3PDelivery: Independent Contractor Misclassification Costs Mount for IC-Dependent Trucking, Delivery, and Transportation Companies

My two prior blog posts have focused on the rising costs of misclassification liability for trucking, delivery, and transportation companies and the industry’s efforts to avoid such costs when confronted by state laws governing the status of independent contractors (ICs).  One of the ways in which such companies have been seeking to avoid misclassification liability in response to state law challenges is an argument that the Federal  Aviation Administration Authorization Act (FAAAA) preempts all state laws that attempt to regulate “a price, route, or service” of a motor carrier. A new court decision recently rejected that argument, and did so emphatically.

I first reported in November 2010, in one of my most widely-read blog posts (other than my six posts on the legal challenges to FedEx Ground’s classification of drivers as ICs), that 3PDelivery settled two class action IC misclassification cases for $2.25 million covering drivers in Oregon and Washington.

I noted in the first of two takeaways in that blog post that, when the legal fees of the plaintiffs’ lawyers and 3PD’s own lawyers were added, the “real costs” of that settlement covering drivers in only those two states would exceed $7 million, plus the costs that such companies typically have to pay when they “settle up” with the IRS and state revenue departments as well as state unemployment and workers compensation agencies

In the second takeaway, I noted that the “3P Delivery case is an example of how a company can become a casualty of failing to structure its relationship with its drivers in a bona fide manner that complies with applicable employment, tax, benefits, and independent contractor laws,” and that “there are at least three steps companies can take to enhance their compliance with independent contractor laws and minimize or eliminate exposure to future misclassification liability.”

The FAAAA preemption argument was the subject of a blog post in January 2012. I noted that the Massachusetts Delivery Association (MDA) has succeeded on appeal of a federal district court’s dismissal of its lawsuit to invalidate the Massachusetts Independent Contractor Law as an impermissible law “related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.”  The appellate court did not rule on the validity of the defense, only that the MDA should be allowed to challenge the state law as being in conflict with the FAAAA.  The Massachusetts Attorney General had objected, arguing that the argument was currently being considered in the 3PD case.

The federal court considering that issue in the 3PD case has now ruled.  In a decision issued on March 27, 2013, Judge Douglass Woodlock considered the preemption argument and found that it was not “persuasive.”  The judge found that the Massachusetts Independent Contractor Law “do[es] not seek to regulate the prices 3PD sets for its services [as 3PD claims], but rather to seek to enforce 3PD’s obligations as an employer under Massachusetts law.”  Celso Martins v. 3PD, Inc., No. 11-11313 (DPW) (D. Mass. Mar. 27, 2013).

Although the judge in the 3PD case denied the plaintiff drivers’ motion to add as additional defendants the President and the Chief Operating Officer of 3PD because the motion was tardy, the remainder of the court’s decision was generally unfavorable to the delivery company. The court certified the case as a class action despite recent U.S. Supreme Court decisions making class certification more difficult generally, and granted the plaintiffs’ motion for summary judgment finding that the drivers “are employees of 3PD for purposes of Massachusetts law.”

Notably, the court took judicial notice of 3PD’s historical website descriptions of its business when 3PD argued that the website description from 2012 should not apply to earlier periods of time.  Finding 3PD’s arguments to be “disingenuous,” the court found that the “historical versions of the 3PD website available on the Internet Archive at Archive.org” (i.e., caches of prior website descriptions of its business) could be used as evidence under the doctrine of judicial notice.

Commentary:

3PD has not fared well to date in its legal challenges to its classification of its drivers as ICs. But, businesses in the delivery industry can lawfully classify delivery drivers as ICs, provided the companies do so in a manner cognizant of the contours and nuances in this area of the law. One judicial decision that I reported on in a blog post in April 2012 found that a mattress company’s drivers were properly classified as ICs.

Proper classification is not a daunting undertaking for a business if the company structures, documents, and implements its IC relationship in an IC-compliant manner consistent with the relevant test for classification of workers as ICs or employees.  Although the U.S. Government Accountability Office (GAO) has stated that “[t]he tests used [at the federal level] to determine whether a worker is an independent contractor or an employee are complex, subjective, and differ from law to law” (see GAO Report No. 06-656 at 25), and while the tests used by state regulatory agencies in enforcing state laws are even more diverse than the federal tests, IC compliance is attainable in most instances if a business is committed to long-term compliance instead of short-term goals.

There are diagnostic and treatment tools available to companies facing possible misclassification liability,  whether in the delivery and transportation industry or in other industries.  For example, businsses can meaningfully enhance their IC compliance through IC Diagnostics™ and other tools that measure and evaluate IC compliance both before and after, and offer proven means to re-structure, re-document, and re-implement IC relationships in a manner consistent with federal and state laws, with few exceptions.

Your comments are invited.

Written by Richard Reibstein.

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