January 17, 2017

Will Trump Administration Curb the Recent Targeting of Independent Contractors?

Holland & Knight Alert
Linda Auerbach Allderdice | Lawrence J. Hamilton II | Michael T. Maroney

HIGHLIGHTS:

  • The continuing viability of the independent contractor truck driver model has been under siege by state and federal regulatory agencies as well as by private litigation against numerous transportation companies.
  • The misclassification efforts have been spearheaded or supported, in substantial part, by the federal government, which has in recent years shifted positions on the issue of independent contractor status and targeted companies that operate with independent contractors.
  • The question now is whether the incoming Trump Administration will sponsor regulatory and legislative initiatives that would favor the independent truck driver as a small business or will shun the mantle of federal regulation in favor of a state's right to regulate the way in which the interstate trucking business is conducted?

A critical but unresolved issue for the motor carrier industry is the continuing viability of the independent contractor truck driver model, which is under siege by state and federal regulatory agencies as well as private litigation. Class action lawsuits have been filed against numerous transportation companies and peer-to-peer transportation network companies, including FedEx Ground, 3P Delivery, KLLM Transport, National Freight, Swift Transportation and Uber among others.

The misclassification efforts have been spearheaded or supported, in substantial part, by the federal government, which has in recent years shifted positions on the issue of independent contractor status and targeted companies that operate with independent contractors. Specifically, the Wage and Hour Division of the U.S. Department of Labor has entered into memoranda of understanding with more than 30 states, as well as the Internal Revenue Service (IRS), to pursue alleged employee misclassification. The National Labor Relations Board (NLRB) has also targeted companies that utilize independent contractors. Similarly, in 2015, the NLRB overturned established precedent by loosening the test for "joint employment," which likewise has adverse implications in the transportation industry.

Though Congress passed the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which ostensibly barred states from asserting control over interstate motor carriers relating to "rates, routes and services," the FAAAA has not been as protective a shield for motor carriers from the "patchwork" of state regulations on which the industry had counted. Judicial decisions and state regulatory actions have carved numerous exceptions in what many thought would be a preemption mandate under the FAAAA. The question ahead is whether the incoming Trump Administration will sponsor regulatory and legislative initiatives that would favor the independent truck driver as a small business or will shun the mantle of federal regulation in favor of a state's right to regulate the way in which the interstate trucking business – from customer to port or rail and vice versa, or the first and last leg of an interstate move – is conducted?

California and Massachusetts Examples

Recent developments in California and Massachusetts exemplify the assertion of states' rights over the delivery of interstate trucking services.

California has witnessed a surge of complaints before the state's Labor Commissioner from truck drivers challenging their classification as independent contractors. The upshot of these claims is for the truckers to avoid paying expenses and insurance for their trucks, to impose meal and rest break obligations on the truckers, and to overturn long-standing compensation practices (though overtime claims have been scarce given the Hours of Service regulation exemption under California and federal law).

In a press release issued on May 6, 2016, the California Labor Commissioner announced, "Since 2011, port truck drivers have filed 799 wage claims with the Labor Commissioner's Office for misclassification, seeking reimbursement for unlawful deductions and expenses. The Labor Commissioner has awarded more than $35 million to misclassified port truck drivers in 302 cases." On Dec. 16, 2016, the California Trucking Association (CTA) filed a lawsuit in Orange County Superior Court (Case No. 30-2016-00893407-CU-JR-CJC), asking the court, among other relief, to freeze the holding of these administrative hearings, known as "Berman Hearings," and to deny enforcement of the bond requirement given the lack of due process in the state's proceedings, which also interfere with the contractual relations established between the motor carrier and truck drivers under federal law. In a press release, CTA CEO Shawn Yadon stated, "We believe the Labor Commissioner and Division of Labor Standards Enforcement (DLSE), for more than four years, have been intentionally ignoring their statutory obligations to be neutral and fair and are, instead, abusing their authority in order to drive a particular agenda – to undermine the many small business trucking companies that operate under the legal independent contractor relationship with other, larger companies – by forcing predetermined results from labor hearings."

The CTA lawsuit follows on the heels of a lawsuit filed by independent contractor owner-operators who were shut out of certain port terminals when unionized truckers had been given access. On Nov. 14, 2016, in a lawsuit filed in Los Angeles Superior Court (Case No. NC060891), a group of independent contractor truck drivers sued a port terminal for locking them out when union drivers were allowed access to the terminals. Meanwhile, the onslaught of private litigation and class actions has continued, with claims by truck drivers of misclassification being heard in courts that have largely been hostile to the concept of federal preemption of state regulations, such as meal and rest breaks, which are considered to be related to "health and safety issues" and within the provenance of the state to regulate.

In December 2016, the highest state court of Massachusetts dashed hopes of a clean sweep victory for motor carriers when it announced that, although one prong of the state's independent contractor statute was preempted by federal law under the FAAAA, the other two prongs were not preempted as they were within the state's right to regulate workplace relationships. Thus, in Massachusetts, the court found that a truck driver could still bring a claim under Prong 1 ("the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact") and Prong 3 ("the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed"). The court also found that those prongs were severable from the preempted Prong 2 ("the service is performed outside the usual course of the business of the employer"). Chambers v. RDI Logistics, Inc., 2016 WL 7253568, at *3–4 (Mass., Dec. 16, 2016). The Massachusetts Supreme Judicial Court remanded the class action to the state court with directions to allow the case to proceed. Earlier this month, the federal court in Massachusetts, relying in part on Chambers, denied a motion to dismiss based on FAAAA preemption, holding that Prongs 1 and 3 of the Massachusetts Independent Contractor Statute are not preempted based on the record before the court. DaSilva v. Border Transfer of MA, Inc., Civil Action No. 16-11205-PBS, Dkt. No. 49 (D. Mass. Jan. 5, 2017). The plaintiffs in that case are truck drivers who worked as delivery drivers for Border Transfer delivering Sears merchandise.

Elsewhere, a recent development in long-standing litigation brought against Swift Transportation confirms that arbitration under the Federal Arbitration Act provides no safe harbor from the regulatory or litigation attacks on independent contractor status. On Jan. 6, 2017, the U.S. District Court for the District of Arizona decided in Virginia Van Dusen et al. v. Swift Transportation Co., Inc. (Case No. 2:10-cv-00899), that Swift's transportation agreement with its drivers was a contract of employment for workers engaged in interstate commerce.

Conclusion and Takeaways

It is reasonable to expect that the Department of Labor and the new Trump Administration will temper the recent trend of opposition toward independent contractors and those who contract with them. It is also possible that Congress – although legislation favoring motor carriers failed to get past committee during the Obama Administration – will advance a more favorable agenda for the motor carrier industry, in which the independent contractor model has been an industry standard. However, the battle is expected to continue in the courts and regulatory arena, where many states, such as California, Illinois and Massachusetts, have passed legislation that actively supports or otherwise facilitates misclassification claims. 
   


 

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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