FILED
Oct 31 2017, 10:10 am
CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Andrew B. Murphy Curtis T. Hill, Jr.
Faegre Baker Daniels LLP Attorney General of Indiana
Minneapolis, Minnesota
Abigail R. Recker
Angela N. Johnson Deputy Attorney General
Faegre Baker Daniels LLP Indianapolis, Indiana
South Bend, Indiana
Paul D. Borghesani
Law Office of Paul D. Borghesani
Elkhart, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Company, October 31, 2017
Appellant, Court of Appeals Case No.
93A02-1703-EX-650
v. Appeal from the Indiana
Department of Workforce
Development—Unemployment
Indiana Department of Insurance Appeals
Workforce Development, The Hon. Suzanne E. Manning,
Appellee. Liability Administrative Law Judge
Case No. 97920
Bradford, Judge.
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Case Summary
[1] Appellant Company appeals from the determination that Claimant was an
employee during the time she worked as a driver for Company, for purposes of
Indiana’s unemployment compensation system, as enacted in Indiana Code
article 22-4 (“the Act”). Company’s business is the provision of driveaway
services, focusing on the delivery of recreational vehicles (“RVs”) to dealerships
on behalf of manufacturers. To that end, Company uses drivers it classifies as
independent contractors, one of whom was Claimant during parts of 2014 and
2015. After no longer working for Company, Claimant applied for
unemployment benefits in 2015, and Appellee the Indiana Department of
Workforce Development (“DWD”) concluded that Claimant had been an
employee of Company for purposes of the Act. The Company filed a tax
protest, and after a hearing, a Liability Administrative Law Judge (“LALJ”)
agreed that Claimant had been an employee. Company contends that (1) the
LALJ erroneously determined that Claimant had been an employee and (2)
operation of the Act is preempted by the Federal Aviation Administration and
Authorization Act (“FAAAA”). Because we disagree, we affirm.
Facts and Procedural History
[2] Company is in the business of pairing drivers with manufacturers who require
driveaway services, focusing on arranging the transportation of RVs to
dealerships. Claimant is a professional driver who has held a commercial
driver’s license since 1997. On April 8, 2014, Claimant entered into a contract
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with Company to deliver RVs (“the Contract”), which provides, in part, as
follows:
WHEREAS, Carrier does not employ and/or retain any
individuals to provide driveaway services for the movement of
motor vehicles over the road, outsourcing this responsibility to
self-employed third parties with the required knowledge and
skills as well as license to drive/operate commercial motor
vehicles.
WHEREAS, the Contractor is a self-employed individual
engaged in the business of providing over the road driving
services, as a sole proprietor and independent contractor, to
various motor carriers and/or manufacturing companies for the
pickup, driving and/or operation of commercial motor vehicles
and delivery including the maintenance, inspection and/or minor
repair while the commercial motor vehicle is in the care, custody,
and control of Contractor, on a trip to trip basis, (the “Services”)
pursuant to Contracts and/or Agreements with the described
companies; and
WHEREAS, the Carrier and Contractor desire to enter into this
Agreement to utilize and provide, respectively, the Services on a
trip to trip arrangement, in an Independent Contractor
relationship and nothing in this Agreement shall be construed as
inconsistent with such status.
Ex. Vol. IV p. 23. Claimant performed work for Company from April 1, 2014,
through March 13, 2015.
[3] On March 19, 2015, Company was notified by DWD that Claimant had filed
for unemployment benefits with the Missouri Department of Labor & Industrial
Relations. On May 20, 2015, DWD issued a “Determination of Wage
Investigation” in which it concluded that Company had misclassified
Claimant’s wages. DWD concluded that Claimant had been an employee of
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Company—not an independent contractor—and that Company was therefore
liable for the payment of unemployment insurance tax for Claimant’s tenure.
On June 8, 2015, Company filed an unemployment insurance tax protest with
DWD.
[4] On March 1, 2017, the LALJ heard evidence during a telephonic hearing on
Company’s tax protest. On March 7, 2017, the LALJ issued its decision on
Company’s appeal, which included, among others, the following findings of
fact:
The employer is a registered motor carrier with the Department
of Transportation (DOT). The employer’s DOT number is
273286. The employer’s business is transportation of property,
including recreational vehicles (also known as RVs) in interstate
and intrastate commerce. The employer purchases driving
services with manufacturers. The employer does not employ any
individual to provide delivery of RV[]s. Department’s Exhibit 5.
Rather, the employer contracts with individuals, such as the
claimant, to provide delivery service. In addition, the employer
has a broker’s license to subcontract with other motor carriers to
provide delivery of RVs.
Ex. Vol. IV pp. 80-81. The LALJ concluded that, pursuant to the test detailed
in Indiana Code section 22-4-8-1 of the Act, Claimant had been an employee of
Company starting in 2014 and was therefore entitled to receive unemployment
benefits related to her work. The LALJ concluded, in part, that
the employer failed to establish that the claimant was performing
work that was outside of the usual course of the employer’s
business. The employer’s business is transportation of property,
specifically RVs, in interstate and intrastate commerce. The
employer does not employ[] any persons to do this work; rather,
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the employer chooses to use contractors, such as the claimant, to
provide this service. The employer has a broker’s license with
the DOT to contract with a different motor carrier to provide the
service. The employer could not perform the transportation of
the property without contractors or subcontracting the work to
another motor carrier. The claimant’s work was within the usual
course of the employer’s business.
The Liability Administrative Law Judge concludes the services
provided by the claimant constitute employment for purposes of
unemployment insurance law. The employer’s protest is
DENIED. The Determination of Wage Investigation is
AFFIRMED.
Ex. Vol. IV p. 83.
Discussion and Decision
I. Whether the LALJ’s Conclusion that Claimant
was an Employee is Reasonable
[5] While most of the facts related to this question are essentially undisputed, the
Company does dispute the LALJ’s conclusion that Claimant was an employee
in 2014 and 2015.
“Any decision of the liability administrative law judge shall be
conclusive and binding as to all questions of fact.” Ind. Code §
22-4-32-9(a) (1995). However we “are not bound by an agency’s
interpretation of the law.” Jug’s Catering, Inc. v. Indiana Dep’t of
Workforce Dev., Unemployment Ins. Bd., 714 N.E.2d 207, 210 (Ind.
App. 1999), trans. denied. When a party challenges an
administrative law judge’s decision as contrary to law, we may
consider “both the sufficiency of the facts found to sustain the
decision, and the sufficiency of the evidence to sustain the finding
of facts.” Ind. Code § 2-4-32-12 (1990). When undertaking our
review, we must look at the record in the light most favorable to
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the administrative decision, and we may neither reweigh the
evidence nor assess the credibility of the witnesses. Jug’s Catering,
714 N.E.2d at 209. “Under this standard, basic facts are
reviewed for substantial evidence, conclusions of law are
reviewed for their correctness, and ultimate facts are reviewed to
determine whether the ALJ’s finding is a reasonable one.”
Bloomington Area Arts Council v. Dep’t of Workforce Dev.,
Unemployment Ins. Appeals, 821 N.E.2d 843, 849 (Ind. Ct. App.
2005)[.]
Circle Health Partners, Inc. v. Unemp’t Ins. Appeals of Ind. Dep’t of Workforce Dev., 47
N.E.3d 1239, 1242 (Ind. Ct. App. 2015) (footnote omitted).
[6] Indiana Code section 22-4-8-1(1)(b) provides that, for purposes of the Act, the
following applies:
(b) Services performed by an individual for remuneration shall be
deemed to be employment subject to this article irrespective of
whether the common-law relationship of master and servant
exists, unless and until all the following conditions are shown to
the satisfaction of the department:
(1) The individual has been and will continue to be free from
control and direction in connection with the performance of
such service, both under the individual’s contract of service
and in fact.
(2) The service is performed outside the usual course of the
business for which the service is performed.
(3) The individual:
(A) is customarily engaged in an independently established
trade, occupation, profession, or business of the same
nature as that involved in the service performed.
[7] Subsections (1)(b)(1), (1)(b)(2), and (1)(b)(3)(A) make up the three prongs of
what is referred to as the “ABC” or “1-2-3” test. See Bloomington Area Arts
Council, 821 N.E.2d at 849; see also Ex. Vol. IV p. 81. Pursuant to this test,
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which we will call the ABC test, all workers are presumed to be employees
unless an employer establishes all three prongs of the ABC test. See id. (noting
employing unit had burden of proof as to the three prongs). When we review
an LALJ’s decision regarding employee status, we must consider the three
statutory provisions “conjunctively.” Id. Because assessments made by DWD
against “employing units [are] prima facie correct,” Ind. Code § 22-4-29-2,
Company has the burden of demonstrating that it established that Claimant met
all three prongs.
[8] Here, the LALJ concluded that Company established prong C, or that Claimant
was customarily engaged in an independently established trade, occupation,
profession, or business of the same nature as that involved in the service
performed. Claimant does not dispute this conclusion. The LALJ also
concluded, however, that Company failed to establish prongs A and B, that
Claimant was free from Company’s direction and control or was performing
work that was outside the Company’s usual course of business. We find the
LALJ’s conclusion regarding prong B to be dispositive. 1
[9] To prevail, Company must have established that Claimant’s service for it—the
transport and delivery of RVs—was outside Company’s usual course of
business. We have little trouble concluding that Company failed to do this.
Indeed, the provision of transport and delivery of RVs is not just Company’s
1
Because we conclude that the LALJ reasonably concluded that Company failed to establish prong B, we
need not address Company’s argument with respect to prong A.
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usual course of business, it seems that it is its only course of business. Company
is registered as a motor carrier with the United States DOT, its name is
“******* Transport,” Department’s Ex. 7A, and it would compete directly with
companies who offered the same service provided by drivers who were
employees. Company contends that its usual course of business is not the
provision of transport services, but, rather, the provision of brokerage services.
While perhaps technically true, we seriously doubt that customers with RVs to
transport contact Company to act as a “middle man” between them and
independent haulers; they call Company to have an RV moved from point A to
point B and almost certainly do not care how Company accomplishes that task.
From a common-sense standpoint, the Company’s business is transport, and
this is the precise service that Claimant provided to Company. The LALJ’s
conclusion that Claimant was, therefore, an employee for purposes of the Act is
reasonable. See Bloomington Area Arts Council, 821 N.E.2d at 852 (“The BAAC
regularly offers the art classes as part of its mission to provide access to the arts
in the community. The BAAC is in competition with other organizations that
provide art classes and receives a substantial portion of its revenue from the art
classes. Under these circumstances, we cannot say that the ALJ’s finding that
the art classes were an integral part of the BAAC’s usual course of business is
unreasonable.”).
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II. Whether Indiana Code Section 22-4-8-1
is Preempted by Federal Law 2
[10] Company also contends that even if we conclude (as we have) that Claimant’s
services constituted employment, Indiana Code section 22-4-8-1(1)(b)(2) is
preempted by the FAAAA. Company is a federally-registered motor carrier,
and the FAAAA expressly preempts any state law “having the force and effect
of law related to a price, route, or service of any motor carrier[.]” 49 U.S.C. §
14501(c)(1).
It has “long been settled” that a preemption analysis begins with
the presumption that federal statutes do not preempt state law.
Bond v. United States, ––– U.S. ––––, 134 S. Ct. 2077, 2088, 189 L.
Ed. 2d 1 (2014). The presumption against preemption comes
from two concepts “central to the constitutional design”—the
Supremacy Clause and federalism. See Arizona v. United States,
567 U.S. 387, 132 S. Ct. 2492, 2500, 183 L. Ed. 2d 351 (2012).
Although the Supremacy Clause gives Congress the power to
preempt state law, federalism requires that we do not easily find
preemption. See id. at 2501. In fact, we find preemption only if it
is “the clear and manifest purpose of Congress.” Id.
Kennedy Tank & Mfg. Co. v. Emmert Indus. Corp., 67 N.E.3d 1025, 1028 (Ind.
2017) (footnote omitted).
[11] Through the FAAAA, Congress has expressed a clear intent to preempt any
state law that “relates to” a price, route, or service or any motor carrier; the
2
Although Company raised this issue in a written submission to DWD, the LALJ did not address it. Rather
than remand to DWD for reconsideration, we choose to address it in this appeal in the interest of judicial
economy.
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question before us is whether Prong B satisfies that requirement. While no
Indiana court has addressed this precise FAAAA preemption question, the
United States Supreme Court and several United States Circuit Courts of
Appeal have, offering valuable guidance. See, e.g., Grp. Dekko Servs. LLC v.
Miller, 717 N.E.2d 967, 969 (Ind. Ct. App. 1999) (“U.S. Supreme Court
decisions regarding federal questions … are binding on state court, while the
decisions of lower federal courts are available for their consideration as
persuasive authority.”).
[12] The Seventh Circuit case of Costello v. BeavEx, Inc., 810 F.3d 1045, 1051 (7th
Cir. 2016), summarizes federal jurisprudence in the area:
The preemptive scope of the FAAAA is broad. [See Morales v.
Trans World Airlines, Inc., 504 U.S. 374, 383–84, 112 S. Ct. 2031,
2036 (1992)]. A state law is preempted if it has a direct
connection with or specifically references a carrier’s prices,
routes, or services. Id. at 384, 112 S. Ct. 2031. More
expansively, a state law may be preempted even if the law’s effect
on prices, routes, or services “is only indirect.” Id. at 386, 112 S.
Ct. 2031 (quotation marks omitted). This means “that pre-
emption occurs at least where state laws have a ‘significant
impact’ related to Congress’ deregulatory and pre-emption-
related objectives.” [Rowe v. New Hampshire Motor Transp. Ass’n,
552 U.S. 364, 371, 128 S. Ct. 989, 995 (2008)] (quoting Morales,
504 U.S. at 390, 112 S. Ct. 2031).
[13] The Costello court’s summary of cases from the Seventh Circuit and its sister
circuits is that “[l]aws that affect the way a carrier interacts with its customers
fall squarely within the scope of FAAAA preemption. Laws that merely govern
a carrier’s relationship with its workforce, however, are often too tenuously
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connected to the carrier’s relationship with its consumers to warrant preemption.”
Costello, 810 F.3d at 1054 (emphasis in Costello). Because Indiana Code section
22-4-8-1 governs Company’s relationship with its workforce, the precise
question presented is whether its application here has “a significant impact on
the prices, routes, and services that [Company] offers to its customers.” Costello,
810 F.3d at 1055.
[14] Company argues that classification of its drivers as employees pursuant to
Indiana Code section 22-4-8-1 would, in fact, have a significant impact on the
prices it must charge its customers. Specifically, Company points to its Exhibit
G1, which is an analysis of what its costs would have been in 2016 to use
independent contractors versus employees and is summarized here:
Independent
Employee
Contractor
Miles 22,139,177 22,139,177
$19,925,259 $11,955,155
Driver Pay
($0.90/mile) ($0.54/mile)
$6,228,643
Fuel
(8 mpg,
Reimbursement
$2.25/gallon)
Toll
$207,555
Reimbursement
Unemployment
$800,995
Insurance
Employee
$1,044,000
Benefits
Tools and
$174,000
Hardware
Driver Return
$11,955,155
Expense
Totals $19,925,259 $32,363,504
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According to Company, Exhibit G1 indicates that it would have to charge its
customers an estimated additional $0.56 per mile. DWD argues, and we agree,
that this claimed increase in labor costs is not supported by the evidence.
[15] Company’s Exhibit G1 lists several additional expenses that it claims it would
incur were drivers like Claimant to be classified as employees for purposes of
the Act, including fuel reimbursement, toll reimbursement, employee benefits,
tools and hardware, and driver return expenses. The Costello court addressed a
similar claim about additional labor expenses, and we find its approach to be
sound. In that case, BeavEx was a same-day delivery service who sought to
make certain deductions from the wages of its couriers, who were classified by
BeavEx as independent contractors. Costello, 810 F.3d at 1048. When couriers
for BeavEx sued to be classified as employees under Illinois law (which would
have rendered the wage deductions illegal), BeavEx countered that the Illinois
law was preempted by the FAAAA. Id. BeavEx claimed, inter alia, that the
Illinois law would have a significant effect on BeavEx’s prices by subjecting it
to numerous legal obligations toward those couriers that do not
currently apply, including minimum wage, maximum hour, and
overtime requirements, mandated payroll tax payments and
withholding requirements, mandated workers’ compensation and
medical insurance, and mandated contributions to state
unemployment insurance, in addition to remedies specifically
requested in Plaintiffs’ complaint, which include requirement
[sic] BeavEx to purchase or lease, store, and maintain
automobiles for its couriers.
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Id. at 1056 (citation omitted; brackets in Costello). The court noted that
“[c]onspicuously absent from BeavEx’s parade of horrors is any citation of
authority showing that it would be required to comply with this slew of federal
and state laws.” Id. In the end, the court did “not accept BeavEx’s bare
assertion that its couriers will need to be classified as employees for all
purposes.” Id.
[16] As BeavEx failed to do in Costello, Company provides us with no authority for
the proposition that it would be required to treat drivers like Claimant as
employees for all purposes, and we are aware of none. Seeing no reason to treat
this situation differently than the situation presented in Costello, we do not
accept Company’s bare assertion that its drivers must be classified as employees
for all purposes. Claimant’s only claim is that she is entitled to be classified as
an employee with respect to unemployment benefits, and that is the only
question we reach.
[17] After the expenses unrelated to unemployment insurance premiums are taken
out of the equation, Company has established, at most, that estimated labor
costs would increase by $800,995 per year,3 or approximately $0.036 per mile.
At the Company’s labor cost of $0.90 per mile, Company’s Ex. G1, such an
3
It is not entirely clear how Company arrived at this figure. We assume that it is an estimated contribution
based on Company’s assertion that it would pay “employee” drivers $0.54/mile for each delivery and return
mile. Although we recognize that Company’s contribution rate is lower if it is based on independent
contractor wages, it does not seem that the difference would be great, and it does not affect our disposition of
this case in any event.
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increase is a modest 4%. Therefore, even assuming that Company charges its
customers only what it pays its drivers (which, of course, it does not do), the
increase of what Company charges its customers would be no more than 4%.
That leaves us with the question of whether a maximum 4% increase in the
prices Company charges to customers has a “significant” impact for purposes of
FAAAA preemption.
[18] Review of relevant precedent reveals a clear Congressional intent that certain
state laws are not to be preempted by the FAAAA despite having some impact
on shipping rates. “Because ‘everything is related to everything else,’ [Cal. Div.
of Labor Standards Enf’t v. Dillingham Const., N.A., Inc., 519 U.S. 316, 335, 117 S.
Ct. 832, 843 (1997)] (Scalia, J., concurring), understanding the nuances of
congressional intent is particularly important in FAAAA preemption analysis.”
Dilts v. Penske Logistics, LLC, 769 F.3d 637, 643 (9th Cir. 2014).
[19] The statutory language itself explicitly excludes several types of state laws and
regulations:
(2) Matters not covered.--Paragraph (1)--
(A) shall not restrict the safety regulatory authority of a State
with respect to motor vehicles, the authority of a State to
impose highway route controls or limitations based on the
size or weight of the motor vehicle or the hazardous nature of
the cargo, or the authority of a State to regulate motor carriers
with regard to minimum amounts of financial responsibility
relating to insurance requirements and self-insurance
authorization;
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(B) does not apply to the intrastate transportation of
household goods; and
(C) does not apply to the authority of a State or a political
subdivision of a State to enact or enforce a law, regulation, or
other provision relating to the regulation of tow truck
operations performed without the prior consent or
authorization of the owner or operator of the motor vehicle.
49 U.S.C. § 14501(c)(2).
[20] The Congressional Conference Report on the FAAAA elaborates on the intent
behind this statutory language:
[These provisions emphasize] that State authority to regulate
safety, financial responsibility relating to insurance,
transportation of household goods, vehicle size and weight and
hazardous materials routing of air carriers and carriers affiliated
with a direct air carrier through common controlling ownership
is unchanged, since State regulation in those areas is not a price,
route or service and thus is unaffected.… This list is not intended
to be all inclusive, but merely to specify some of the matters
which are not “prices, rates or services” and which are therefore
not preempted.
H.R. Conf. Rep. No. 103-677, at 84 (1994), reprinted in 1994 U.S.C.C.A.N.
1715, 1756.
[21] The Ninth Circuit has interpreted the statutory language and legislative history
this way: “Congress did not intend to preempt generally applicable state
transportation, safety, welfare, or business rules that do not otherwise regulate
prices, routes, or services.” Dilts, 769 F.3d at 644. Or, to put it another way,
“even if state laws increase or change a motor carrier’s operating costs, ‘broad
law[s] applying to hundreds of different industries’ with no other ‘forbidden
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connection with prices[, routes,] and services’—that is, those that do not
directly or indirectly mandate, prohibit, or otherwise regulate certain prices,
routes, or services—are not preempted by the FAAAA.” Id. at 647 (quoting Air
Transp. Ass’n of Am. v. City & Cty. of San Francisco, 266 F.3d 1064, 1074 (9th Cir.
2001)).
[22] With this in mind, we have little trouble concluding that while even a 4%
increase in labor costs may have some impact on the prices Company charges its
customers, Company has failed to establish that the impact will be
“significant.” As mentioned, it seems to us that a maximum 4% increase in
labor costs is modest. Second, the Act is one of general applicability, as
“unemployment insurance benefits are funded by a tax contribution imposed
upon Indiana employers.” Indpls. Concrete, Inc. v. Unemp’t Ins. Appeals of Ind.
Dep’t of Workforce Dev., 900 N.E.2d 48, 50 (Ind. Ct. App. 2009). Companies in
the transport business are not singled out by the Act; Indiana employers, no
matter their business, are subject to its provisions.
[23] Third, the Act is clearly intended to maintain the welfare of Indiana workers
who find themselves out of work through no fault of their own:
Economic insecurity due to unemployment is declared hereby to
be a serious menace to the health, morale, and welfare of the
people of this state and to the maintenance of public order within
this state. Protection against this great hazard of our economic
life can be provided in some measure by the required and
systematic accumulation of funds during periods of employment
to provide benefits to the unemployed during periods of
unemployment and by encouragement of desirable stable
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employment. The enactment of this article to provide for
payment of benefits to persons unemployed through no fault of
their own, to encourage stabilization in employment, and to
provide for integrated employment and training services in
support of state economic development programs, and to provide
maximum job training and employment opportunities for the
unemployed, underemployed, the economically disadvantaged,
dislocated workers, and others with substantial barriers to
employment, is, therefore, essential to public welfare; and the
same is declared to be a proper exercise of the police powers of
the state. To further this public policy, the state, through its
department of workforce development, will maintain close
coordination among all federal, state, and local agencies whose
mission affects the employment or employability of the
unemployed and underemployed.
Ind. Code § 22-4-1-1. Finally, nothing in the Act directly or indirectly
mandates, prohibits, or otherwise regulates certain prices, routes, or services.
Dilts, 769 F.3d at 647. Because we conclude that Company has failed to
establish that the Act would have a substantial impact on the prices it charges
its customers, its operation is not preempted by the FAAAA.4
4
Company also argues that reclassification of Claimant (and other drivers) would significantly impact the
routes taken by its drivers. This argument, however, is premised on Company’s assertion that a ruling in
Claimant’s favor will mean that she must be classified as an employee for all purposes, an assertion we have
rejected. This is the same reason we conclude that Company’s reliance on Schwann v. FedEx Ground Package
Sys., Inc., 813 F.3d 429 (1st Cir. 2016), a case in which FAAAA preemption was found, is unavailing. In that
case, unlike here, reclassification of the independent-contractor drivers as employees would have had much
more impact, including requiring
various days off, parental leave, work-break benefits, and a minimum wage[.] The employer must
also track and record hours worked and amounts paid. According to the Massachusetts Attorney
General, under Plaintiffs’ proposed application of the Massachusetts Statute, Chapter 149 would
require FedEx to pay for or reimburse all out-of-pocket expenses incurred for the benefit of FedEx
such as the maintenance and depreciation of the vehicles they used to perform their services. The
statute also bars the employer from excepting itself from this mandate by contract.
Id. at 433. Because reclassification in this case is limited to the Act, Schwann is easily distinguished.
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Conclusion
[24] We conclude that the LALJ’s determination that Claimant was an employee of
Company when she performed services for them is reasonable. We also
conclude that operation of the Act in this case is not preempted by the FAAAA.
Consequently, we affirm the determination of the LALJ.
[25] Affirmed.
May, J., and Barnes, J., concur.
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