In a blow to independent contractors for transportation companies seeking to be classified as employees of the firms they work with, a federal district judge in Massachusetts ruled the state's independent-contractor law failed to override a 1994 federal statute pre-empting state regulation of a motor carrier's rates, routes and services.
Ruling Feb. 5 in two separate cases, Judge Robert G. Stearns found that because the state law would have an impact on a carrier's economic services, the federal statutes must supersede its enforcement. In one case, a four-year-old suit in which 11 contracted drivers at FedEx Ground, the Pittsburgh-based ground-parcel unit of Memphis-based FedEx Corp., sued the unit seeking to be re-classified as employees, Judge Stearns granted summary judgment in favor of the company. Summary judgment is a court order entered without the benefit of a full trial. The plaintiffs had sought the summary judgment.
In the other, two contractors for truckload and logistics giant J.B. Hunt Transport Services Inc. sought the same result as the FedEx Ground contractor. The judge dismissed the complaint outright.
The FedEx drivers have already appealed the ruling to the 1st U.S. Circuit Court of Appeals in Boston, according to Benesch, a law firm that specializes in transportation issues and usually works on behalf of businesses. There was no word on what action, if any, the plaintiffs in the Hunt case would take. In a one-page summary of the judge's actions, Benesch called them "industry-favorable" and "very positive."
FedEx Ground, which uses a network of nonunion independent drivers to keep down its operating costs, hailed the ruling. "This decision affirms our view that companies should have the option to contract with small businesses," said Perry Colosimo, a spokesman for the unit, in a statement. "We have longstanding contractual relationships with small businesses throughout Massachusetts that have provided transportation services on our behalf."
Colosimo added that the unit remains "committed to protecting a business model that allows "thousands of independent business owners, in Massachusetts and across the country, the opportunity to own and operate their own businesses." In the FedEx Ground case, Judge Stearns reversed his own 2013 ruling that the workers should be classified as employees under Massachusetts law. At the time, the judge ruled that the drivers' duties fell within the scope of the unit's business, and thus qualify them under the state statute to be classified as employees.
However, a ruling in a different case last September by a three-judge panel of the same appellate court found that the 1994 federal law overrides the state statute as it relates to motor carrier operations. Using the appellate court's findings as a guidepost, the judge subsequently withdrew his prior order.
FedEx Ground is involved in about 20 nationwide suits that revolve around the nature of its contractor business model. Its track record of success has been hit or miss. It took a sharp blow last August when an appeals court panel in San Francisco ruled that a class of 2,300 drivers in California who from 2000 to 2007 were classified as contractors were actually employees under California law. The case has been returned to a federal district court in California for further action. FedEx Ground did not appeal the ruling.
At the time, FedEx Ground said that since 2011 it has only contracted with incorporated businesses that treat their drivers as employees. The panel thus rendered a decision on a business model that is no longer in use, the company said.
For FedEx Ground and its parent, the issue is significant. Adverse rulings, if upheld on appeal, could cost the company hundreds of millions of dollars in retroactive expenses, from employee benefits to equipment obligations that had been borne by the workers. The Internal Revenue Service and state taxing authorities that are seeking to collect more payroll tax-revenue income are interested in the cases. Organized labor could also be emboldened to re-attempt representation of FedEx Ground years after it was defeated in organizing efforts.