California Supreme Court Orders Trial to Determine if O-O’s were Misclassified as Independent Contractors
Drayage carrier Pac Anchor utilized truck lease-purchase business model
In another major set-back for California based motor carriers, the California Supreme Court issued a decision on July 28, 2014 affirming California’s Business and Professional Code § 17200 (“unfair competition law” or “UCL”) is not preempted by federal law. This decision is closely tied to the recent Ninth Circuit decision finding no federal preemption exists concerning motor carriers being required to follow California’s (paid) meal and rest break requirements for their employee truck drivers.
This case was brought by the State of California on behalf of owner-operators who claimed they were misclassified as independent contractors and for other alleged violations of California’s labor and unemployment insurance laws. The owner-operator truck drivers were required to enter into lease-purchase agreements for trucks with defendant motor carrier Pac Anchor as a condition of employment. 
After bouncing around California courts with opinions on whether California labor codes and insurance laws are federally preempted, the California Supreme Court came down squarely on the side of truck drivers who claimed they have been misclassified independent contractors instead of employees of a motor carrier.
The decision discusses how the owner-operator/drivers invested no capital, own no trucks, and do not use their own tools or equipment to perform job duties. The court analysis further stated the drivers can be discharged without cause, have no operational control, no customers of their own, take all instructions from the motor carrier and importantly, have no Department of Transportation operating authority or permits to engage independently in cargo transport.
The decision goes into a lengthy analysis that includes recent U.S. Supreme Court rulings that are being used to chip away at the importance of the Federal Aviation Administration Authorization Act (FAAAA). The FAAAA has been the cornerstone in many legal cases involving motor carriers claiming an assortment of state laws cannot be applied to them. The FAAAA has a specific prohibition against state laws that impact the price, route, or service of any motor carrier.
The California Supreme Court appears to have followed the recent Ninth Circuit Court of Appeals decision in Dilts v. Penske that found state law practices related to employment law are traditional exercises of state power and not federally preempted.
The immediate effect of this decision is that a trial will now occur to determine if the defendant (Pac Anchor) actually misclassified their employee’s as independent contractors. As we accurately predicted in the Dilts v. Penske decision that was heavily influenced by the U.S. DOT supplied brief supportive of the drivers, we can’t imagine this will turn out well for Pac Anchor either.
This decision can be appealed directly to the U.S. Supreme Court and there is no word on whether that will happen.
Recent adversarial court rulings in California against motor carriers should cause every motor carrier to reexamine their employment/leasing practices. The proper use of owner-operators can still be a preferable business model – if done fairly and correctly. Contact the CCTA if you have any questions.
