Ninth Circuit Rejects Airline’s Constitutional Challenges to California’s Wage Assertion Statute

Practically by definition, many transport workers, and especially many airline and railroad workers, travel and work regularly in many countries. For the most part, this doesn’t hinder their jobs or the businesses of their employers, but what if a state’s laws (read California’s) are unusually onerous?

This issue arose in two class action lawsuits filed in California district courts in which plaintiffs, airline employees who traveled frequently from the state, complained that their payrolls did not comply with California Labor Law Section 226. Both district courts issued a summary judgment in favor of the defendant airline. When the cases reached the U.S. Court of Appeals for the Ninth Circuit, it upheld the question of whether Section 226 of the Labor Code applies to these workers under state law. In June last year, the California Supreme Court answered that question and ruled that employees performing duties across the country – pilots, flight attendants, and other interstate transport workers – are entitled to California pay slips (under Labor Law Section 226) as long as California is the basis for the Work serves. Ward v United Airlines, Inc. 466 pp. 3d 309, 325 (Cal. 2020).

After this question was answered, the Ninth Circle responded to a number of arguments of the employer and largely rejected these, according to which the application of Section 226 would violate federal law and the federal constitution. Ward v United Airlines, Inc., Case No. 16-16415 (9th Cir., February 2, 2021).

Dormant Trading Clause

For most of us, the application of the dormant trade clause is just a distant reminder to law school. Here, however, the employer initially asserted that the dormant trade clause precluded application of Section 226 Labor Code because (1) the California Supreme Court’s Ward test discriminates against interstate trade; (2) the Ward test does direct regulation of interstate trade leads quite outside of California’s borders, ie the extraterritoriality principle, and (3) the application of the Ward test would overwhelm international trade with regard to the alleged local benefits, ie the pike-balancing test. See Pike v Bruce Church, Inc., 397, US 137, 142 (1970).

The panel flatly dismissed the employer’s argument that it was the first prohibited category, as the Ward test placed burdens on private employers regardless of whether they are based in California or outside and therefore non-discriminatory on their face was. The second category was also inapplicable, as the Ninth Circuit had previously ruled that the extraterritoriality principle only applies “when state laws practically dictate the price of goods sold out[]from[]Include or tie the price[s] of in-state products at out-of-state prices. “See Association des Eleveurs de Canards and d’Oies du Quebec v. Harris, 729 F.3d 937, 948 (9th Cir. 2013). The employer’s attempt to invalidate Section 226 as being based on the extraterritoriality principle was therefore inappropriate, as Section 226 does not regulate the price of goods.

The Court next responded to the allegation that Section 226 clearly placed an excessive burden on the employer in relation to the alleged local benefits. The employer specifically argued that compliance with the Ward Test “would require that each employee’s hours be recorded on a period-by-period basis to determine if each employee has spent more than 50% of their time in another state and was thus excluded from coverage by Section 226. “As this would result in higher costs for the employer, the burden on international trade would be too high to withstand the challenge of the dormant trade clause. The ninth circuit offered two counter-arguments: (1) Increased costs of no magnitude alone are not enough to place a significant burden on international trade. and (2) the employer could easily comply with Section 226 by providing all pilots who designate California as their home base with Section 226 compliant pay slips, which in the worst case scenario would lead to over-performance. Since the employer did not provide any indication of the amount of the costs, an alleged burden is not material.

The court also dismissed the employer’s argument that the Ward Test’s motion would subject it to a “patchwork of inconsistent rules” on the grounds that this was not a regulatory area requiring national uniformity. It therefore came to the conclusion that the requirement to comply with Section 226 would neither impair free trade across national borders nor disrupt the operation of interstate traffic. In light of these results, the Ninth Circle found that the Ward Test did not place a significant burden on interstate trade, which was clearly excessive in terms of alleged local benefits – and did not even address the second part of the Balancing Test. Strike one.

The Airline Deregulation Act of 1978

The employer next argued that Section 226 was excluded by the Airline Deregulation Act of 1978 (ADA), which prohibits states from regulating the price, route, or service of an airline that offers air transportation. That law anticipated section 226, since compliance with the law would affect the employer’s prices, routes and services by increasing costs and influencing his flight decisions. However, the Ninth Circle rejected this claim on the grounds that the alleged impact on prices, routes or services was too “small”[] or peripheral “to justify the federal requirement under the law. And even assuming the employer could invoke the preventive effects of the ADA, the Circuit stated that the challenge would still fail as the employer failed to provide evidence that these increased costs had a “significant impact” on its prices , Routes or services, which is consistent with the panel’s earlier justification for rejecting the employer’s dormant trade clause argument. Hit two.

Railway Labor Act

In a final attempt to invalidate the application of the Ward’s test to the presumed class, the employer asserted the exemption from the Railway Labor Act (RLA). The RLA defines an obligatory, detailed dispute settlement procedure for the settlement of industrial disputes in the rail and aviation industries.

The employer argued that the RLA was applicable because both pilots and flight attendants were covered by collective agreements (CBAs) that contained provisions on how their remuneration was determined, which constituted a dispute over the terms of the CBA . The panel rejected this argument after using the two-tier test dishes to determine whether the RLA anticipated a state legal claim. The first step determines whether the claim is “justified” in a CBA by asking whether the claim is “merely trying to defend a right or duty created by the CBA itself”. The second step is to ask whether the assessment of the state’s legal entitlement requires the interpretation of a CBA. The panel denied the first step because claims under Section 226 are not based in the CBA – those claims are instead aimed at defending the rights created under California law. The second step was also unsatisfactory as it did not require any interpretation of terms in the CBA to determine whether the employer was in breach of the Payroll Act. it would only require analyzing the pay slips themselves. Strike three.

Although the panel confirmed the application of Section 226 in this case, it left the possibility of a successful challenge to the Constitution open if an employer demonstrates that compliance with Section 226 would incur significant business costs. This part of the statement also suggests that other aspects of the California Labor Code, such as those relating to hours or breaks, might similarly violate federal law.

The bottom line

California-based transportation companies are bound by Section 226 payroll requirements unless they can bear the difficult burden of proving significant costs to comply.