Appellate court rules federal law does not override Illinois wage laws

An appellate court recently ruled in favor of drivers of a warehousing and home delivery company who said they had been shorted wages.

The court disagreed with the company’s claim that federal law supersedes Illinois state law in the matters involving the trucking industry in a case that is essentially the classic “independent contractor” versus “employee” argument.

On Sept. 27, the U.S. Third Circuit Court of Appeals affirmed a lower court’s decision in favor of drivers for motor carrier Joseph Cory Holdings. Five delivery drivers for Cory Holdings accused the company of deducting wages from their paychecks without obtaining “contemporaneous consent in violation of the Illinois Wage Payment and Collection Act” or IWPCA.

Cory moved to dismiss the case by invoking the Federal Aviation Administration Authorization Act of 1994 (F4A). The federal law includes a section that limits state regulations of intrastate transportation of property. More specifically, states “may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier … or any motor private carrier with respect to the transportation of property.”

Neither the district court nor the appellate court agreed with Cory Holdings’ interpretation of the law.

In August 2016, five drivers for Cory Holdings filed a class action lawsuit against the company, claiming unlawful deductions from their wages and failing to pay all wages as a result of misclassification. According to the lawsuit, drivers had to sign a contract stating they were independent contractors for the delivery of merchandise to customers’ homes.

Drivers claim that the relationship was more that of an employee than contractor. That claim was backed up by pointing out the following:

• Drivers were required to report to Cory Holdings facilities in Illinois at a preset time determined by Cory Holdings.
• Drivers were required to make deliveries within time windows set by Cory Holdings.
• Drivers were required to wear a uniform when making deliveries for Cory Holdings.
• Cory Holdings required drivers to complete their route in a specific order. If drivers failed to complete their deliveries in the order specified by Cory Holdings, they would be subject to discipline.
• Cory Holdings subjected drivers to a rating system.
• Cory Holdings retained the right to terminate drivers for any reason.

The lawsuit claims that drivers worked six to seven days per week for 12-16 hours per day making deliveries for Cory Holdings. However, they were never paid overtime rates for hours worked beyond 40 hours each week.

Furthermore, drivers did not have an independently established business, i.e., they worked only for Cory Holdings. Drivers did not negotiate with customers regarding rates, nor did they contract with Cory Holdings’ customers independently.

Cory Holdings also deducted insurance, truck rentals and uniforms from drivers’ paychecks. Drivers were required to provide a safety deposit, which was never returned when the contract was terminated.

Attorneys for the drivers accused Cory Holdings of violating the Illinois Wage Payment and Collection Act, which prohibits employers from making deductions from employees’ wages. Section 9 of the act states:

“Deductions by employers from wages or final compensation are prohibited unless such deductions are (1) required by law; (2) to the benefit of the employee; (3) in response to a valid wage assignment or wage deduction order; (4) made with the express written consent of the employee, given freely at the time the deduction is made.”

The lawsuit also accused Cory Holdings of violating New Jersey wage laws.

Cory Holdings motioned to have the case dismissed, stating the F4A overrides both Illinois and New Jersey state laws. In March 2017, a district court judge dismissed claims relevant to New Jersey wage laws. However, the court denied the motion to dismiss claims regarding Illinois state law.

Previous cases involving similar New Jersey wage law claims determined that “New Jersey law does not regulate conduct outside the state,” according to the district court judge’s ruling. More accurately, New Jersey wage law does not apply to employees based outside of New Jersey. Accordingly, those claims were dismissed.

Regarding Illinois wage laws, the Seventh Circuit court concluded the following in a previous case:

“There is a relevant distinction for purposes of (F4A) preemption between generally applicable state laws that affect the carrier’s relationship with its customers and those that affect the carrier’s relationship with its workforce. Laws that affect the way a carrier interacts with its customers fall squarely within the scope of (F4A) preemption. Laws that merely govern a carrier’s relationship with its workforce, however, are often too tenuously connected to the carrier’s relationship with its consumers to warrant preemption. The Supreme Court’s preemption decisions do not counsel a different conclusion.”

Consequently, the district court denied the dismissal of charges related to Illinois wage laws, stating Cory Holdings did not show “that the costs of acquiring consent would have a significant impact on (Cory Holdings’) prices, routes or services.”

The appellate court affirmed that decision.

From here, the drivers will get their day in court to argue employee status under Illinois wage laws but not under New Jersey law. Cory Holdings can potentially win the case if the company can successfully prove that acquiring consent would have had a negative impact on its business.