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Class Actions Quarterly Update: Logistics

Employee misclassification continues to be the largest source of class action litigation in the logistics industry.
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California Trucking Association v. Bonta May Head to the Supreme Court

Independent contract owner-operators across the country continue to file suit claiming that, as misclassified employees, they are entitled to meal and rest breaks, overtime, and other employment benefits.

Most notably, and as we have written about here and here, the case of California Trucking Association v. Bonta was recently decided by the 9th Circuit Court of Appeals. The Court reversed the previously ordered injunction against the application of California’s employee misclassification statute, AB5, to California’s motor carriers, holding that AB5 is not preempted under the Federal Aviation Administration Authorization Act (FAAAA or F4A).

On May 26, Appellees (the California Trucking Association and others) filed a petition for rehearing en banc. In the petition, Appellees argued that the decision was in conflict with certain United States 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. For example, Appellees noted the Supreme Court had previously found FAAAA preemption with respect to  a Maine statute that prohibited licensed tobacco retailers from employing a delivery service unless the service followed particular procedures, because the Maine law would indirectly affect services.

Additionally, Appellees argued that that rehearing is warranted because the decision creates a a circuit split in that it is in conflict with the 1st Circuit’s decision in Schwann v. FedEx Ground Package Sys., Inc., 813 F.3d 429 (1st Cir. 2016) and the 3rd Circuit’s decision in Bedoya v. Am. Eagle Express Inc., 914 F.3d 812 (3d Cir.), cert. denied, 140 S. Ct. 102, 205 L. Ed. 2d 29 (2019). Notably, this split existed prior to the 9th Circuit’s decision, as discussed in more detail in our prior alert here.

The 9th Circuit denied the petition for rehearing on June 21, 2021, after which Appellees immediately moved to stay proceedings. On June 23, 2021, the 9th Circuit granted the motion to stay to permit Appellees to file their petition for writ of certiorari to the U.S. Supreme Court. We would not be surprised if Cert. is granted. 

The PRO Act

The Protecting the Right to Organize Act (the PRO Act) was introduced in the House and Senate on February 4, 2021, and passed in the House on March 9, 2021. The PRO Act, which was a cornerstone of the Biden presidential campaign, extends application of the National Labor Relations Act (NLRA) to independent contractors.

The PRO Act would codify the ABC test, thereby reclassifying many independent contractors as employees at the federal level. The ABC test, provides that an individual, in this case, a truck driver, is presumed to be an employee unless the motor carrier can demonstrate each of the following:

  1. The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. The person performs work that is outside the usual course of the hiring entity’s business; and
  3. The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If the NLRA is deemed applicable to independent contractors who are “misclassified,” then those individuals could unionize and bargain with motor carriers. Even if they do not unionize, they would still be entitled to protections under the NLRA relating to concerted activity (e.g. complaining about working conditions, pay, benefits, etc.). These protections will be further strengthened by the PRO Act, if it becomes law.

Critically, the PRO Act could potentially be used as a tool to apply the ABC test at a federal level beyond just the NLRA. The version of the ABC test in the PRO Act is the same as California’s strict AB5 statute – meaning that if it passes in the Senate, motor carriers could be grappling with the same problems (including mounting class actions) they are facing in California on a national level. The US Chamber of Commerce has issued a statement against the PRO Act, stating the following: “[The PRO Act would i]mpose on the full country California’s stringent definition of “independent contractor” — denying individuals the ability to work independently, threatening the emerging “gig” economy, and taking away the flexibility that has allowed American businesses of all sizes to grow.”

A federal bill might also encourage states that are not currently focused on this issue to consider narrowing the definitions of independent contractor in their state statutes. When a slightly different version of the PRO Act was introduced in the House last year, it passed but got stuck in the Senate. It is difficult to predict whether this current version will have more success.

Other Recent Notable Decisions

 

  1. Application of the Fair Labor Standards Act to Intrastate Truck Drivers:  McClurg v. Jones Enterprises, Inc., No. 4:20-CV-00201-JHM, 2021 WL 2345354 (W.D. Ky. June 8, 2021).

Plaintiff Johnny McClurg is a commercial truck driver who was hired by Jones Enterprises (Jones) to haul coal. He was paid a flat fee per ton hauled, with no overtime. McClurg filed suit on behalf of himself and a putative class of similarly situated drivers alleging, among other things, a federal claim for unpaid overtime under the Fair Labor Standards Act (FLSA) and a state law claim under the Kentucky Wage and Hour Act (KWHA). On a Motion to Dismiss, Jones argued that the FLSA does not apply because the Motor Carrier Act (MCA) exemption to the FLSA should apply to McClurg, therefore precluding McClurg from availing himself of the FLSA protections. Alternatively, Jones asked the Court to deny McClurg's proposed collective (for the FLSA) and class (for the KWHA) action and force the case to proceed on an individual basis only.

The MCA exemption states that the FLSA does not apply to “any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service.” McClurg maintains that he did not drive in interstate commerce, as defined by the MCA, because he suffered from a medical condition which required a medical waiver to drive at both the federal and state level. Because he had not obtained a waiver at the federal level, he was permitted only to drive in intrastate commerce. As such, McClurg argued that the Secretary of Transportation lacked jurisdiction and McClurg should receive the FLSA's overtime protections. Jones, on the other hand, argued that McClurg’s purely intrastate transportation could constitute part of interstate commerce under the MCA because “it is part of a continuous stream of interstate travel.”

The Court found that Jones had not met its burden at the motion to dismiss stage of proving the MCA exemption applies or that the FLSA claims fail on their face. With respect to arguments surrounding class certification, the Court ruled that Jones's motion was premature, since district courts typically do not consider whether potential plaintiffs are “similarly situated” for the FLSA until a plaintiff moves for conditional certification. However, the Court noted that McClurg would face difficulty finding a class of similarly situated drivers, since McClurg premised his allegations on the fact that “Plaintiff and Defendant agreed that, as a result of his medical condition, [interstate] assignments would not be indiscriminately shared by Plaintiff and Defendant's other drivers.” The individualized assignment system seems inconsistent with a class action because it will require a case-by-case inquiry into the drivers’ routes.

  1. Statute of Limitations Precludes  Billing Dispute under the Interstate Commerce Commission Termination Act of 1995: S. Furniture Leasing, Inc. v. YRC, Inc., 989 F.3d 1141 (10th Cir. 2021).

YRC, Inc., a less-than-truckload (LTL) freight carrier, charged for services based on the weight of the shipment at issue. A LTL carrier handles shipments that do not themselves constitute a full trailer. If the actual weight of the shipment is greater than the weight estimate provided by the customer, that is a “positive reweigh,” and if the weight is less than the customer’s weight estimate, it is a “negative reweigh.” Starting in September 2005, YRC eliminated negative reweigh corrections, resulting in overcharges to the customer. YRC did not inform the customers of this change in policy, however.  

When it learned of this practice, Southern Furniture Leasing, Inc., a customer of YRC, brought a putative class action alleging that YRC had “carried out a widespread and systematic practice of overcharging its customers by intentionally using inflated shipment weights when determining shipment prices.” YRC moved to dismiss the claims on the ground that Southern Furniture had not contested the alleged overcharges within 180 days as required under 49 U.S.C. § 13710(a)(3)(B), a provision in the Interstate Commerce Commission Termination Act of 1995. YRC also argued that Southern Furniture lacked Article III standing to bring the claim because they had not provided sufficient detail in the Complaint to demonstrate an injury in fact. The lower court granted the motion to dismiss and Southern Furniture appealed.

The Tenth Circuit affirmed the lower court’s dismissal. It found that Southern Furniture did have standing to bring the claim since it had stated sufficient allegations in the Complaint to plausibly claim an injury in fact at the pleadings stage. However, the Appeals Court ruled that the time limitation set forth 49 U.S.C. § 13710 applied to, and precluded, Southern Furniture’s claims because (1) based on the statutory history, it is clear that the statute applies in court, not just to disputes before the Surface Transportation Board, (2) Southern Furniture is a “shipper” within the ordinary meaning of that word because it contracted with YRC to transport goods, and (3) the dispute is fundamentally a billing dispute since, in common parlance, it seeks to contest charges. Because the dispute fell outside of the 180 day time limit set forth at 49 U.S.C. § 13710, the Court of Appeals affirmed the dismissal.

  1. Class Certification Granted for Truth-in-Leasing Violation Claims But Denied for Breach of Contract Claim: Luxama v. Ironbound Express, Inc., No. CV 11-2224, 2021 WL 287880 (D.N.J. Jan. 27, 2021).

Plaintiffs are owner-operator tractor-trailer drivers who lease their vehicles and driving services to Defendant Ironbound Express, Inc., a motor carrier. The leases between Plaintiffs and Ironbound Express provide that Plaintiffs would be compensated on a per-trip basis “according to the terms of Schedule B.” However, no Schedule B was ever attached to the agreements. Rather, the drivers allege that Ironbound Express orally promised to compensate them at an amount equal to 70% of its payment for each job, as well as fuel charges or detention time. The drivers allege claims for breach of contract and violations of the federal Truth-in-Leasing regulations.

The federal Truth-in-Leasing regulations were promulgated in part to “protect independent truckers from motor carriers’ abusive leasing practices,” and therefore require that leases be in writing and specify their duration and the compensation that the carrier will pay the trucker. At issue in this opinion is Plaintiffs’ third motion for class certification pursuant to Fed. R. Civ. P. 23(b)(3).

The bulk of the Court’s opinion focuses on whether the drivers have demonstrated sufficient predominance of the issues to support class certification. With respect to the breach of contract claims, the Court noted that Defendants appear to argue, unpersuasively, that because they violated the Truth in Lending regulations by failing to provide a Schedule B to the lease, resulting in individualized payment negotiations for each driver and each trip, Plaintiffs should be precluded from bringing a class action. Nevertheless, because Plaintiffs had each provided varying testimony as to the basis for the alleged 70/30 split for payment under the contract, there was not sufficient predominance of common evidence to support class certification on the breach of contract claim.

However, with respect to the claims based on detention time and payment for parking spaces, Plaintiffs demonstrated predominance because each driver was promised payment when detention time exceeded two hours, and because each driver was required under the lease to rent parking spaces from Defendant. Likewise, predominance existed for the Truth-in-Lending claims because each driver was not provided with proper documentation for compensation, property damage deductions, and other deductions.  After a brief discussion regarding the superiority of the class action mechanism, and a determination that the scope of the proposed class was easily ascertained, the Court granted the motion for class certification for these claims. 

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