Massachusetts has one of the most – if not the most – restrictive independent contractor statutes in the United States. The statute is intended to drastically reduce the number of individuals that can be properly classified as independent contractors by creating a framework by which the vast majority of workers must be treated as employees and therefore entitled to the benefits and rights of employment. Consistent with its intended purpose, the statute contains a three-prong test to establish that someone is an independent contractor: (1) the individual is free from control and direction with the performance of the service, both under his contract and in fact; (2) the service is performed outside the usual course of business of the employer; and (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. If any of the above statements are not true regarding an individual’s work, the worker must be classified as an employee. Under the law, it is the employer’s burden to prove that all three prongs of the independent contractor test are met.
Over time, courts have grappled with whether the Federal Aviation Authorization Act of 1994 (FAAAA), which applies to employers in the motor carrier industry, preempts the Massachusetts independent contractor statute. If the law were preempted, it would mean motor carrier employers would be able to disregard the independent contractor requirements for certain workers. Recently, the Massachusetts Supreme Judicial Court (SJC) weighed in on issue and provided an answer to the long-asked question.
Generally, a state law may be preempted by federal law when there is a conflict between the state and federal laws. In the various challenges to Massachusetts’ independent contractor law, motor carrier companies have claimed that the independent contractor law was preempted by the FAAAA because the FAAAA, which was enacted in an attempt to deregulate the trucking industry, prohibits states from enacting or enforcing laws regarding the “price, route, or service of any motor carrier…with respect to the transportation of property.”
The recent SJC case involved RDI Logistics, Inc., a company that provides delivery services for furniture retailers. RDI contracted with truck drivers to provide those delivery services. Those truck drivers filed a lawsuit against RDI alleging that they were misclassified as independent contractors and were entitled to overtime pay. RDI responded that the independent contractor law couldn’t apply to it, because the law was preempted by the FAAAA. RDI claimed that prong 2 of the independent contractor test was impermissible, because requiring trucking companies to use employees rather than independent contractors for their services imposed a “significant impact” on motor carriers. The trial court agreed with RDI and dismissed the claims. The drivers then appealed, and instead of heading to the Appeals Court, which is the typical process, the SJC granted direct appellate review, which means that the case went directly to the highest court in the state.
The SJC agreed with RDI’s argument that prong 2 imposes an impermissible impact on transportation services under the FAAAA and is therefore preempted by federal law. However, the court concluded that the FAAAA did not preempt the entirety of the independent contractor statute, but rather it only preempted prong 2. Therefore, instead of declaring the entire law preempted, as the lower court had done, the SJC decided that prongs 1 and 3 still apply to motor carriers and therefore motor carrier companies are not free to disregard those parts of the law. The case is Chambers, et al. v. RDI Logistics, Inc., et al.
So, what does this all mean? Employers covered by the FAAAA get a small break from the independent contractor statute from this case. Specifically, motor carrier companies only have to meet the criteria set out in prongs 1 and 3 to legally use independent contractors rather than hire employees. Although it is still a difficult test to meet, it is not the impossible test that existed when prong 2 applied.
Employers still need to be careful when classifying individuals as independent contractors. One misstep can lead to years of litigation for owed wages, which will be costly in the long run. As a result, employers should consult with labor and employment counsel anytime they are thinking of hiring independent contractors.