Ninth Circuit Rules that Stage Corporation Drivers Can Maintain Lawsuit Challenging Independent Contractor Classification

By: Sam G. Sherman, Esq.

The Ninth Circuit Court of Appeals decided Kairy v. Super Shuttle International yesterday. At issue was whether a plaintiff could sue in state or federal court alleging independent contractor misclassification or whether the California Public Utilities Commission (PUC) has exclusive jurisdiction over employee classification.

SuperShuttle Internation provides shared-ride airport shuttle service. In California, SuperShuttle is considered a PSC subject to PUC regulations. Prior to 2001, SuperShuttle classified its drivers as employees. SuperShuttle then shifted to a “unit franchise model” and licensees hired drivers as independent contractors. Plaintiffs in the case are current or former “franchisee” shuttle van drivers for SuperShuttle that alleged they were misclassified as independent contractors. They sued for overtime, minimum wage, wrongful deductions taken from wages, and missed meal periods.

At issue in the case was whether a court can determine the classification issue, or whether the PUC has exclusive jurisdiction on classification. Under the Public Utilities Code, no California of Federal court (except the Supreme Court or court of appeals) has jurisdiction to review any PUC decision. The Public Utilities Code specifically grants the PUC the power to regulate common carriers, including passenger stage corporations (PSC).

The Ninth Circuit began by recognizing that the PUC’s exclusive jurisdiction is determined under a three part test. Under that test, establishing exclusive jurisdiction requires a finding that:

  1. The PUC had the authority to adopt a regulatory policy on the subject matter of the litigation;
  2. The PUC exercised that authority; and
  3. Action in the case before the court would hinder or interfere with the PUC’s exercise of regulatory authority.

The Court found that the defendants established the first element of the test because the PUC does have authority over drivers. The Court found that the “PUC’s broad powers to protect public health and safety apply with full force in the context of its regulation of PSCs.”

Second, the Court found that the PUC had exercised its authority to regulate PSC drivers. PUC General Order 158-A permits PSCs to use either employee drivers or independent contractor drivers as long as the PSC maintains complete supervision, direction, and control over those drivers.

However, the Court found the third element missing. Central to the court’s ruling was an amicus brief filed by the PUC deferring decisions-making authority to the courts and stating that they “do not regulate . . . a PSC’s preference for employee or nonemployee drivers . . .Prime Time may have committed improprieties, under laws that we do not administer . . . but if such is the case, relief lies elsewhere.” The Court found that to find the PUC has exclusive jurisdiction would deprive drivers of any relief for misclassification since the PUC specifically refuses to enforce such violations.

This decisions is clearly a “loss” for common carrier employers given it allows employees to bring state and federal claims for misclassification. All such employers that label drivers as independent contractors should review employee handbooks, review the drivers’ job duties, and perform an audit to ensure proper classification to avoid class action wage and hour claims.

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