On December 16, 2016, the Massachusetts Supreme Judicial Court held that the Federal Aviation Administration Authorization Act (“FAAAA”) preempts the application of Prong 2 of the Massachusetts independent contractor statute, following the precedent established by the federal First Circuit Court of Appeals earlier this year in Schwann v. FedEx. The SJC’s decision in Chambers v. RDI Logistics, Inc. abolishes “the impossible standard for motor carriers wishing to use independent contractors.” While misclassification claims may still proceed under the other two prongs of the independent contractor statute, which are discussed below, plaintiff drivers can no longer achieve victory simply by claiming that they performed services within the usual course of business of the motor carrier with which they contracted.
The Massachusetts independent contractor statute deems a worker to be an employee unless (1) the individual is free from control and direction in connection with performance of the service, and (2) the service is performed outside the usual course of business of the employer, and (3) the individual is customarily engaged in an independently established trade, occupation or business. Application of Prong 2 had virtually guaranteed that independent contractor/drivers in the transportation industry would be deemed employees because the independent contractors typically performed services that are within the usual course of business of the motor carrier. For example, owner-operators that have a lease with a motor carrier are in the business of transporting cargo using motor vehicles, which is the exact same business as the motor carrier for which they drive.
To ensure that the individual states would not undo federal deregulation of the transportation industry, Congress enacted the FAAAA, which provides that no state shall enact or enforce any law, rule, or regulation related to a price, route, or service of any motor carrier, broker, or freight forwarder with respect to the transportation of property. The purpose of the FAAAA was to ensure uniformity across state lines and promote the economic efficiencies of a free, deregulated, market.
In Chambers, the SJC ruled that Prong 2 necessarily impacts the rates, routes, and service of RDI, a last mile furniture delivery company, because it would prevent RDI’s use of independent contractors as a business model. In other words, it would compel companies like RDI to adopt a different manner of providing services from what they otherwise might choose because Prong 2 dictates the type of worker that will provide the services. The SJC also noted that Prong 2 “stands as something as an anomaly” and other states do not have a similar requirement. Thus, the application of Prong 2 to companies covered by the FAAA would result in workers being deemed employees in Massachusetts but treated as independent contractors under federal law, such as the Fair Labor Standards Act, and the laws of other states. This is exactly the type of “patchwork” state regulation that Congress sought to prevent.
The SJC’s holding does not prevent application of state law as regards to safety and other policing powers that affect the general population. Nor does it affect the other two prongs of the independent contractor statute that require both that the independent contractor be free of control and be customarily engaged in an independently established trade, occupation, profession or business. However, the decision is a significant victory towards preserving the traditional independent contractor model used throughout the transportation industry.
While the Chambers decision has eliminated the most potent argument used by plaintiff attorneys to support misclassification suits, it did not eliminate other arguments on which such claims might be based, including most notably, claims that the carrier exerts substantial control over the drivers.
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