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Important Massachusetts Decision in Defense of Independent Contractor Status
March 3, 2016
On February 22, 2016, the First Circuit Court of Appeals held that the Federal Aviation Administration Authorization Act (“FAAAA”) preempts the application of Prong 2 of the Massachusetts Wage Act. The decision in Schwann v. FedEx eliminates a key weapon used by plaintiffs in misclassification law suits challenging the treatment of independent contractors in the transportation industry. While misclassification claims may still proceed under traditional tests that consider the degree of control a motor carrier exerts over its independent contractor/drivers as well as other factors, plaintiff drivers may 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 Wage Act 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 Schwann, the First Circuit confirmed that Prong 2 necessarily impacts the rates, routes, and service of FedEx because it would prevent the use of independent contractors as a business model. If its drivers were deemed employees, then FedEx would have to change the way it allocates resources and incentivizes its drivers. Instead of responding to the needs of the free market, FedEx’s business model would be dictated by the Commonwealth of Massachusetts. Moreover, rather than promote uniformity, enforcement of Prong 2 in the transportation industry could result in workers being deemed employees in Massachusetts but be treated as independent contractors under federal law, such as the Fair Labor Standards Act, and the laws of other states.
The First Circuit’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 prevent misclassification claims based on other grounds, such as pervasive control over the means and methods of performing the work. However, the decision makes an important advance in preserving the traditional independent contractor model used throughout the transportation industry by invalidating Prong 2 vis a vis motor carriers, brokers, and freight forwarders.
This Alert is provided for information purposes only, and does not constitute legal advice. According to Mass. SJC Rule 3:07, this material may be considered advertising. ©2016 Posternak Blankstein & Lund LLP. All rights reserved.