Chambers v. RDI Logistics, Inc.: SJC Confirms 2/3 Of The Loaf Is "Better Than No Loaf At All” When It Comes To Applying The Independent Contactor Statute To Motor Carriers
January 12, 2017 Cross Nadel LLC
On December 16, 2016, the Supreme Judicial Court confirmed that the Federal Aviation Administration Authorization Act (“FAAAA”), 49 U.S.C. §14501, preempts the application of Prong 2 of the Massachusetts Independent Contractor Statute, G.L. c. 149, §148B, to motor carriers, following the First Circuit’s decision earlier in the year in Schwann v. FedEx Ground Package Sys. Inc., 813 F.3d 429, 441 (1st Cir.2016); see also Massachusetts Delivery Ass’n. v. Healey, 821 F.3d 187 (1st Cir. 2016); Remington v. J.B. Hunt Transp., No. 15-1252 (1st Cir. Feb. 22, 2016). The SJC also answered the question about further preemption ultimately left open (but suggested) in Schwann, and ruled expressly that the FAAAA does not preempt Prongs 1 and 3 of the statute and so they do apply to motor carriers. The ruling applies only to motor carriers’ use of independent contractors and does not affect the statute’s application in other contexts.
As a practical matter, this means a plaintiff may still prevail on a misclassification claim if the motor carrier is unable to show that the individual worker is free from the motor carrier’s control and direction in connection with performance of the service (Prong 1) or the individual is customarily engaged in an independently established trade, occupation or business (Prong 3).
Even this partial preemption, however, is likely to make misclassification claims in the motor carrier context significantly more challenging because those who perform work for motor carriers can no longer defeat independent contractor status merely because they perform a service that is within the scope of the motor carrier’s usual business (Prong 2). Indeed, prong 2 set a “nearly impossible standard” for motor carriers that wished to use independent contractors because it precluded motor carriers like delivery companies from characterizing workers like delivery drivers as independent contractors merely because delivery was within (and, indeed, was) the usual business of the motor carrier.
The Independent Contractor Statute
Under G.L. c. 149, §148B, an independent contractor is reclassified as an employee, unless the alleged employer can prove that the employee’s work is:
(1) “free from control and direction,”;
(2) “performed outside the usual course of business” of the alleged employer; and
(3) “an independently established trade, occupation [or] profession.”
G.L. c. 149, §148B(a).
Classification as an employee under section 148B automatically triggers a number of obligations, including without limitation: a requirement to provide meal breaks, G.L. c. 149, § 100, sick pay, G.L. c. 149, § 148C, overtime pay, G.L. c. 151 §1A, and payment of minimum wage, G.L. c. 151. And those obligations are backed up with civil and criminal penalties. G.L. c. 149, §148B(d); see also Massachusetts Delivery Ass'n v. Coakley, 671 F.3d 33, 37 n. 3 (1st Cir. 2012).
Preemption under the FAAAA
The FAAAA’s express preemption provision precludes any state from enacting or enforcing a law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. § 14501(c)(1). The term “related to” is “purposefully expansive,” Massachusetts Delivery Ass'n v. Coakley, 769 F.3d 11, 18 (2014), encompassing any state law “having a connection with or reference to carrier ‘rates, routes, or services’ whether directly or indirectly.” Rowe v. New Hampshire Motor Transp. Ass’n, 552 U.S. 364, 370 (2008) (quoting Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992)). The Supreme Court has identified two primary objectives for the FAAAA’s purposefully expansive preemptive reach: (1) to “ensure that the States would not undo federal deregulation with regulation of their own,” Rowe, 552 U.S. at 368 (quotation omitted); and (2) to avoid “a patchwork of state service-determining laws, rules, and regulations.” Id. at 373. In this manner, Congress sought to “help[ ] ensure transportation rates, routes, and services that reflect ‘maximum reliance on competitive market forces,’ thereby stimulating ‘efficiency, innovation, and low prices,’ as well as ‘variety’ and ‘quality.’” Id. at 371 (quotation omitted).
More about the Earlier First Circuit Decisions
In a series of decisions, the First Circuit held in Massachusetts Delivery Association v. Healy, 821 F.3d 187 (1st Cir. 2016), that the FAAAA preempts prong 2 of section 148B as it applies to motor carriers, and in Schwann, that prongs 1 and 3 of the statute are severable from prong 2 and thus not necessarily preempted. 813 F.3d at 437-42; see also id. at 442 (“We therefore think that the legislature’s plain aim in enacting this statute favors two-thirds of this loaf over no loaf at all as applied to motor carriers with respect to the transportation of property.”).
The First Circuit did not reach the issue of whether prongs 1 and 3 impacted motor carriers significantly enough to create FAAAA preemption regardless of the severability question. See Schwann, 813 F.3d at 441 (reversing district court’s ruling that the FAAAA preempted prongs 1 and 3 not on substantive grounds but because defendant “FedEx expressly disavowed making such an argument on summary judgment” and did not make the argument on appeal); Remington v. J.B. Hunt Transp., No. 15-1252 (1st Cir. Feb. 22, 2016) (“J.B. Hunt, like FedEx chose not to argue below that Prongs 1 and 3 of the Massachusetts Statute, §§ 148B(a)(1), (3), were independently preempted by the FAAAA, nor does it make such an argument now.”).
As Judge Stearns explained in Remington v. J.B. Hunt Transp., Inc., Case No. 1:15-CV-10010-RGS (D. Mass. Sept. 16, 2016), on remand from the First Circuit,
The First Circuit also reversed this court’s holding [in Schwann] that the FAAAA preempted prongs one and three of section 148B, not on substantive grounds, but “based on FedEx’s decision not to advance any argument that Prongs 1 and 3 were preempted by the FAAAA.” Remington v. J.B. Hunt Transp., No. 15-1252 (1st Cir. Feb. 22, 2016).
The court does not decide at this time whether the FAAAA preempts the application of the remaining first and third prongs of the Massachusetts Independent Contractor Statute to an interstate carrier such as J.B. Hunt. Like FedEx [in Schwann], J.B. Hunt has not made this argument. The court notes, however, that several sessions of the Superior Court have “rejected [the] premise [that defendant may be liable solely under the first and third prongs of section 148B] 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.”
Id. at pp. 15-16 & n.10 (citing Rice v. Diversified Specialty Pharmacy, C.A. No. 14-CV-4838 (Middlesex Superior), 2016 WL 4060956, at *5 (Mass. Super. July 26, 2016) and Chambers v. RDI Logistics, Inc., C.A. No. 1373-CV-00912 (Bristol Superior), 2015 WL 9911425, at *12-14 (Mass. Super. Oct. 26, 2015)).
More about Chambers v. RDI Logistics, Inc.
The Superior Court Decision: Complete Preemption
In Chambers v. RDI Logistics, Inc., plaintiff delivery drivers filed a putative class action against RDI Logistics, Inc. (“RDI”) and others, claiming that RDI misclassified them as independent contractors under section 148B. C.A. No. 1373-CV-00912 (Bristol Superior) (Moses, J.) (Order dated Oct. 25, 2015), at 1. Plaintiffs asserted as a result of the alleged misclassification, that they were deprived of wages to which they were entitled under G.L. c. 149, §148 and based on a common law claim for unjust enrichment. Id. Plaintiffs moved for summary judgment on their claim that they were employees under section 148B, and defendants opposed and requested summary judgment in their favor, arguing that the FAAAA preempted application of section 148B. Id. at 2. After discussing in detail the FAAAA and federal case law, Judge Moses entered summary judgment for RDI, concluding that the FAAAA preempted application of section 148B to RDI. Id. at 22-23.
In reaching this result, the Court found that the “inevitable significant consequences to RDI” of applying section 148B included:
Transferring to RDI the obligations and costs associated with workers’ compensation and liability insurance, social security and Medicare taxes, payroll expenses, unemployment taxes, costs of hiring helpers, truck, fuel and mileage expenses, and liability for damage caused to goods during delivery;
Exposing RDI to significant overtime pay requirements;
Requiring RDI to maintain an entire fleet of trucks, whereas under an independent contractor model, the contractors provided their own trucks; and
Potentially requiring RDI to change its delivery service model, which allowed RDI “to contract out delivery of specific loads to be delivered within specific windows to the ultimate customer,” given the “existing duration” of delivery routes “to avoid prohibitive overtime and other employee expenses.
Id. at 21-22. In other words, under an employee model, RDI would face significant increased costs, potential liabilities, changes to its business model, staffing and potentially even its ability to provide the same day service that defined its business, which the Court found were “real and logical effects of the application of section 148B.” Id. at 21-22. The Court concluded, “[c]learly in its application, section 148B relates to a carrier’s prices, routes, and services” and thus the FAAAA preempts application of 148B. Id.
The SJC decision: Reversed Superior Court, Only Prong 2 Preempted
On Direct Appellate Review, the SJC reversed the grant of summary judgment in favor of defendants and remanded the case to proceed on plaintiffs’ claims in the trial court. While confirming that the FAAAA preempts the application of prong 2 of Section 148B, the SJC ruled that prongs 1 and 3 do not significantly impact motor carriers and do not effectively preclude their use of independent contractors as prong 2 does, and that the three prongs of the test could be severed and prongs 1 and 3 could still be applied to motor carriers.
Prong 2: “Significant Impact” On Motor Carriers-FAAAA Preemption
The SJC ruled, consistent with the First Circuit case law, that Prong 2 necessarily impacts the rates, routes, and service of so-called “last mile” furniture delivery companies like RDI, because it would prevent RDI from using independent contractors altogether and compel companies like RDI to adopt an employee-based business model. This type of “significant impact” on motor carriers is, the Court concluded, precisely what the FAAAA preempts.
The SJC further explained that the FAAAA was concerned in part with avoiding a “patchwork” of state regulation, prong 2 "stands as something as an anomaly" and most other states do not have a similar requirement. So if prong 2 was applied in this context, workers in Massachusetts who work for companies covered by the FAAAA would be deemed independent contractors, but treated as independent contractors under federal law (e.g., the Fair Labor Standards Act), and workers in other states performing the same work for the same companies or similar companies would be deemed independent contractors by the laws of other states. This would create the very “patchwork” of state regulation Congress sought to prevent in the FAAAA.
Prongs 1 and 3: No “Significant Impact”, Severable From Prong 2-No FAAAA Preemption
By contrast, the SJC found that prongs 1 and 3 do not create a “significant impact” on the deregulatory objectives of the FAAAA because they do not necessarily require motor carriers to use employees, but are mere generally applicable regulations that Congress presumptively did not intend to preempt. The fact that application of those prongs would have some effect on prices or routes was insufficient to warrant preemption.
The SJC also rejected the argument that the three prongs of Section 148B create a conjunctive test and are not severable, and concluded instead that severing prongs 1 and 3 from prong 2 would not frustrate the legislative intent to provide greater protection to workers in misclassification claims. The Court explained, the severed statute “would provide two independent tests that motor carriers would have to meet” to determine worker classification. Quoting the First Circuit, the Court concluded, “We agree with the United States Court of Appeals for the First Circuit that the Legislature would have preferred “two-thirds of this loaf over no loaf at all” in order to provide the most protection for workers in the Commonwealth.
[Note 1]Before the SJC’s ruling in Chambers, Judge Curran had reached the same conclusion as Judge Moses in July 2016 in Rice v. Diversified Specialty Pharmacy, 2016 WL 4060956 (Mass. Super. Jul. 22, 2016), finding that the FAAAA preempted section 148B in its entirety, both facially and as applied. The Court explained that while the plaintiff had not argued that defendants were liable under prongs 1 and 3 of the section 148B test even if prong 2 was preempted, had they, “[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.” Id. (referring to Judge Moses’ decision in Chambers).
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