Court rules federal act does not pre-empt New Jersey independent contractor test

In a precedential decision, the U.S. Court of Appeals for the Third Circuit ruled that the Federal Aviation Authorization Administration Act (FAAAA) of 1994 does not pre-empt New Jersey law for determining whether a truck driver is an employee or independent contractor.

The Third Circuit on Tuesday, Jan. 29, affirmed a previous decision by the U.S. District Court in New Jersey.

Essentially, the ruling is a blow to trucking companies that attempt to mislabel its truck drivers as independent contractors while treating them as employees.

The case stems from a class action lawsuit filed by truck drivers Ever Bedoya, Diego Gonzalez, and Manuel Decastro against American Eagle Express (AEX), a trucking company based in Illinois. The lawsuit alleged that AEX misclassified the drivers as independent contractors when they are actually employees under the New Jersey wage and hour law and the New Jersey wage payment law.

AEX moved for judgment, arguing that the drivers’ claims were pre-empted by the FAAAA, which prohibits states from enacting or enforcing policies “related to a price, route, or service of any motor carrier.” The district court ruled that the FAAAA doesn’t preempt New Jersey’s ABC test for determining employment status.

The New Jersey ABC test says a worker is deemed an employee unless the company can demonstrate each of the following:

• A. Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact.
• B. Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed.
• C. Such individual is customarily engaged in an independently established trade, occupation, profession, or business.

AEX argued that applying the New Jersey law may require it to shift its model away from using independent contractors, which will increase its costs, and in turn, its prices. Specifically, AEX said that if it can no longer use independent contractors, then it will be forced to recruit employees, bring on a human resources department to manage the them, acquire and maintain a fleet of trucks and pay expense reimbursements, provide fringe benefits, plan and dictate delivery routes and timing, and pay overtime wages and employment taxes.

The Third Circuit rejected those claims, saying that New Jersey’s ABC test doesn’t prevent trucking companies from hiring independent contractors. Instead, it only determines if the driver really is an independent contractor.

“AEX’s argument that it may be subject to other legal requirements arising from reclassification, citing only the Affordable Care Act, is equally unavailing,” the court wrote. “We see no basis for concluding that (New Jersey law) would require the change given that the federal employment laws and other state labor laws may have different tests for determining whether someone is an employee under a specific statute.

“While we have no doubt that the disruption of a labor model could have negative financial and other consequences for an employer, this impact on the employer does not equate to a significant impact on Congress’ goal of deregulation. Congress sought to ensure market forces determined prices, routes and services. Nothing in that goal, however, was meant to exempt workers from receiving proper wages, even if the wage laws had an incidental impact on carrier prices, routes or services.”

The court concluded that typical state wage and hour laws weren’t the kind of pre-existing state regulations that Congress was concerned about when it passed the FAAAA.

“Accordingly, any effect the New Jersey ABC classification test has on prices, routes or services with respect to the transportation of property is tenuous and insignificant,” the court wrote. “As a result, the test is not pre-empted.”