Carrier’s Contract With Shipper’s Affiliated Company Serves To Limit Carrier’s Liability for Cargo Loss
Kelly Aerospace Thermal Systems, LLC v. ABF Freight System, Inc., 2016 WL 3197561 (E.D. Mich. 2016)
In 2013, Kelly Aerospace Power Systems (KAPS) entered into a pricing agreement with motor carrier ABF Freight Systems. A transport was effected pursuant to that agreement. In 2014, KAPS’s sister company, Kelly Aerospace Thermal Systems (KATS), booked with ABF transit of a cargo of aircraft parts from Ohio to California. The cargo arrived damaged; KATS sued ABF in the U.S. District Court for the Eastern District of Michigan; and the parties brought cross motions for summary judgment as to whether the KAPS/ABF governed the shipment.
This was important because the agreement incorporated specific portions of ABF’s tariff that would limit the carrier’s liability to $25.00/pound, which was a fraction of the cargo’s actual value. KATS argued it is a separate legal entity from KAPS, and per its representative’s declaration, KAPS thought the 2013 pricing agreement governed only the one shipment KAPS ordered under it, and had nothing to do with future shipments ordered up by other Kelly Aerospace entities.
The court disagreed. A self-serving declaration by an affiliated company’s employee, unsupported by any independent evidence, doesn’t establish the parties’ intentions, and the document itself, which refers only to “Kelly Aerospace” as the shipper, didn’t say it was for one shipment only. Moreover, KATS referred to itself as “Kelly Aerospace” in its 2014 shipment request, and received pricing discounts set forth in the 2013 contract. It also used the same billing and website addresses as did KAPS. The 2013 contact adequately incorporated ABF’s tariff; and KATS filled out a bill of lading on ABF’s website which generated a rate quote which also incorporated ABF’s tariff terms limiting the carrier’s liability. All told, KATS clearly was on notice of ABF’s liability terms for transporting the shipment.
FAAAA Doesn’t Preempt State’s Worker’s Compensation Laws Regarding Status of Freight Broker’s Employees
Delivery Express, Inc. v. Joel Sacls, et al., 2016 WL 3198321 (W. D. Wash. 2016)
We’ve seen a good deal of litigation over the preemptive effect the Federal Aviation Administration Authorization Act (FAAAA), per 49 USC §14501(c)(1), has over state law which purports to impact motor carrier operations, as well as over states challenging the status of owner operator drivers, claiming they are disguised employees of motor carriers (notwithstanding lease language and operational practices carriers claim demonstrate their drivers are independent contractors.
Under 49 USC §14501(b)(1), FAAAA also restricts the states from implementing law that impacts the rates, routes and services of freight brokers and forwarders. That FAAAA provision has seen very little judicial attention. The U.S. District Court for the Western District of Washington recently had occasion to explore whether it prohibits Washington’s Department of Labor & Industries (“L&I”), which monopolizes and administers workers compensation in the Evergreen State, from requiring freight broker Delivery Express to pay workers compensation premiums. L&I had audited Delivery Express and found it was misclassifying employees as independent contractors.
Even though little has been adjudicated regarding the scope of FAAAA’s preemptive effect as regards brokers, the court concluded that jurisprudence interpreting the statute in the motor carrier context was “instructive.” That body of law has established that FAAAA won’t preempt state law which has “only a tenuous, remote or peripheral” impact on trucker services. Per the Ninth Circuit, borderline cases should be decided based on whether state law “binds the carrier to a particular price, route or service and thereby interferes with the competitive market forces within the industry.”
Delivery Express argued it would have to decrease its work staff if it became subject to L&I premiums, such that it would have to “redesign its operations.” The court wasn’t persuaded, and ruled FAAAA doesn’t preempt Washington’s L&I law. Increased cost of doing business won’t suffice to show interference with services, as any such consequence is too remote and tenuous from an “impermissible effect” the state law might have. Delivery Express has to pay workers comp premiums.
Oregon Court of Appeals Reverses an ALJ’s Determination That Owner Operators Are a Motor Carrier’s Employees (First of Two Beaver State Decisions)
CEVA Freight, LLC v. Employment Department, 2016 WL 3950829 (Ct. Apps. OR 2016)
Oregon-based motor carrier CEVA Freight treated its owner operator drivers as independent contractors not subject to Oregon’s various employment law benefits, entitlements and regulations. The state Employment Department took issue with that, and hauled CEVA before an administrative law judge to go through a statutory checklist of criteria an employer must satisfy to demonstrate its workers are independent contractors instead of employees. The ALJ socked it to CEVA with a determination its drivers were employees, along with an order to pay up, and the carrier appealed the decision to the state court of appeals.
In one of two refreshing departures from state court trends, Oregon’s judiciary reversed the Employment Department’s ALJ, and found CEVA’s drivers aren’t employees based on its incisive interpretation of how our industry works. CEVA had to satisfy all three statutory criteria, which address (1) the degree of control; (2) whether workers are established in an independent business; and (3) who obtains licenses to provide services. In reaching conclusions opposite from the ALJ’s on each point, the court went through what really goes on in a trucking operation that leases trucks and services from owner operators.
Yes, CEVA obtained the mandatory FMCSA license to operate in interstate surface transportation, and its drivers didn’t all have their separate authority. But the drivers, who all ran only intrastate hauls, weren’t performing services for the public. They were doing only CEVA’s bidding, which doesn’t require a license, and is what governs the analysis. CEVA did impose certain requirements on its drivers like drug and alcohol testing, condition of trucks, and background checks; and provided certain tools and equipment to them. But all truck drivers are always subject to such requirements whether or not they work for CEVA; and the equipment CEVA provided was minor as compared to what the owner operators supplied themselves (uh, the trucks). Sure, CEVA played a role in how its drivers did their jobs, but the test doesn’t require the absolute absence of any control; and whenever someone is getting paid, they always are subject to some level of direction. Lastly, CEVA’s drivers were sufficiently set up in their own business to satisfy the last criteria. CEVA’s drivers are independent contractors, and Oregon has the first of two effective precedents for other carriers to guide themselves by.
Oregon Court of Appeals Reverses an ALJ’s Determination That Owner Operators Are a Motor Carrier’s Employees (Second of Two From the Beaver State)
Delta Logistics, Inc. v. Employment Department Tax Section, 2016 WL 3950830 (Ct. Apps. OR 2016)
In this one, motor carrier Delta Logistics succeeded in getting another Oregon Employment Department ALJ overturned in the court of appeals, this time based largely on the definition of “lease” as the term is used in the trucking industry. Delta issued its owner operators two documents, a “lease” and an “owner operator contract,” both of which contain standard stuff. Oregon’s relevant statute exempts drivers from employee entitlements when they “lease” their equipment to a motor carrier, but the ALJ, looking at another statute and Black’s Law Dictionary, ruled the Delta leases don’t qualify because a lease definitionally must divest the owner of equipment possession rights. He also noted that a “lease” under federal regs must provide certain compensation terms.
On appeal, Delta responded that its leases and contracts must be read together, such that compensation is demonstrated (it’s in the owner operator contract). As federal law requires transfer of possession and use of equipment, the parties can “bargain for” the specifics and still comply with the Oregon statute. In other words, as Delta and its drivers clearly intended to enter into owner operator lease arrangements sanctioned by federal law and in accordance with vast industry practice, Oregon statutes won’t upset the analysis.
Nor does the fact certain owner operators were themselves separate business enterprises with two or more drivers change the equation. The Oregon statute defining relevant terms with regard to “lease” mandates that the vehicle’s owner “personally operate” it. But the companion statute actually providing the exemption is broader, providing that the labor must encompass “services performed in operations of a motor vehicle,” which would be incompatible with the ALJ’s narrower interpretation. Another good decision from the Beaver State for motor carriers which engage owner operators.
“4-Month Rule” Prevents Driver From Escaping FLSA Exemption for Overtime Compensation
Cody Wells v. A.D. Transport Express, Inc., 2016 WL 3213396 (E.D. Mich. 2016)
Cody Wells worked for motor carrier A.D. Transport Express in two capacities, one as a “breakdown associate” (troubleshooting problems from a desk), and the other as a driver running both interstate and intrastate hauls. When A.D. wouldn’t give him a raise, he quit and sued the company in the U.S. District Court for the Eastern District of Michigan, claiming it owed him overtime pay for hours he worked off the road.
The Fair Labor Standards Act requires employers to pay their employees time and a half their hourly wage rate for all hours worked over 40 per week. However, the Motor Carrier Act exempts interstate truck drivers from entitlement to the extra comp. Mr. Wells argued he only drove interstate for a small fraction of the time he was employed with A.D., such that he should get overtime pay for hours over 40 per week when he was desk-side within the Wolverine State. Apparently, he wasn’t familiar with the 4-Month Rule.
The U.S. Department of Transportation, with the blessings of federal courts throughout the country, has applied the interstate truck driver exemption not based on a calculation of hours worked in a week actually in interstate travel, but based merely on a determination that an employee has run an interstate load within four months of a time period in question. In other words, a driver cannot claim overtime pay as a non-driver for the four months succeeding an interstate haul, even if he works over 40 hour per week in another capacity. Mr. Wells gets no extra pay.