MA Court says FAAA Preempted Independent Contractor Statute

delivery truck

 

There have been multiple cases in Massachusetts in which parties claim that the Federal Aviation Administration Act (FAAA) preempts the Massachusetts independent contractor statute.  State laws that affect the rates, routes, or services of transportation providers are preempted by the FAAA.  In Rice v. Diversified Specialty Pharmacy, LLC, et al.  (Curran, J.) (Middlesex Superior Court) (Docket No. 14-CV-4838-H) (July 22, 2016), the court found that the logical effect of reclassifying delivery drivers as employees would have a substantial effect on the rates, routes, and services of the firm that engaged the drivers and therefore the FAAA preempted Massachusetts’ independent contractor statute.  The court said

The goal of the FAAA is to foster an environment in which service options will be dictated by the marketplace, not state regulatory regimes. Congress enacted this constraint on state legislatures in order to ensure that the prices, routes and services of transportation providers reflect “maximum reliance on competitive market forces” to encourage “efficiency, innovation, low prices … variety, and quality.”Rowe v. New Hampshire Motor Transp. Ass’n, 552 U.S. 364, 371 (2008), quoting Morales v. Trans World Airlines, Inc., 504 U.S. 374, 378 (1992). Thus, under the FAAA, state laws having a connection with, or reference to carrier rates, routes, or services are preempted. Id.at 370. This is true even where the state law has only an indirect effect on rates, routes or services, where the law is still consistent with federal regulations, id., and where the impact is only “potential.” Massachusetts Delivery Ass’n. v. Coakley, 769 F.3d 11, 21 (1st Cir.2014). Empirical evidence of these effects is unnecessary. Courts may assess the logical effect that a law has on routes, prices, or the provision of services. Id. at 22.
The Massachusetts independent contractor law, G.L. c. 149, § 148B, regulates the circumstances in which an employer may classify a worker as an “independent contractor.” It provides that an employer may only legitimately classify a worker as an independent contractor if he can show that: (A) the worker is free from control or direction when performing the service on behalf of the employer; (B) the service is performed outside the usual course of the business of the employer; and (C) the worker is customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service he is performing for the employer. This law aims to protect employees from being deprived of the benefits enjoyed by employees through their misclassification as independent contractors. Somers v. Converged Access, Inc., 454 Mass. 582, 592 (2009). In enacting § 148B, the Legislature was cognizant of the windfall that employers enjoy from the misclassification of employees as independent contractors. Examples include: “the avoidance of holiday, vacation, and overtime pay; Social Security and Medicare contributions; unemployment insurance contributions; workers’ compensation premiums; and income tax withholding obligations.” Id. at 592. The Legislature appeared to recognize also that the practice gave some employers an unfair competitive advantage over employers who correctly classify their employees and bear the brunt of associated financial costs. Id.
*5 The First Circuit Court of Appeals, in Massachusetts Delivery Ass’n., held that the Massachusetts independent contractor law governs the classification of couriers for delivery services, and “potentially impacts the services the delivery company provides, the prices charged for the delivery of property, and the routes taken during this delivery.” 769 F.3d at 23. However, it declined to affirmatively find preemption on the record before it. The United States District Court for the District of Massachusetts, on remand of the appeal in the case, conducted a detailed analysis of the logical effects that the independent contractor law would have on routes, service, and prices of the motor carrier in that case, and held that “prong B” of the independent contractor law, requiring employers to demonstrate that the services performed by their independent contractors are outside the usual course of the business, is preempted by the FAAA. Prong B alone was implicated in the case because “couriers hired to provide delivery services are without exception performing within the usual course of business of [ ] delivery companies.” Massachusetts Delivery Ass’n. v. Coakley, 117 F.Supp.3d 86, 90 (D.Mass.2015). The court declined to extend the preemption to prongs A and C. Id. at 98. Subsequently, the First Circuit Court of Appeals held that prongs A and C were severable from prong B, and were not preempted, facially at least, by the FAAA. Schwann v. FedEx Ground Package Sys., 813 F.3d 429, 441 (1st Cir.2016). The Court adopts the reasoning set forth by these federal court interpretations of federal law and holds that prong B of the independent contractor law is facially preempted by the FAAA in the delivery context.
Mr. Rice makes no argument that the defendants are nevertheless liable under prongs A and C of the independent contractor law. A colleague in this Court recently considered and astutely rejected that premise where it was evident that the effects of all three prongs would have a significant impact on the routes, prices, and services of the motor carrier. See Chambers v. RDI Logistics, Inc ., 33 Mass. L. Rptr. 190, *32–33 (2015) (Moses, J.). Mr. Rice here does argue that Partners’ motion is premature where he has contested the information contained in the affidavits of Partners’ Chief Operating Officer concerning the likely consequences of classifying the plaintiff and the members of his proposed class as employees rather than independent contractors. As stated, however, concrete or empirical evidence is not necessary where the independent contractor law’s “logical” impact on Partners’ prices, routes, and services is significant. This Court, in Chambers, relied primarily on affidavits from representatives of the motor carrier in determining that the effect of reclassification would be substantial. The Chambers plaintiffs, like Mr. Rice here, offered no evidence of their own to rebut the motor carrier’s affidavits, but asked the Court to allow them to conduct additional discovery. The Court denied that request, finding that “it is highly unlikely further discovery would be of assistance to the court,” where the logical effect of the independent contractor law was sufficient to find it preempted and that the motor carrier was entitled to summary judgment. Id. at 30 n. 2.
*6 The Court finds that the logical impact of reclassifying the plaintiff and the proposed class as employees on Partners’ rates, routes, and services, recounted above from the affidavits of Partners’ Chief Operating Officer, is substantial. The independent contractor law is therefore preempted, both facially and as applied to Partners, under the FAAA. Partners must therefore be entitled to judgment on Mr.Rice’s claims under the independent contractor law as a matter of law.

 

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