404 P.3d 517
Wash. Ct. App.2017Background
- Three Washington motor carriers (Swanson Hay, System‑TWT, Hatfield) were assessed unemployment insurance (UI) taxes on payments to owner‑operators (truck owners who lease equipment and haul under carrier contracts).
- Carriers appealed agency assessments through ALJ and the Employment Security Department Commissioner; Commissioner affirmed adverse determinations (some assessment amounts later adjusted/stipulated).
- Core statutory framework: Washington's Employment Security Act uses an "ABC" test (RCW 50.04.140) to exempt truly independent enterprises from UI taxation; exemptions are conjunctive and narrowly construed.
- Carriers argued federal preemption (FAAAA/49 U.S.C. §14501 and related federal leasing regs), and that federally‑mandated control should not count against the ABC "control" prong.
- Commissioner found carriers failed to prove (a) freedom from control and (b) that owner‑operators were independently established businesses; courts review agency decisions under the APA with agency findings prima facie correct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Federal preemption (express / FAAAA) | System: FAAAA §14501(c) preempts state UI tax as it "relates to" prices/routes/services and destroys owner‑operator model | Dept: UI tax is a generally applicable state economic regulation; Title 50 targets unemployment, not federal transportation regime | No express preemption; carriers failed to show tax has acute effect dictating prices/routes/services; preemption claim rejected |
| Preemption via federal leasing regs / field or conflict | Carriers: federal leasing regs (incl. control requirement) and neutrality provision show federal scheme occupies the field or prevents state from using federally‑required controls | Dept: federal regs do not preempt state UI law; neutrality provision disclaims creating federal employment status | No field/conflict preemption; federal leasing regs do not displace application of RCW 50.04.140 |
| Whether federally‑required control may be considered under the "A" prong | Carriers: controls required by federal law are not employer control and should be ignored for UI exemption | Dept: statutory text asks whether worker is free from control "under his contract of service and in fact" — employer control (even if compelled by law) is relevant | Court: federally‑mandated controls exercised by the carrier are relevant and may be considered in the freedom‑from‑control analysis |
| Application of ABC exemption to owner‑operators | Carriers: owner‑operators were independent (owned trucks, bore many costs) and satisfied ABC test | Dept: carriers' leases and practices (exclusive possession, operating authority use, billing/payment practices, control measures) show lack of freedom and lack of independently established businesses | Court: carriers failed to meet burden; exemption not satisfied; assessments affirmed |
Key Cases Cited
- Steward Machine Co. v. Davis, 301 U.S. 548 (U.S. 1937) (origin of federal/state UI cooperative tax/credit scheme)
- Standard Dredging Corp. v. Murphy, 319 U.S. 306 (U.S. 1943) (discussing federal inducement for states to adopt UI laws)
- Morales v. Trans World Airlines, Inc., 504 U.S. 374 (U.S. 1992) (broad interpretation of "related to" preemption in deregulation context)
- Western Ports Transp., Inc. v. Employment Security Department, 110 Wn. App. 440 (Wash. Ct. App. 2002) (prior Division One decision rejecting implied field preemption by federal transportation regs in WA UI context)
- Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429 (1st Cir. 2016) (discussing Massachusetts independent‑contractor statute and partial preemption under FAAAA)
- Rodriguez v. Ager, 705 F.2d 1229 (10th Cir. 1983) (illustrative case treating federal leasing/identification regs as creating carrier liability under an earlier interpretation)