/>iEmployee misclassification claims continue to be the focus of class action litigation in the logistics space. In general, these cases involve allegations by independent contractors (most often owner-operators) that they should be classified as employees, and thereby receive benefits granted to employees under certain statutes, such as meal and rest break laws or overtime pay.
California Trucking Association v. Bonta: Certiorari Denied
Perhaps the most noteworthy (and surprising) 2022 logistics decision was the denial of certiorari in California Trucking Association v. Bonta.[1] As previously analyzed by ArentFox Schiff here, in April 2021 the Ninth Circuit Court of Appeals reversed a previously ordered injunction against the application of California’s employee misclassification statute, AB5,[2] to California’s motor carriers, holding that AB5 is not preempted under the Federal Aviation Administration Authorization Act (FAAAA or F4A).
On May 26, 2021, the appellees (the California Trucking Association and others) filed a petition for rehearing en banc, arguing that the Ninth Circuit’s decision was in conflict with US Supreme Court precedent because “contrary to the majority’s holding that the FAAAA preempts only laws that ‘bind, compel, or otherwise freeze into place a particular price, route, or service of a motor carrier at the level of its customers,” the Supreme Court has held that state laws are preempted if they have even an “indirect” effect on rates, routes, or services. Additionally, the appellees argued that a rehearing was warranted because the decision created a circuit split.
The Ninth Circuit denied the petition for rehearing on June 21, 2021, but allowed a stay of the application of the reversal while Appellees filed a petition for writ of certiorari to the US Supreme Court. However, in a surprising move, particularly given the clear circuit split, the US Supreme Court denied certiorari on June 30, 2022, the last day of the October 2021 term.
As a result of the denial, the injunction against application of AB5 to motor carriers was suddenly lifted. The Ninth Circuit’s ruling has had a profound effect on the business operations of many motor carriers in California, who relied on the independent contractor model in conducting their business. They have been forced to reassess their business operations, including by reclassifying their workforce as employees, altering their business models, or leaving the state altogether, with each option leading to higher prices for consumers during an already challenging economic period.
Other Noteworthy 2022 Misclassification Decisions
Portillo v. National Freight, Inc.
In Portillo v. National Freight, Inc.,[3] delivery drivers filed a putative class action against a freight and delivery company alleging they were misclassified as independent contractors instead of employees, so defendants made wage deductions from plaintiffs’ pay in violation of New Jersey Wage Payment Law (WPL). On cross motions for summary judgment, the New Jersey Federal District Court applied the State’s ABC test, with a focus on prong B, which concerns whether the worker performed services “outside of the usual course of” the putative employer’s business, and whether the services are performed “outside of all of the places of business of the enterprise for which such service[s] [are] performed.”
National Freight, Inc. (NFI) argued unsuccessfully that its usual business was simply to connect NFI clients to independent contractors, and that the work of transporting goods was therefore outside its usual course of business. The argument that the drivers did not perform work at NFI’s usual place of business also failed. The court found that an integral part of NFI’s business occurred at the warehouses and delivery locations frequented by the drivers. Turning next to the same FAAAA preemption arguments addressed in California Trucking Association v. Bonta, the New Jersey Federal District Court followed established Third Circuit precedent, finding no preemption. The decision is yet another example of the challenges facing logistics companies that provide services across state lines. Business practices that likely would be acceptable north of New Jersey, in Maine, Massachusetts, New Hampshire, and Rhode Island—in the states within the First Circuit — are impermissible and a source of significant costs in the Garden State.
Alvarez v. XPO Logistics Cartage, LLC
Misclassification claims have also led to significant monetary settlements in 2022. In Alvarez v. XPO Logistics Cartage, LLC,[4] the Central District of California granted final approval of a $20 million settlement in January 2022. The underlying facts sound in a classic misclassification claim. The class members alleged that XPO misclassified truck drivers as independent contractors instead of employees, which resulted in unlawful deprivation of the benefits of various employment laws, lesser pay than what the drivers were due under applicable wage laws, and the drivers bearing expenses that should have been borne by XPO.
FOOTNOTES
[1] See 142 S. Ct. 2903 (2022) (Table Opinion).
[2] AB5 codifies the “ABC Test,” which presumes that a worker is an employee unless the hiring entity can prove that the worker (A) is free from the control and direction of the employer in performing work, both practically and in a contractual agreement; (B) performs work that is outside the usual course of the employer’s business; and (c) is usually engaged in an independently established trade, occupation or business of the same nature as the work performed for the employer.
[3] No. 15-CV-07908-JHR-MJS, 2022 WL 2078276 (D.N.J. June 9, 2022).
[4] 2021 WL 5277713, No. 2:18-CV-03736-RGK-E (C.D. Cal. Aug 20, 2021)
