Relying on its precedent, the First Circuit Court of Appeals held for the second time this year that the Federal Aviation Administrative Authorization Act of 1994 (“FAAAA”) preempts application of the Massachusetts Independent Contractor Statute, M.G.L. c. 149, Section 148B, to couriers working for Federal Express and other same-day delivery companies. As a result, these companies can continue to save billions of dollars each year in the costs associated with employees, such as overtime, health benefits, and workers compensation insurance.
The Massachusetts Independent Contractor Statute
Ever since Massachusetts amended its Independent Contractor Statute in 2008, it has become far more difficult for employers to demonstrate that their workers are independent contractors, because they must show all three of the following requirements: (1) that the individual is free from the employer’s control and direction, (2) the service is performed outside the usual course of the employer’s business, and (3) the individual is customarily engaged in an independently established trade or business of the same nature as that involved in the service performed. “Prong 2” often presents the most trouble.
The First Circuit Again Finds That the FAAAA Preempts the Statute
The Massachusetts Attorney General in Massachusetts Delivery Association v. Healey claimed that the couriers hired by same-day delivery companies were not performing services outside the usual course of the companies’ business and therefore should be classified as employees and not independent contractors. The delivery companies allowed the couriers to decide what route to follow in making delivers, compensated them based on the number of packages delivered, did not provide them with delivery trucks, made them bear the expenses of delivering packages, and awarded routes to couriers who submitted the lowest bids.
The First Circuit Court of Appeals rejected the Attorney General’s argument on the grounds that the FAAAA preempted the application of Prong 2, because it prohibits any state law, regulation or other provision from having an effect on the “price, route, or service of any motor carrier…with respect to the transportation of property.” Relying on the reasoning from its earlier February 2016 decision in Schwann v. FedEx Ground Package System, Inc., the Court held that the application of Prong 2 “would both expressly reference and have a significant impact” on a delivery company’s prices, routes or services.
First, the court held that application of Prong 2 would “expressly reference” services in violation of the preemption provision of FAAAA, because it would require a judicial determination of whether a particular service offered by a delivery company was within its usual course of business. Thus, a court, and not the market, would determine what services a company provides and how it chooses to provide them.
Second, application of the Prong 2 would “logically” have a “significant impact” on the routes chosen by a delivery company, as it would affect its current business model, which allows couriers to select the routes they want to take in order to make efficient deliveries.
As a result of both of these decisions, FedEx and other same-day delivery companies can continue classifying their couriers as independent contractors. Employers whose business models do not implicate the FAAAA preemption, however, still need to satisfy all three prongs of the MA Independent Contractor Statute. Failure to do so not only violates this statute, but likely accompanies violations of the Massachusetts Wage Act and other employee statutes, which impose hefty penalties, such as treble damages and attorneys’ fees. Employers therefore should periodically review their worker classifications to ensure all three prongs are met.