First Circuit Affirms FAAAA Preemption of Massachusetts Independent Contractor Law

On May 11, 2016, the First Circuit Court of Appeals issued the latest of several decisions supporting and furthering federal preemption of the Massachusetts independent contractor statute for businesses that qualify as motor carriers under the Federal Aviation Administration Authorization Act of 1994 (FAAAA). The practical impact of the First Circuit’s decision in Massachusetts Delivery Association v. Healey and the cases that preceded it is that motor carriers, including many delivery businesses, may be able to classify their drivers as independent contractors with a reduced risk of violating the Massachusetts independent contractor statute.

Background

Congress enacted the FAAAA in 1994 to preempt state trucking regulations that had become burdensome on interstate commerce and free trade, and to avoid a “patchwork” of state laws, rules, and regulations that increased costs and caused significant inefficiencies for interstate motor carriers. To achieve that end, the FAAAA included a preemption provision providing that states could not enact or enforce laws or regulations “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”

Recently, delivery services and other motor carriers have argued that the FAAAA preempts state employment laws that may otherwise apply to their drivers, including state laws governing the classification of independent contractors and state meal break laws. Generally speaking, courts across the country have differed in their interpretations of exactly how far the FAAAA preemption can reach and which state laws can be preempted.

The Latest Case: Massachusetts Delivery Association v. Healey

The Massachusetts Delivery Association, a trade organization for delivery-service companies, brought a lawsuit seeking a declaration that the Massachusetts independent contractor law is preempted by the FAAAA. The Massachusetts law provides that workers must be considered employees (as opposed to independent contractors) unless the employer can meet all three prongs of the test:

1. the individual is free from control and direction in the performance of the service, both under the terms of his or her contract and in actuality;
2. the individual performs a service that is outside the usual course of business of the employer; and
3. the individual is customarily engaged in an independently established trade or business of the same nature of the service he or she performs. 

The Massachusetts Delivery Association argued that the requirement of Prong 2—the “usual course of business” prong—makes it impossible for any delivery company to treat its delivery drivers as independent contractors. It argued the prong of the test should be preempted because, by requiring carriers to treat their couriers as employees, the law related to the carriers’ prices, routes, or services.

On appeal, the First Circuit affirmed the district court’s summary-judgment decision that the FAAAA preempted Prong 2. The appellate court’s reasoning relied on its own February 2016 decision in a case brought by drivers alleging that the company for which they worked had improperly classified them as independent contractors In that case, the district court had agreed with the employer’s argument that the FAAAA preempted the statute, and the First Circuit affirmed the finding of preemption. In the face of a direct request by the Massachusetts Attorney General to reconsider this prior ruling, the First Circuit instead relied on it—at least as to delivery drivers.

Impact

This most recent decision in Massachusetts Delivery Association reinforces the broad preemption power of the FAAAA within the First Circuit, even when the state law at issue has only an indirect effect on prices, routes, or services. The First Circuit also maintained its position that the impact on carriers’ prices, routes, or services may be proven only by the “logical effect” that the law has on the delivery of services—without need for empirical evidence. Furthermore, because the FAAAA has the same preemption language as the Airline Deregulation Act, the First Circuit’s ruling on FAAAA preemption affects not only motor carriers, but also, by extension, air carriers. The ruling is certainly a beneficial decision for businesses seeking to retain independent contractor arrangements with their workforces. 

While the practical effect of the ruling may be that delivery-service businesses and some other employers in Massachusetts may utilize independent contractors without being forced to make them employees, those arrangements still must satisfy the first and third prongs of the test. In other words, a business must still be able to demonstrate that the workers in question are free from the employer’s direction and control and that they are customarily engaged in independently established businesses of their own.

This decision, while reinforcing the First Circuit’s stance, further highlights its divide with other circuits (including the Seventh and Ninth Circuits), which have considered FAAAA preemption and ruled in the opposite direction. Absent a ruling by the Supreme Court of the United States, this is likely to be an area of law that will continue to develop in diverging directions across the country.