As a common carrier, does that mean Gulick

is for hire?

A. Yes.

Q. What does it mean to be a for-hire motor

carrier?

A. A for-hire motor carrier can provide its

services to any customer…

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Appendix B

…

Q. In fact, that is Gulick’s business, is to

transport cargo of another customer?

A. Yes.

See Testimony of Adams, Transcript of Record at 219-21.

Moreover, the customers are Gulick’s customers, and

Gulick’s alone; they are not “mutual” customers who are

shared by Gulick and the owner-operators:

Q. In general, who are Gulick’s customers?

A. We are mostly a refrigerated carrier in the

items that we move, so our customers tend to

be in the food or wine and beer industry.

Q. How do you get customers?

A. Many of our customers have been with us

since almost the inception of the company, and

other customers we get in many cases are by

word of mouth.

See Testimony of Adams, Transcript of Record at 219. In

fact, the lease and subhaul agreements (entered between

Gulick and the owner-operators) specifically prohibit the

owner-operators from competing or soliciting Gulick’s

customers during the term of the agreement and for at

least five years after termination of the agreement See,

e.g., Department’s Exhibit 10, p. 8, ¶ 20.9. Such a provision

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Appendix B

would not have been necessary if Gulick were indeed

sharing its customers with the owner-operators. Simply

put, the fact that the customers belong to Gulick (not

the owner-operators) abundantly proves that the truckdriving services performed by the owner-operators are

clearly for Gulick as well as for its benefits.

Gulick next contends that an owner-operator cannot

be an employee of Gulick on the basis that Gulick does not

have “any ownership interest in the cargo, in the owneroperator’s equipment, or in the origin or destination

locations.” See Gulick’s Petition for Review at 3. Gulick

seems to suggest that an ownership interest in those

personal or real properties is a deciding factor in meeting

the “employment” test under RCW 50.04.100. We reject

Gulick’s contention in this regard, and reiterate that

the test for “personal service” under RCW 50.04.100 is

whether the services in question are clearly for the entity

sought to be taxed or for its benefit, see Daily Herald, 91

Wn.2d at 564; and that in applying this test, we look for a

clear and direct connection between the personal services

provided and the benefit received by the entity sought

to be taxed. See Cascade Nursing, 71 Wn. App. at 31. In

other words, the test” for “personal service” under RCW

50.04.100 has nothing to do with a putative employer’s

ownership interest in some personal or real properties.

Finally, relying on Henry Broderick, Inc. v. Riley, 22

Wn.2d 760, 776, 157 P.2d 954 (1945), Gulick argues that the

owner-operators did not receive “wages” because Gulick

and the owner-operators merely formed “a

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