The (somewhat confusingly titled) Federal Aviation Administration Authorization Act of 1994 (FAAAA) broadly prohibits states from enacting or enforcing laws that affect the prices, routes or services that motor carriers offer for the transportation of property. On September 30, 2014, in Massachusetts Delivery Association v. Coakley,1 the U.S. Court of Appeals for the First Circuit held that the FAAAA may preempt one prong of the Massachusetts Independent Contractor Statute, which requires that workers perform a service "outside the usual course of the business of the employer" to be classified as independent contractors.
The Massachusetts Delivery Association (MDA), an organization representing same-day delivery companies, filed a lawsuit against the Massachusetts Attorney General, seeking a declaration that the FAAAA preempts the Massachusetts independent contractor law as it applies to couriers. Since couriers work in the "usual course of business" of a delivery company, it is essentially impossible for a delivery company to engage couriers as independent contractors. Massachusetts law thus requires that individual drivers be hired as employees.
In its lawsuit, the MDA argued that converting drivers from independent contractors to employees would dramatically impact the prices, routes and services motor carrier companies offer customers. In addition to increasing motor carrier companies' costs, which would increase prices charged to customers, routes and services would be impacted because drivers treated as employees would have less flexibility to accept short routes, and could not drive long routes without mandatory breaks. Finally, the MDA argued, motor carrier companies would no longer be able to provide on-demand services with employees. The Massachusetts federal district court rejected the MDA's arguments, holding that the FAAAA did not apply to the independent contractor law because it was a "generally applicable background wage law," and because it did not directly regulate the transportation of property.
On appeal, the First Circuit reversed the district court's decision. First, it rejected a blanket rule that "generally applicable background laws" or wage-and-hour regulations cannot be preempted by the FAAAA. Rather, a court must analyze whether the "potential impact on carriers' prices, routes and services" of a regulation "is significant." The court of appeals further held that, to be preempted, state laws do not have to be directed at the transportation of property, but must only affect prices, routes or services in the context of the transportation of property.
The court of appeals did not rule that the Massachusetts independent contractor law was FAAAA-preempted, but instead sent the case back to the district court for further factual findings. Nevertheless, for motor carriers in Massachusetts and around the country, this decision provides support for the argument that state laws, including generally applicable state wage laws, that significantly affect motor carriers' prices, routes or services for transporting property are preempted by federal law. We will continue to keep you posted as this case further develops.
1 The MDA is represented by a team of Littler attorneys from its Boston office, led by David Casey.
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