For Logistics Industry, Federal Law Preempts State Classification Rules

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Jul 14, 2015
This article is part of a series called News & Trends.

As employers wrestle with the thorny issue of deciding the proper classification of workers, a federal judge has raised a cautionary flag to how far states can go in setting the rules.

In a case out of Massachusetts involving a logistics and delivery trade association, a federal district court judge ruled that federal law preempts the state from limiting independent contractor status only to those who do work different from the employer’s normal line of business. The decision came upon orders of the 1st District Court of Appeals, which reversed the lower court’s initial ruling that the state law did, in fact, apply.

The decision didn’t throw out the state law; it applies only in situations in which the Federal Aviation Administration Authorization Act or “FAAAA” is involved. However, it has significant implications nationwide where states or, in some cases, localities, have imposed regulations limiting the use of independent contractors by trucking companies. At some of the nation’s largest ports, including the ports of Los Angeles and Long Beach, government efforts have been aimed at encouraging cargo carriers to make their drivers employees. When the courts get involved, the decisions regularly support drivers as employees.

Speaking at a Journal of Commerce conference a few months ago, Julie Gutman Dickinson, a partner in the Los Angeles law firm of Bush Gottlieb, said, “Court after court, government agency after government agency has determined that virtually all of the drivers are in fact employees.”

But now, the decision in Massachusetts Delivery Association v. Healey complicates the situation even where, as in cases stemming from the West Coast ports, there isn’t an explicit state classification law. In the Massachusetts decision, the  judge noted, “The FAAAA expressly preempts certain state laws pertaining to motor carriers, stating that a state … may not enact or enforce a law … related to a price, route or service of any motor carrier … with respect to the transportation of property.”

Classifying the drivers as employees, the decision notes, would raise prices because employer costs would rise and routes and services would be affected because scheduling flexibility would be restricted.

Proper worker classification, a perennial issue especially where employers handle their own temp or contract workers, has taken on a much higher profile in recent years with the growth of the so-called sharing economy. Recently the California Labor Commission ruled that a Uber driver was an employee. The decision is being appealed to the courts by the ride-sharing company. Although the ruling applies to a single driver, it sent a chill through similar services that provide workers for all sorts of household and business services.

In another case, this one involving California’s rules regarding independent contractor designation, FedEx agreed to pay $228 million to settle a class action suit by some 2,300 drivers who argued they were improperly classified as contractors.

This article is part of a series called News & Trends.
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