Federal Circuit Court Declines to Preempt State Laws Under FAAAA

Kevin Anderson Employment and Labor, Transportation

Another federal circuit addressed the issue of The Federal Aviation Administration Authorization Act and preemption recently, and the ruling has many transportation companies on alert. The Seventh Circuit Court of Appeals is just the latest circuit to decide the limits of what the FAAAA will preempt when it comes to state laws.

This case involved a delivery company in Illinois that primarily uses independent contractors to carry out its business. The delivery company pays its drivers based on routes and packages delivered, instead of an hourly wage. And because they classify their drivers as independent contractors, they avoid dealing with benefits laws, minimum wage laws, and other requirements that employers deal with when they act as employers.

In Illinois, where this suit was brought, there is a state law known as Illinois Wage Payment and Collection Act. This law provides employees with a statutory right to sue employers for unpaid wages and benefits, but it does not apply to independent contractors. As a result, a number of disgruntled former drivers for this company decided to sue the company, claiming they were not contractors but actually employees. In their suit, they demanded back wages and benefits they were never given because at the time they were classified as independent contractors.

FAAAA and Preemption of State Law

The FAAAA preempts state law where the law alters or significantly affects a transportation company’s routes, prices, and services. This preemption is necessary because the federal government already heavily regulates these areas. If states were also allowed to regulate them, companies would be mired in a morass of endless state and federal regulations and laws.

In their arguments against the contractors, this delivery company made two arguments: that the workers were actually independent contractors; and if not, that the FAAAA preempted application of the state law because classifying them as employees would necessarily affect how the company managed its routs, prices, and services. But the circuit court did not agree with either of their arguments.

In their opinion, the court pointed to several factors as to why the workers were employees and why the FAAAA did not preempt the state law. Some of those key factors were that classification of the workers as employees or contractors might have an affect on prices, routes, and services, but the connection is tenuous at best. Now the company is faced with daunting legal fees, back pay claims, and an uncertain future.

Your Company’s Litigation and Regulatory Compliance Partner

Unfortunately for U.S. business owners, this scenario is not a rare one. The transportation industry is regulated from the state and federal level in ways that other industries could not imagine. That is why it is so important for transportation companies to have solid, experienced legal counsel guiding their steps. Avoiding cases like these can often mean the difference between success and failure in business. At Anderson and Yamada, P.C., we have the experience and knowledge that your company needs to succeed in the transportation industry. Contact us, and let us become your partner going forward.