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California Supreme Court upholds unfair competition law for transportation industry

Employers in California have routinely been investigated in recent years regarding their classification of professional drivers as independent contractors. Employers who do misclassify employees may receive fines and other money damages as a result of the misclassification.

Recently, the California Supreme Court weighed in on whether the Federal Aviation Administration Authorization Act preempted California's state labor and insurance laws in an unfair competition lawsuit brought on behalf of professional drivers. The holding in the case determined whether California state law allowed a lawsuit from independent contractors against their employer.

The People v. Pac Anchor Transportation

The defendant in the case was Pac Anchor, a trucking company which did not provide unemployment insurance or workers' compensation for its drivers. Pac Anchor also did not guarantee that its drivers were paid minimum wage. None of these are required for independent contractors. However, drivers had many characteristics of employees: they were employed for long periods, central to the company's business and had no permits to engage independently in other shipping jobs. The drivers did not own their own trucks.

The lawsuit alleged that Pac Anchor was violating state labor laws in an attempt to reduce business costs. In its defense, Pac Anchor argued that the Federal Aviation Administration Authorization Act, which holds that states "may not enact or enforce a law ... related to a price, route or service of any motor carrier ... with respect to the transportation of property" prevented the workers from filing an unfair competition lawsuit.

The California Supreme Court disagreed. It held that the federal law concerns the transportation of property. California's labor laws, on the other hand, apply to all industries. Further, the Court pointed out that the state merely requires Pac Anchor to comply with labor laws, it does not force the company to use employees rather than independent contractors.

This was the third decision in California in recent months that sided with drivers in unfair competition lawsuits.

Employment practices liability insurance

Keeping up with California state labor laws can be a daunting task. Myriad worker protections exist, and a successful claim regarding a violation can lead to significant money damages.

That is why many employers carry employment practices liability insurance, which covers damages associated with wrongful employment practices torts not covered by general liability. However, in some cases, EPLI providers can be reluctant to pay out on claims. Insurance providers may claim that an employer was dishonest in the application for EPLI insurance, for example, meaning it can cancel its policy coverage.

Employers faced with a claim denial are in a predicament. Often, without insurance, an employer is faced with extreme financial difficulty because of legal liability. Fortunately, a claim denial is not the end of the story. An employer denied EPLI benefits may contest the denial in court and in negotiations.

Employers with questions on employment law or who are having difficulty claiming insurance benefits for workplace violations should contact an experienced employment law attorney to discuss their legal options.