On September 30, 2014, in Massachusetts Delivery Association v. Coakley, No. 13-2307 (September 30, 2014), the First Circuit Court of Appeals overturned a lower court’s refusal to preempt a Massachusetts independent contractor law under the express preemption provision of the Federal Aviation Administration Authorization Act (FAAAA). The FAAAA’s preemption provision, which prohibits state and local regulation related to prices, routes, or services of motor carriers, was substantially derived from the express preemption provision of the Airline Deregulation Act (ADA), which applies to air carriers. Courts regularly rely on cases decided under the FAAAA in interpreting the ADA preemption provision, and vice versa. Thus, the Massachusetts Delivery Association (MDA) case has significant implications for air carriers as well as motor carriers.
In MDA, an association of motor carrier delivery companies challenged a Massachusetts law that limits the types of workers that may be classified as independent contractors. The association claimed that the law should be preempted by the FAAAA because it effectively prohibits certain motor carriers from using independent contractors as couriers and thus dictates who can perform certain motor carrier “services.” The association also claimed that the law would nearly double labor costs and thus raise “prices.” The lower court rejected these arguments and opined that the law was merely a general wage law that had only potential and indirect impacts on carrier prices and that these impacts were likely insufficient to trigger preemption. The court did not reach a definitive conclusion on the issue, however, because it ultimately rejected preemption based on additional language in the FAAAA that is not present in the ADA. The FAAAA limits preemption to regulations that relate to prices, routes, and services “with respect to the transportation of property,” (emphasis added), and the lower court determined that the Massachusetts law did not meet this requirement.
On appeal, the association again raised its arguments about the law’s impact on motor carrier prices, routes, and services. The Massachusetts Attorney General countered that the law was a merely “background” state employment statute of general application, and thus any impact on motor carriers’ prices, routes, or services is “per se” (according to the Attorney General) too remote or tenuous to qualify for preemption. The association also challenged the lower court’s finding on the “transportation of property” language.
The First Circuit concluded that the association’s challenge met the “transportation of property” requirement and the lower court should have reached a definitive conclusion on the application of the core preemption language (related to “price, route, or service”). Although the First Circuit did not explicitly decide whether the Massachusetts law was preempted, the court rejected the notion that general employment laws are per se preempted or that potential or indirect impact on prices is insufficient for preemption. Rather, the court emphasized the breadth of the preemption provision and held that indirect and/or potential impact on prices can be sufficient if significant. The court also stated that the lower court should have considered the employment law’s potential impact on motor carriers’ services and routes, not just prices. The court remanded and instructed the lower court to decide the preemption issue consistent with these principles.
The First Circuit’s decision comes amid increasing efforts by states and localities to regulate wages and many other working conditions on a local level. Local authorities have been particularly active at airports, and many of these regulatory efforts adversely impact the airline industry’s ability to manage its workforce and provision of services at airports. This arguably creates precisely the “patchwork” of conflicting regulatory mandates that the ADA was designed to prevent. The MDA decision provides potentially helpful precedent for both air and motor carriers should they decide to challenge any of the new rules. However, this decision is arguably at odds with recent decisions from the Ninth Circuit Court of Appeals, and we may see the Supreme Court of the United States weighing in on yet another ADA/FAAAA case in the near future.