California's 2nd District Court of Appeal, 5th Division, yesterday ruled that the Federal Aviation Administration Authorization Act (FAAAA) does not preempt the California Attorney General from bringing charges against trucking companies that misclassify drivers as contractors under the state's unfair competition laws (WorkCompCentral: State Misclassification Suit against L.A. Trucking Firms May Proceed - 5/20/2011).
This ruling conflicts with an earlier pronouncement by the 6th Division of the 2nd District Court of Appeal that ruled that the state is prohibited from using the unfair competition laws to enforce labor laws and regulations that pertain to an airline or trucking company.
The 5th Division case arose when then Attorney General (now Governor) Jerry Brown sued Alfredo Barajas and Pac Anchor Transportation under the state's unfair competition laws (California Business and Professions Code Section 17200) to enforce employment and labor laws and regulations for misclassification of employees as independent contractors.
The state said Barajas and Pac Anchor gained an unfair advantage because it did not have to provide workers' compensation insurance for its drivers or pay unemployment insurance taxes, pay into the Employment Training Fund or withhold state disability insurance and income taxes, and the 5th Division agreed.
"Where a cause of action is based on allegations of unlawful violations of the state's labor and unemployment insurance laws, we see no reason to find preemption merely because the pleading raised these issues under (unfair competition laws) as opposed to separately stated causes of actions," the court said. "We respectfully disagree with [the 6th Division's] contrary conclusion as to preemption of causes of action under the (unfair competition laws)."
Instead, the appellate court said the state acted to enforce statutory obligations that Baraja and Pac Anchor have as employers, and while there may be a remote effect on prices, routes or services, that is not sufficient to support preemption under any of the federal acts.
This sets up a certain appeal to the California Supreme Court which I hope upholds the 5th Division's interpretation of conflict of laws. While the trucking and transportation industry may not like the result, the safety of the employees in the industry should be the paramount concern. The trucking industry is one of the most costly workers' compensation risks for obvious reasons - it is one of the most dangerous occupations, and allowing a trucking firm to avoid state regulation and taxes just because it operates out of a port gives that firm an unfair competitive advantage against other firms that do not operate under such federal authority.
In the meantime, the issue of trucker misclassification is addressed in a bill introduced by Assembly Speaker John Perez, D-Los Angeles, that is currently up for a third and final reading on the Assembly floor. Under AB 950, all drayage operators, defined as a person who operates a vehicle with a gross weight greater than 33,000 pounds through ports or railyards for the purpose of loading, unloading or transporting cargo, would have to be classified as employees.