Can the Dormant Commerce Clause Shield Airlines from Applying State Wage-and-Hour Laws to Employees who Fly Predominately Outside that State?
Airlines are creatures of interstate and international commerce: roaming the skies and crossing territorial boundaries to deliver passengers and cargoes to destinations not cabined by state lines. To avoid unfair application of laws and conflicting legal regimes, individual state laws must be applied in a manner that does not overreach. In short, airlines should not have to comply with a hodgepodge of different and sometimes conflicting state laws merely because their crew-members fly over and touch down in a large number of jurisdictions.
A key weapon in the air carrier arsenal against state government regulatory overreach is the “dormant” Commerce Clause grounded on the U.S. Constitution. Its purpose is to protect businesses from one state government trying to regulate conduct in another state, and in the past airlines and other regulated entities have enjoyed the protection offered by the dormant Commerce Clause. However, the U.S. Court of Appeals for the Ninth Circuit, aided by a Supreme Court of California ruling, has recently diluted the protection afforded airlines by the dormant Commerce Clause in a pair of cases involving Delta Air Lines, United Airlines and their pilots and flight attendants who work predominantly on flights operating outside of California.
The two California statutes at issue are Labor Code § 204 (timing-of-pay), which imposes requirements for the timing of semi-monthly employee wage statements, and Labor Code § 226 (wage statements), which requires employers to furnish several items of information along with semi-monthly pay, including gross wages earned, total hours worked, all deductions, net wages, and similar details. In separate cases both Delta and United challenged the legality of these provisions with regard to pilots and flight attendants who work primarily outside of California – but do not perform of majority of their work in any one state.
Unfortunately, so far the federal and state courts in California have not applied the dormant Commerce Clause to enjoin the extra-territorial application of these state wage and hour laws – and this includes companion cases involving Delta and United handed down by the Ninth Circuit on February 2, 2021. The federal courts are being guided in part by the California Supreme Court decision in Ward v. United Airlines, Inc., 9 Cal. 5th 732 (June 29, 2020), which opined that the California wage statement statute applies to wage statements if the employee’s principal place of business is in California, and that is the case if the employee (1) performs a majority of their work in California, or (2) California is the physical location where the worker presents himself or herself to work.
To try to fix the failure of the courts to properly apply the dormant Commerce Clause, Delta on March 18 filed a petition for rehearing or rehearing en banc which asks the Ninth Circuit – either as a panel or the full court – to reverse course and recognize that the dormant Commerce Clause does in fact shield airlines against having to comply with California wage and hour law requirements with regard to crew members who work primarily outside the Golden State. It would be good for the airline industry if the Ninth Circuit uses the rehearing petition to recognize the unconstitutionality of mandating that an airline not based in California follow California wage and hour laws for workers that work most of the time outside the State.
The Dormant Commerce Clause
The Commerce Clause in the U.S. Constitution, Article 1, § 8, cl. 3, gives Congress the power “to regulate commerce with foreign nations, and among the several states . . . .” The “dormant Commerce Clause” is a doctrine with regard to which the Supreme Court has held that a state statute may not directly regulate or discriminate against interstate commerce, or produce an “effect” which “favor[s] in-state economic interests over out-of-state interests . . . .” Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 579 (1986).
The Clause means that because Congress has given power over instated commerce, states cannot discriminate against interstate commerce nor can they unduly burden interstate commerce, even in the absence of federal legislation regulating the activity. State laws that discriminate against or directly regulate interstate commerce are virtually per se invalid. In addition, non-discriminatory laws that have only incidental effects on interstate commerce generally will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.
In Brown-Forman, the Court held that the dormant Commerce Clause rendered unlawful a New York state law which required every liquor distiller or producer that sold liquor to wholesalers within the state to sell at a price that is no higher than the lowest price the distiller charges wholesalers anywhere else in the United States. Specifically, a seller of alcoholic beverages in New York was required to verify that prices for alcohol sold in other states were no lower than the price in New York. The unconstitutional aspect of the law reflected the fact that New York could effectively force sellers to abandon discounts in other states.
The Delta and United Cases
In Oman v. Delta Air Lines, the plaintiffs are Delta flight attendants who do not work principally, or even for days at a time, in California. One of the plaintiffs, a Nevada resident, worked one six-day rotation that began with him presenting himself to Delta at San Francisco International Airport for a flight to Michigan. He worked 12 flights during that rotation, touching eight different states and presenting himself to different airports at the beginning and end of each day. He departed from and arrived at the Michigan airport the same number of times as SFO. This plaintiff spent more time working in Michigan than in California or Georgia, and worked 94% of his time outside California. In Oman v. Delta Air Lines, Inc., No. 17-15124, 835 Fed. Appx. 272 (9th Cir. Feb. 2, 2021), and the court’s concurrently filed opinion in Ward v. United Airlines, Inc., 986 F.3d 1234 (9th Cir. 2021), the Ninth Circuit refused to use the dormant Commerce Clause to preclude application of the California laws to airline crew who work predominantly outside of California.
In Ward, the Ninth Circuit ruled that application of section 226 to the plaintiffs is not a per se violation of the dormant Commerce Clause. The ruling casts doubt on the continued viability of the broad extraterritoriality principle which previously has applied on dormant Commerce Clause cases. The Ninth Circuit explained that the principle is “limited to cases involving ‘price control or price affirmation statutes,’” i.e., have the practical effect of dictating the price of goods sold out-of-state or tying the price of in-state products to out-of-state prices.
Under that narrow understanding, United's extraterritoriality argument failed. The Ninth Circuit further ruled that California’s ties to the employment relationship were sufficiently strong to justify its assertion of regulatory authority over the contents of an employee’s wage statements. United disputed the court’s reasoning, emphasizing that having to follow the California wage and hour law requirements would require the carrier to track every employee’s hours on a pay-period-by-pay-period basis to determine whether each employee spent more than 50% of his or her time working in another State and thus was exempt from § 226’s coverage. The increased cost United would incur to develop this tracking system, the argument ran, constitutes the sort of substantial burden on interstate commerce that the dormant Commerce Clause forbids.
The Ninth Circuit panel disagreed, stating that, “United's argument is flawed in at least two respects. First, while we do not doubt that United would incur additional costs if forced to track employee time in the way that it describes, it has offered no evidence of what the magnitude of those costs might be. . . The mere fact that a firm engaged in interstate commerce will face increased costs as a result of complying with state regulations does not, on its own, suffice to establish a substantial burden on interstate commerce. Second, we think United has greatly exaggerated the burden of complying,” in that it can “issu[e] § 226-compliant wage statements to all pilots and flight attendants whose home-base airport is located in California. Adopting that policy would obviate any need to track the hours each employee spends working in different States, and would (at worst) result in rare instances in which United over-complies with California law by issuing a § 226-compliant wage statement to a California-based employee when it was not required to do so.”
United also contended that because of the ruling, the carrier would be subjected to a patchwork of inconsistent regulations imposed by other states. In dismissing this contention, the panel stated that, “[e]ven if there are aspects of the interstate transportation industry that require national uniformity, employee wage statements are not among them. State-by-state regulation of the wage statements provided to pilots and flight attendants may increase operating costs, but, according to the panel, United had not demonstrated that such regulation would impair the free flow of commerce across state borders or impede operation of the national airline industry. The companion case involving Delta and its flight attendants reached the same result with regard to employees not resident in California.
Delta’s Petition for Rehearing
On March 18, Delta filed its petition for rehearing or rehearing en banc. Delta contends that application of the timing-of-pay and wage statement laws to flight attendants based outside California violates the dormant Commerce Clause, stating that, “[t]hrough its misapprehension of dormant Commerce Clause jurisprudence, the panel both sanctioned a per se violation of the dormant Commerce Clause by permitting California to directly regulate the timing and reporting of pay for work performed wholly outside its boundaries, and created a conflict both within and among the Circuits.” Delta added that, “[i]f the dormant Commerce Clause is to mean anything, it must stand for the proposition that a state cannot extend its regulations into, and control conduct occurring wholly within, another state.”
Delta claims that application of the California laws to flight attendants who reside outside California and do not work predominantly in California is unconstitutional both as to purpose and outcome because it is Congress’ responsibility, not California’s, to fill any perceived void. To support its petition, Delta asks several key questions:
- “Why does California get to direct Delta, an out-of-state corporation, as to the timing and reporting of pay for a Nevada resident for work performed outside of California, simply because he presented himself to a California airport to begin a six-day, interstate rotation?”
- How can California have “the most significant relationship” to the Nevada resident’s work during such a pay period?
- Why would Nevada – the flight attendant’s home state – not have a stronger interest in applying its laws to him?
- Why would Georgia not have a stronger interest given that Delta is headquartered there and the flight attendant performed as much work there as he did in California?
- Why would Michigan – the state in which the flight attendant worked almost twice as long – not have the most significant relationship to his work?
In rejecting Delta’s dormant Commerce Clause arguments, the panel left these questions unanswered. Delta claims that, by “overlooking and misapprehending the extraterritoriality doctrine, the panel failed to properly analyze whether Sections 204 and 226’s direct regulation of flight attendants’ timing-of-pay and wage statements is a per se violation of the dormant Commerce Clause.” The panel decision, according to Delta, also overlooks and misapprehends the very real burdens and “inevitable complications” Sections 204 and 226 impose and the inconsistent regulatory regime through which the airlines must now transverse.
At a minimum, for each California-based flight attendant and each pay period, Delta will have to analyze whether the flight attendant spent more than 50% of their time working in any state and, if not, whether California served as the location where the flight attendant presented to begin work. According to Delta, “the potential permutations of conflicts created by the various state regulations are endless. Those conflicts cannot be resolved by simply applying one state’s law, but rather by applying the appropriate state’s law – a determination that would require Delta to perform a complicated governmental interest analysis for every flight attendant every pay period.”
The time is ripe for the Ninth Circuit – perhaps even the full complement of active judges – to utilize the dormant Commerce Clause to protect airlines against having to apply California law to aircrew that fly predominantly outside the State of California and, especially in the case of Delta, employees who also do not reside in California. The fact that there is not another state which captures 50% or more of the working time of the crew member, does not give California license to step in and demand that its wage and hour laws apply to the employee who spends most of his or her working time outside of California.