Can Federal Law Trump State Independent Contractor Statute? Massachusetts High Court Says Yes and NoWage and hour litigation has been quite active over the past five years. Whether this trend continues under the Trump administration remains to be seen. Many states, including Massachusetts, have enacted strict independent contractor statutes requiring employers to rebut the presumption of employment.
Recently, the Massachusetts Supreme Judicial Court addressed the issue of whether a federal statute could preempt Massachusetts’ independent contractor statute. In the case of Chambers v. RDI Logistics, Inc., 476 Mass. 95 (2016), the Supreme Judicial Court addressed the question of whether the Federal Aviation Administration Authorization Act of 1994 (“FAAA”) preempted Massachusetts’ independent contractor statute.
RDI Logistics, Inc. (“RDI”) is a furniture delivery company headquartered in South Easton, MA that provides “last mile” delivery services for large retail furniture companies. The Plaintiffs delivered furniture for RDI for several years on a full-time basis, working approximately 60 hours over five or six days per week. The Plaintiffs incorporated prior to entering into contracts with RDI. These contracts contained non-solicitation and non-competition clauses for three years after cessation of work for RDI.
RDI required the Plaintiffs to wear uniforms and to display signs on their trucks bearing either RDI’s logo or RDI’s customers’ logo. RDI deducted from the Plaintiff’s pay the costs of uniforms, truck lease payments, and damage done to customers’ property during the course of deliveries. RDI also regulated how the Plaintiffs loaded goods onto their trucks, which customers they delivered to, and the specific windows of time during which they were to deliver goods to customers. Also, RDI required the Plaintiffs to use prescribed routes to deliver goods to customers and to use GPS devices to ensure the Plaintiffs did not deviate from the assigned routes.
The Plaintiffs filed a class action lawsuit against RDI and its owner, Richard Deslongchamps, Jr., alleging misclassification as independent contractors. On cross-motions for summary judgment, the trial court judge allowed RDI’s motion and denied the Plaintiffs’ motion, holding that the FAAA preempted Massachusetts’ independent contractor statute.
In order to rebut the presumption of employment in Massachusetts, an employer must prove that:
(1) The individual is free from control and direction in connection with the performance of the service, both under his contract for performance of service and in fact; and
(2) The service must be performed outside the usual course of business of the employer; and
(3) The individual must be customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.
The purpose of the Massachusetts independent contractor statute is to protect workers by classifying them as employees and thereby granting them the benefits and rights of employment where circumstances indicate that they are in fact employees.
The question for the Massachusetts Supreme Judicial Court in Chambers was what happens when federal law also comes into play. While a state has a compelling interest to ensure that individuals are not misclassified and are not missing out on employment benefits, Congress has taken some contrary steps. In enacting the FAAA, Congress sought to deregulate the trucking industry. Congress included a preemption clause in the statute that expressly preempts any state law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier with respect to the transportation of property. Congress wanted to sweep aside the patchwork of state laws that undercut its goal of competitive market forces in transportation rates, routes, and services.
In its review of the summary judgment allowance, the Supreme Judicial Court held that the FAAA does preempt the second prong of Massachusetts’ independent contractor statute. The second prong dictates that a delivery company or motor carrier must perform its services using employees and not independent contractors. It is almost always the case that the service at issue will be part of the motor carrier’s usual course of business, such that a motor carrier would never be able to hire independent contractors. Congress clearly wanted to prevent this type of requirement or regulation as it may have a negative impact on competitive motor carrier services.
However, the second prong of the Massachusetts statute can be severed from the rest, according to the Supreme Judicial Court. The Supreme Judicial Court held that the first and third prongs must still be satisfied. Applying the first and third prongs does not frustrate Congress’ pre-emption intent because they do not restrict motor carriers from using independent contractors. Applying the first and third prongs allows a motor carrier to use an employee or an independent contractor depending on the level of control and whether the individual is engaged in an independently established trade, occupation, profession, or business. Without the second prong, the Massachusetts statute contains only commonly used state and federal tests of employment, which the Supreme Judicial Court held that Congress could not have meant to preempt.
Against the backdrop of this case, an employer in Massachusetts must remember that it will most likely have to rebut some presumption of employment as a defense in a misclassification claim. Even in industries where Congress has taken steps to preempt state law, Massachusetts courts can parse out the independent contractor statute such that the issue of employment versus independent contractor remains, and the even bigger question of whether an individual is entitled to overtime pay and other wage and hour protections is still front and center. If you have any questions about how this decisions may affect your or your business, please do not hesitate to contact us.