Trucking company can be liable for misclassification of drivers

In California, the Federal Aviation Administration Authorization Act does not preempt a state's unfair competition action against a trucking company for misclassifying drivers as independent contractors.

Case name: Harris v. PAC Anchor Transportation, Inc., et al., No. B220966 (Cal. Ct. App. 05/18/11).

Ruling: The California Court of Appeal held that an action brought against a trucking company to enforce state labor and unemployment insurance laws could continue because a federal law did not preempt the action.

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What it means: In California, the Federal Aviation Administration Authorization Act does not preempt a state's unfair competition action against a trucking company for misclassifying drivers as independent contractors.

Summary: The owner of a trucking company recruited drivers and leased his trucks and the drivers to the company. The owner and trucking company classified the drivers as independent contractors. As a result, the owner and company did not hold workers' compensation insurance, withhold state disability insurance or income taxes, or pay unemployment insurance. The state filed a complaint against the owner and company for unfair competition, alleging that they misclassified drivers as independent contractors and "illegally lowered their costs of doing business." The California Court of Appeal held that the action could continue because the Federal Aviation Administration Authorization Act did not preempt the action.

The FAA Authorization Act preempts state and local regulations relating to the prices, routes, and services of motor carriers with respect to the transportation of property. The state contended that its unfair competition action was not preempted by the FAA Authorization Act because it was not related to the price, route, or service of a motor carrier. The court agreed. The court explained that the state's action against the owner and company was based on alleged violations of legal obligations concerning their workers. States have broad authority to regulate the employment relationship to protect workers within the state. The court described any connection to the company's prices, routes, and services as remote, indirect, and tenuous.

Read more at the WorkersComp Forum homepage.

July 5, 2011

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