Ever Bedoya v. American Eagle Express Inc

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 18-1641

_____________

EVER BEDOYA; DIEGO GONZALES; MANUEL

DECASTRO,

on behalf of themselves and all others similarly situated

v.

AMERICAN EAGLE EXPRESS INC, d/b/a AEX GROUP

v.

KV SERVICE, LLC; M&J EXPRESS, LLC; A&D

DELIVERY EXPRESS, LLC

American Eagle Express, Inc.,

Appellant

______________

Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 2-14-cv-02811)

District Judge: Hon. Esther Salas

______________

Argued November 14, 2018

______________

Before: GREENAWAY, JR., SHWARTZ, and BIBAS,

Circuit Judges.

(Opinion Filed: January 29, 2019)

Harold L. Lichten [ARGUED]

Lichten & Liss-Riordan

729 Boylston Street

Suite 2000

Boston, MA 02116

R. Andrew Santillo

Peter D. Winebrake

Winebrake & Santillo

715 Twinning Road

Suite 211, Twinning Office Center

Dresher, PA 19025

Counsel for Plaintiff-Appellees

Joseph C. DeBlasio [ARGUED]

Jackson Lewis

220 Headquarters Plaza

East Tower, 7th Floor

Morristown, NJ 07960

Counsel for Defendant-Appellant

Adina H. Rosenbaum

Public Citizen Litigation Group

2

1600 20th Street, NW.

Washington, DC 20009

Counsel for Amicus Public Citizen Inc.

Christopher W. Weber [ARGUED]

Emily M. Bisnauth

Office of Attorney General of New Jersey

Department of Law & Public Safety

Richard J. Hughes Justice Complex

25 Market Street

P.O. Box 112

Trenton, NJ 08625

Counsel for Amicus New Jersey Department of Labor

and Workforce Development

___________

OPINION

___________

SHWARTZ, Circuit Judge.

Plaintiff delivery drivers Ever Bedoya, Diego Gonzalez,

and Manuel Decastro (collectively, “the Drivers”) filed a

putative class action against Defendant American Eagle

Express, Inc., (“AEX”), alleging that AEX misclassified them

as independent contractors when they are actually employees

under the New Jersey Wage and Hour Law (“NJWHL”), N.J.

3

Stat. Ann. §§ 34:11-56a to -56a3, and the New Jersey Wage

Payment Law (“NJWPL”), N.J. Stat. Ann. §§ 34:11-4.1 to -

4:14. AEX moved for judgment on the pleadings pursuant to

Fed. R. Civ. P. 12(c), arguing that the Drivers’ claims are

preempted by the Federal Aviation Authorization

Administration Act of 1994 (“FAAAA”), 49 U.S.C. §§ 14501-

06. The District Court denied AEX’s motion and certified the

order for interlocutory appeal. Because the FAAAA does not

preempt the New Jersey law for determining employment

status for the purposes of NJWHL and NJWPL, we will affirm

the order and remand for further proceedings.

I

AEX is a logistics company that provides delivery

services to various medical organizations. The Drivers are

New Jersey residents who make deliveries for AEX. The

Drivers filed this putative class action against AEX seeking,

among other things, a judgment declaring that they are

employees of AEX, rather than independent contractors, which

entitles them to compensation under the NJWHL and NJWPL.1

AEX moved for judgment on the pleadings, arguing that the

FAAAA preempts the Drivers’ claims.

The District Court denied AEX’s motion, Bedoya v.

Am. Eagle Express, Civ. No. 14-2811, 2017 WL 4330351, at

*1 (D.N.J. Sept. 29, 2017), reasoning that “[t]here is no clear

indication” that Congress intended for the FAAAA to preempt

state wage laws, Dkt. 109 at 6, 10, and that the connection

between regulation of AEX’s workforce and the “prices,

1

The District Court has jurisdiction pursuant to 28

U.S.C. § 1332(d).

4

routes, and services” provided to its consumers is too

attenuated to justify preempting claims under the NJWHL and

NJWPL, id. at 8-9. We now consider AEX’s interlocutory

appeal of the order denying the motion pursuant to 28 U.S.C.

§ 1292(b). Bedoya, 2017 WL 4330351, at *1-4.

II2

A

The question before us is whether the FAAAA preempts

New Jersey’s test for determining employment classification

for purposes of the NJWHL and NJWPL. Under this test,

workers performing services for a given company in exchange

for pay are deemed employees unless the company can

demonstrate each of the following:

A. Such individual has been and will continue to

be free from control or direction over the

2

We review an order granting or denying a motion for

judgment on the pleadings de novo. Zimmerman v. Corbett,

873 F.3d 414, 417 (3d Cir. 2017) (citing Allah v. Al-Hafeez,

226 F.3d 247, 249 (3d Cir. 2007)). Judgment will not be

granted unless the movant “clearly establishes there are no

material issues of fact, and he is entitled to judgment as a

matter of law.” Sikirica v. Nationwide Ins. Co., 416 F.3d 214,

220 (3d Cir. 2005) (citation omitted). In considering a motion

for judgment on the pleadings, we must accept as true all facts

presented in the complaint and answer and draw all reasonable

inferences in favor of the non-moving party—here, the

Drivers. Id. at 417-18. While AEX implores us to look beyond

the pleadings, we may not.

5

performance of such service, both under his

contract of service and in fact; and

B. Such service is either outside the usual course

of the business for which such service is

performed, or that such service is performed

outside of all the places of business of the

enterprise for which such service is

performed; and

C. Such individual is customarily engaged in an

independently established trade, occupation,

profession, or business.

N.J. Stat. Ann. §§ 43:21-19(i)(6)(A)-(C) (“New Jersey ABC

classification test”). Where a company successfully

demonstrates all three elements with respect to a worker, that

worker qualifies as an independent contractor under the

NJWHL and NJWPL. Hargrove v. Sleepy’s, LLC, 106 A.3d

449, 458 (N.J. 2015). The company, in turn, is exempt from

requirements under those statutes with respect to the worker.

Id. For individuals classified as employees, however, the

employing company is subject to each statute’s obligations,

including minimum and overtime wage requirements, N.J.

Stat. Ann. § 34:11-56a4, conditions regarding the time and

mode of pay, N.J. Stat. Ann. § 34:11-4.2, 4.2a, and restrictions

on pay deductions, N.J. Stat. Ann. § 34:11-4.4. AEX contends

that the New Jersey ABC classification test is preempted by the

FAAAA.

6

B

The preemption doctrine stems from the Supremacy

Clause, which provides that “the Laws of the United States . . .

shall be the supreme Law of the Land . . . any Thing in the

Constitution or Laws of any State to the Contrary

notwithstanding.” U.S. Const. art. VI, cl. 2. Thus, “Congress

. . . has the power to preempt state law.” In re Vehicle Carrier

Servs. Antitrust Litig., 846 F.3d 71, 83 (3d Cir. 2017) (citing

Arizona v. United States, 567 U.S. 387 (2012)), cert denied sub

nom., Alban v. Nippon Yusen Kabushiki Kaisha, 138 S. Ct.

114 (2017). There are three categories of preemption: field

preemption, conflict preemption, and express preemption.

Holk v. Snapple Beverage Corp., 575 F.3d 329, 334 (3d Cir.

2009) (citing Hillsborough County, Fla. v. Automated Med.

Labs., Inc., 471 U.S. 707, 713 (1985)).

Because preemption is an affirmative defense, we

examine the specific preemption defense asserted. In re

Vehicle, 846 F.3d at 84 (citing Oneok, Inc. v. Learjet, Inc., 135

S. Ct. 1591 (2015)). AEX argues that New Jersey’s ABC

classification test is subject to express preemption under 49

U.S.C. § 14501(c)(1). “Express preemption requires a[n]

analysis of whether ‘[s]tate action may be foreclosed by

express language in a congressional enactment.’” Lupian v.

Joseph Cory Holdings, LLC, 905 F.3d 127, 131 (3d Cir. 2018)

(alteration in original) (quoting Lorillard Tobacco Co. v.

Reilly, 533 U.S. 525, 541 (2001)).

In evaluating AEX’s argument, we first decide whether

the presumption against preemption applies. City of Columbus

v. Ours Garage & Wrecker Serv., Inc., 536 U.S. 424, 438

(2002) (applying the presumption against preemption in the

7

FAAAA context). Under this presumption, “the historic police

powers of the States” are “not to be superseded by [a] [f]ederal

[a]ct unless that was the clear and manifest purpose of

Congress.” Sikkelee v. Precision Airmotive Corp., 822 F.3d

680, 687 (3d Cir. 2016) (quoting Wyeth v. Levine, 555 U.S.

555, 565 (2009)). Thus, we “presume claims based on laws

embodying state police powers are not preempted.” In re

Vehicle, 846 F.3d at 84; see also Farina v. Nokia Inc., 625 F.3d

97, 116 (3d Cir. 2010).

Many employment regulations, such as the wage laws

at issue here, seek to ensure workers receive fair pay. Because

they protect workers, they are within New Jersey’s police

power, and the presumption against preemption by federal law

applies. See, e.g., Lupian, 905 F.3d at 131 (stating wage laws

that protect workers represent an exercise of “police power”);

see also Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 21

(1987) (applying the presumption against preemption to a state

labor law regarding severance pay “since the establishment of

labor standards falls within the traditional police power of the

State”).

The presumption is rebutted where Congress had a

“clear and manifest purpose” to preempt state laws. Sikkelee,

822 F.3d at 687 (citation omitted); see also Cipollone v. Liggett

Grp., Inc., 505 U.S. 504, 516 (1992) (directing courts to

examine congressional intent, the “ultimate touchstone” in

discerning the preemptive scope of a statute (internal quotation

marks and citation omitted)). To determine Congress’

purpose, we look to the plain language of the statute and, if

necessary, to the statutory framework as a whole. Medtronic,

Inc. v. Lohr, 518 U.S. 470, 486 (1996) (citation omitted).

Thus, we next examine Congress’ purpose in enacting the

8

FAAAA and the Airline Deregulation Act of 1978 (“ADA”),

49 U.S.C. §§ 40101-130, an earlier statute with a similar

preemption provision.

C

In 1978, following a long period of heightened

regulation, Congress enacted the ADA, which sought to

deregulate the air-travel industry to “maxim[ize] reliance on

competitive market forces.” Morales v. Trans World Airlines,

Inc., 504 U.S. 374, 378 (1992) (quoting 49 U.S.C. App. §

1302(a)(4)). To ensure that this objective would not be

frustrated by state regulation, Congress included a preemption

provision providing that “no State . . . shall enact or enforce

any law . . . relating to rates, routes, or services of any air

carrier.” Id. at 420 (Stevens, J., dissenting) (quoting 49 U.S.C.

App. § 1305(a)).

Congress enacted similar laws focused on deregulating

interstate trucking, culminating with the passage of the

FAAAA in 1994. Lupian, 905 F.3d at 132-33. Via the

FAAAA, Congress sought to “level the playing field” between

air carriers and motor carriers so that both could benefit from

federal deregulation. H.R. Conf. Rep. No. 103-677, at 88

(1994); see also Californians for Safe & Competitive Dump

Truck Transp. v. Mendonca, 152 F.3d 1184, 1187-88 (9th Cir.

1998) (detailing FAAAA legislative history). The FAAAA

contains a preemption provision modeled after the ADA’s,

providing, with limited exceptions, that:

a State . . . may not enact or enforce a law,

regulation, or other provision having the force

and effect of law related to a price, route, or

9

service of any motor carrier . . . with respect to

the transportation of property.

49 U.S.C. § 14501(c)(1). Because of the parallels between the

ADA and FAAAA, ADA cases are instructive regarding the

scope of FAAAA preemption. See Rowe v. N.H. Motor

Transp. Ass’n, 552 U.S. 364, 370 (2008) (analyzing FAAAA

preemption using ADA cases as guidance). As with the ADA,

the FAAAA preemption provision’s central objective is to

avoid frustrating the statute’s deregulatory purpose by

preventing states from imposing “a patchwork of state service-

determining laws.” Dan’s City Used Cars, Inc. v. Pelkey, 569

U.S. 251, 264 (2013) (quoting Rowe, 552 U.S. at 373). The

FAAAA, however, has a qualifier that is absent from the ADA:

the preempted state law must relate to prices, routes, or services

“with respect to the transportation of property.” 49 U.S.C.

§ 14501(c)(1). The Supreme Court has recognized that this

language “massively limits the scope of preemption ordered by

the FAAAA.” Dan’s City, 569 U.S. at 261 (internal citation

and quotation marks omitted).

Further insight into the limits of FAAAA preemption

comes from the subjects Congress considered when enacting

that statute. “Congress identified ten jurisdictions (nine states

and the District of Columbia . . . ) that did not regulate intrastate

prices, routes, and services.” Cal. Trucking Ass’n v. Su, 903

F.3d 953, 967 (9th Cir. 2018) (citing Mendonca, 152 F.3d at

1187). By implication, Congress determined that the laws then

in existence in those jurisdictions did not contravene its

deregulatory goals and thus were not preempted. Id.

The Supreme Court has also articulated several

principles that inform us about the breadth of FAAAA

10

preemption. First, the “related to” language from the FAAAA

preemption clause gives it a broad scope, encompassing any

state actions that have “a connection with, or [make] reference

to . . . rates, routes, or services” of a motor carrier. Nw., Inc.

v. Ginsberg, 572 U.S. 273, 280-81 (2014) (internal quotation

marks and citation omitted) (interpreting the ADA). While this

language covers any state law that has a connection with or

refers to “price[s], route[s], [or] service[s,]” id. at 280, “the

breadth of the words ‘related to’ does not mean the sky is the

limit,” Dan’s City, 569 U.S. at 260. Drawing from case law

examining similar wording in the preemption provision of the

Employee Retirement Income Security Act of 1974, 29 U.S.C.

§ 1144(a), see, e.g., Morales, 504 U.S. at 383-84, the Supreme

Court has observed that reading the phrase “related to” with

“uncritical literalism” would render preemption an endless

exercise, Dan’s City, 569 U.S. at 260-61 (citation omitted),

because “everything [is] relat[ed] to everything else in some

manner[,]” Schwann v. FedEx Ground Package Sys., Inc., 813

F.3d 429, 436 (1st Cir. 2016) (citing N.Y. State Conference of

Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S.

645, 655 (1955)).

Second, FAAAA preemption reaches laws that affect

prices, routes, or services even if the effect “is only indirect.”

Rowe, 552 U.S. at 370 (quoting Morales, 504 U.S. at 386).

However, where a law’s impact on carrier prices, routes, or

services is so indirect that the law affects them “in only a

tenuous, remote, or peripheral . . . manner,” the law is not

preempted. Dan’s City, 569 U.S. at 261 (quoting Rowe, 552

U.S. at 371); Morales, 504 U.S. at 390 (quoting Shaw v. Delta

Air Lines, Inc., 463 U.S. 85, 100 n.21 (1983)).

11

Finally, preemption occurs where a state law has “a

‘significant impact’ on carrier rates, routes, or services.”3

Rowe, 552 U.S. at 375 (emphasis omitted) (quoting Morales,

504 U.S. at 390).

Mindful of these principles, we next review the case law

for guidance concerning whether a law has a direct or indirect

effect and whether it has a significant or insignificant effect.

From our review, we identify factors courts examine and set

forth those factors that may shed light on a law’s directness and

those that may reflect the significance of the law’s effect on the

regulated entities at issue.

D

Neither the Supreme Court nor our Court has recited

precise standards for evaluating directness or significance, but

cases addressing the issue provide some guidance. For

example, the Supreme Court has held that consumer protection

and fraud laws used to regulate frequent-flyer programs could

directly and significantly affect prices and services and are thus

preempted. See Am. Airlines, Inc. v. Wolens, 513 U.S. 219,

223 (1995); Morales, 504 U.S. at 388-89. Similarly, the Court

determined that a Maine law requiring a specific procedure to

verify the recipient of tobacco deliveries was preempted by the

FAAAA because it dictated a service that tobacco motor

carriers were required to provide for property they transported.

Rowe, 552 U.S. at 372. In addition, we recently observed that

3

The Supreme Court also noted that “it makes no

difference whether a state law is ‘consistent’ or ‘inconsistent’

with federal regulation.” Rowe, 552 U.S. at 370 (quoting

Morales, 504 U.S. at 386-87).

12

the FAAAA’s “preemption clause undoubtedly applies, for

example, to state laws directly restricting types of goods that

can be carried by trucks, tariffs, and barriers to entry.” Lupian,

905 F.3d at 135; H.R. Conf. Rep. No. 103-677, at 86 (1994).

On the other hand, the FAAAA itself, the Supreme

Court, and the courts of appeals have identified laws that are

too “tenuous, remote, or peripheral” from carrier prices, routes,

and services to trigger preemption. See, e.g., Rowe, 552 U.S.

at 371; Dilts v. Penske Logistics, LLC, 769 F.3d 637, 646 (9th

Cir. 2014). The FAAAA explicitly exempts from preemption

laws governing motor vehicle safety, local route controls based

on vehicle size and weight, and driver insurance requirements.4

49 U.S.C. § 14501(c)(2)(A). The Supreme Court has stated

that the FAAAA does not preempt laws prohibiting

prostitution, gambling, and “obscene depictions,” Morales,

504 U.S. at 390, or those addressing zoning, Dan’s City, 569

U.S. at 264. We have observed that “garden variety

employment claim[s]” evade ADA and FAAAA preemption

because they are “too remote and too attenuated” from carrier

prices, services, or routes. Lupian, 905 F.3d at 134 (quoting

Gary v. Air Grp., Inc., 397 F.3d 183, 189 (3d Cir. 2005)). As

relevant to this case, we recently held that wage claims under

the Illinois Wage Payment and Collection Act (“IWPCA”),

820 Ill. Comp. Stat. 115/1-115/15, are not preempted under the

FAAAA because they are “too far removed from the statute’s

4

The House of Representatives Conference Report

specifies that the list provided in 49 U.S.C. § 14501(c)(2) and

(3) 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 83.

13

purpose to warrant preemption.” Lupian, 905 F.3d at 136.

Many of our sister circuits have similarly held that the FAAAA

and ADA do not preempt state employment laws. See, e.g.,

Allied Concrete & Supply Co. v. Baker, 904 F.3d 1053, 1068

(9th Cir. 2018) (holding California prevailing wage law for

workers on public projects not preempted); Su, 903 F.3d at 957

(holding California common law test for employee versus

independent contractor status not preempted); Costello v.

BeavEx, Inc., 810 F.3d 1045, 1048 (7th Cir. 2016) (holding

Illinois wage law not preempted), cert. denied, 137 S. Ct. 2289

(2017); Amerijet Int’l, Inc. v. Miami-Dade County, Fla., 627

F. App’x 744, 751 (11th Cir. 2015) (holding Miami-Dade

County living wage ordinance as applied to air carriers not

preempted); Dilts, 769 F.3d at 647 (holding California meal

and rest-break laws not preempted); Mendonca, 152 F.3d at

1189 (holding California wage law not preempted).

From the language of the FAAAA preemption provision

and these cases, we can distill several factors courts should

consider when deciding whether a particular state law is

FAAAA-preempted. First, courts should examine whether the

state law at issue applies to all businesses or whether it focuses

on motor carriers. Laws that are directed at “members of the

general public” and that are not targeted at motor carriers are

usually viewed as not having a direct effect on motor carriers.

Rowe, 552 U.S. at 375.

Even targeted laws, however, are not necessarily

preempted. We know from the FAAAA itself that state laws

that may target motor carrier safety and insurance, or restrict

local routes based on vehicle size and weight, are not

preempted. 49 U.S.C. § 14501(c)(2). Conversely, laws of

general applicability may nonetheless be preempted where

14

they have a significant impact on the services a carrier

provides. See, e.g., DiFiore v. Am. Airlines Inc., 646 F.3d 81,

88-89 (1st Cir. 2011) (holding generally applicable state tip

law as applied to airlines preempted under the ADA because it

“directly regulate[d] how an airline service is performed and

how its price is displayed to customers”). Thus, whether a law

is applicable to every business or targets carriers is a helpful

but nondispositive factor for determining whether a law has a

direct effect on motor carriers’ prices, routes, or services.

Morales, 504 U.S. at 386.

Second, courts should consider whether the law

addresses the carrier-employee relationship as opposed to the

carrier-customer relationship. “[G]enerally applicable state

laws that affect the carrier’s relationship with its customers

[differ from] those that affect the carrier’s relationship with its

workforce.” Costello, 810 F.3d at 1054; see also Su, 903 F.3d

at 961-63 (noting same dichotomy); DiFiore, 646 F.3d at 88

(preempting a Massachusetts law prohibiting employer from

collecting fee advertised as “service charge” because the law

regulates how a company performs services for its customers

and “not merely how the airline behaves as an employer or

proprietor”).

The Court of Appeals for the Seventh Circuit provides

a useful analysis explaining why laws governing an employer’s

relationship with its employees have too remote an impact to

be preempted. S.C. Johnson & Son, Inc. v. Transp. Corp. of

Am., Inc., 697 F.3d 544, 558 (7th Cir. 2012) (citing Mendonca,

152 F.3d at 1189). The court examines whether the challenged

state law regulates matters needed to operate the business,

which it calls resource inputs, as opposed to laws governing

the goods or services the business puts out, which it calls

15

product outputs. Id. The product outputs of the motor carrier

industry are the services it provides—transportation of

property from origin to destination. Id. The FAAAA’s focus

on prices, routes, and services shows that the statute is

concerned with the industry’s production outputs, and seeks to

protect them from state regulation.

Resource inputs, on the other hand, are the resources

necessary for a business to create product outputs, including

“labor, capital, and technology,” which may be regulated by

various laws. Id. “For example, labor inputs are affected by a

network of labor laws, including minimum wage laws, worker-

safety laws, anti-discrimination laws, and pension regulations.

Capital is regulated by banking laws, securities rules, and tax

laws, among others. Technology is heavily influenced by

intellectual property laws.” Id. Although laws that regulate

inputs may impact costs and may in turn affect prices charged

and services provided to customers, “no one thinks that the

ADA or the FAAAA preempts these [regulations] and the

many comparable state laws[.]” Id. That is because,

notwithstanding the state laws’ indirect effects, they “operate

one or more steps away from the moment at which the firm

offers its customer[s] a service for a particular price” and

therefore have too “remote” an effect on prices, routes, and

services to be the intended target of preemption. Id. (internal

citations omitted); see also Su, 903 F.3d at 966 (stating that

courts should examine “where in the chain of a motor carrier’s

business [the state law] is acting to compel a certain result (e.g.,

consumer or work force), and what result it is compelling (e.g.,

certain wage, non-discrimination, a specific system of

delivery, a specific person to perform the delivery)”); Costello,

810 F.3d at 1055 (embracing S.C. Johnson, 697 F.3d at 558).

In short, laws regulating labor inputs, such as wage laws, have

16

too remote an effect on the price the company charges, the

routes it uses, and service outputs it provides and are less likely

to be preempted by the FAAAA.

Third, courts should consider whether the law binds the

carrier to provide a particular price, route, or service. As

discussed above, the Supreme Court held that Maine’s

identification requirements for tobacco deliveries required a

motor carrier transporting tobacco to provide a particular

service. Rowe, 552 U.S. at 372. Similarly, the Court of

Appeals for the First Circuit determined that Massachusetts’

ABC test for classifying employees in effect bound the carrier

to provide its services using employees rather than independent

contractors. Schwann, 813 F.3d at 437. Under Massachusetts’

independent contractor statute, only workers who perform a

service that is outside the employer’s usual course of business

may be classified as independent contractors. Id. (quoting

Mass. Gen. Laws ch. 149, § 148B(a)(2)). Thus, application of

Massachusetts’ test “in substance, bar[red] [the carrier at issue]

from using any individuals as full-fledged independent

contractors.” Id. In other words, the Massachusetts test

essentially foreclosed the independent contractor classification

of any of the carrier’s workers performing delivery services

because such services were within the carrier’s usual course of

business. Id. As a result, the Massachusetts statute bound the

carrier to provide its services using employees and not

independent contractors.

The same was not true with laws that do not dictate a

price, route, or service. For example, the Court of Appeals for

the Ninth Circuit analyzed whether the FAAAA preempted a

California law that requires employers to provide meal and rest

breaks, reviewing, among other factors, whether the law bound

17

the carrier to specific prices, routes, or services. Dilts, 769 F.3d

at 649-50. The court held that the FAAAA did not preempt

California’s meal and rest-break laws. Id. The court relied

partially on the fact that the California laws did not “set prices,

mandate or prohibit certain routes, or tell motor carriers what

services they may or may not provide, either directly or

indirectly.” Id. at 647. Put simply, the law at issue did “not

‘bind’ motor carriers to specific prices, routes, or services.”5

Id. (citation omitted).

Finally, courts examining a preemption challenge to a

state law should be mindful of Congress’ goal of avoiding a

“patchwork” of differing state “service-determining laws,”

which could undermine its “major legislative effort to leave

[decisions regarding the provision of services] to the

competitive marketplace.” Rowe, 552 U.S. at 373 (citing H.R.

Conf. Rep. No. 103-677, at 87 (1994)). This goal does not

constitute a categorical imperative to free motor carriers of all

state regulation. Rather, the plain language of the FAAAA,

and its preemption of only laws “relat[ing] to” carrier “price[s],

route[s], or service[s],” 49 U.S.C. § 14501(c)(1), demonstrates

that Congress was concerned only with a limited set of state

5

AEX characterizes Dilts as impermissibly relying on

this “binds to” test to conclude that the FAAAA did not

preempt California’s meal and rest break laws, arguing that

such a test construes the scope of FAAAA preemption too

narrowly. While relying solely on such a “binds to” test may

narrow FAAAA preemption to an unacceptable degree, Dilts

merely recognized that the “binds to” test provides one of

several possible avenues to demonstrate that a state law has a

significant effect on carrier prices, routes, or services. Dilts,

769 F.3d at 649.

18

laws. Dilts, 769 F.3d at 646-47. Thus, “[t]he fact that laws

may differ from state to state is not, on its own, cause for

FAAAA preemption.” Id. at 647. Laws that are “more or less

nationally uniform,” Chambers v. RDI Logistics, Inc., 65

N.E.3d 1, 11-12 (Mass. 2016), are less likely to pose the kind

of state law interference FAAAA preemption seeks to avoid.

In sum, to assess the directness of a law’s effect on

prices, routes, or services, courts should examine whether the

law: (1) mentions a carrier’s prices, routes, or services;

(2) specifically targets carriers as opposed to all businesses;

and (3) addresses the carrier-customer relationship rather than

non-customer-carrier relationships (e.g., carrier-employee). If

a law has a direct impact on carriers’ prices, routes, or services

with respect to the transportation of property, then it is

preempted unless it falls within one of the statutory exceptions.

Though we can draw no firm line between laws whose effects

on rates, routes, or services are indirect and laws whose effects

are “tenuous, remote, or peripheral,” these factors, and perhaps

other considerations, will guide courts in the inquiry.

To assess whether a law has a significant effect on a

carrier’s prices, routes, or services, courts should consider

whether: (1) the law binds a carrier to provide or not provide a

particular price, route, or service; (2) the carrier has various

avenues to comply with the law; (3) the law creates a

patchwork of regulation that erects barriers to entry, imposes

tariffs, or restricts the goods a carrier is permitted to transport;

and (4) the law existed in one of the jurisdictions Congress

determined lacked laws that regulate intrastate prices, routes,

or services and thus, by implication, is a law Congress found

not to interfere with the FAAAA’s deregulatory goal. Other

factors may also lead a court to decide that a state law has a

19

significant effect where the law undermines Congress’ goal of

having competitive market forces dictate prices, routes, or

services of motor carriers.6

E

We have examined each of these considerations and

conclude that New Jersey’s ABC classification test is not

preempted as it has neither a direct, nor an indirect, nor a

significant effect on carrier prices, routes, or services.

6

Before the Supreme Court’s rulings in Rowe and

Dan’s City, our Court once framed the inquiry—albeit in the

context of whether a defamation claim was preempted under

the ADA (a question we answered in the negative, holding that

the defamation claim was not preempted)—as whether the law

or claim in question would “frustrate[] deregulation by

interfering with competition through public utility-style

regulation.” Taj Mahal Travel, Inc. v. Delta Airlines, Inc., 164

F.3d 186, 194 (3d Cir. 1998) (citation omitted). Elaborating

on regulation in a “public utility sense” in the context of airline

services, our Court said that regulations of “the frequency and

scheduling of transportation” and “the selection of markets”

are public-utility styled regulations (which would thus be

preempted under the ADA), whereas “provision of in-flight

beverages, personal assistance to passengers, the handling of

luggage, and similar amenities” are not services in a “public

utility sense,” and thus could be regulated, for instance through

state implementation of a duty to exercise reasonable care, the

violation of which could give rise to ordinary tort claims. Id.

at 193 (quoting Charas v. Trans World Airlines, Inc., 160 F.3d

1259, 1261, 1265-66 (9th Cir. 1998) (en banc)).

20

Any effect New Jersey’s ABC classification test has on

prices, routes, or services is tenuous. The test does not mention

carrier prices, routes, or services, nor does it single out carriers.

Indeed, the test applies to all businesses as part of the

“backdrop” they “face in conducting their affairs.” Lupian,

905 F.3d at 136; see also Dilts, 769 F.3d at 646 (describing a

state employment law as a “background regulation[]”). The

test also does not regulate carrier-customer interactions or

other product outputs. Rather, it only concerns employer-

worker relationships. Laws governing how an employer pays

its workers do not “directly regulate[] how [a carrier’s] service

is performed[;]” they merely dictate how a carrier “behaves as

an employer[.]” DiFiore, 646 F.3d at 88. As a result, the test

is “steps removed” from regulating customer-carrier

interactions through prices, routes, or services. Costello, 810

F.3d 1054 (quoting Dilts, 769 F.3d at 646).

The New Jersey ABC classification test does not have a

significant effect on prices, routes, or services either. The test

does not bind AEX to a particular method of providing services

and thus it is unlike the preempted Massachusetts law at issue

in Schwann, 813 F.3d 429. The Massachusetts statute does not

include New Jersey’s alternative method for reaching

independent contractor status—that is, by demonstrating that

the worker provides services outside of the putative employer’s

“places of business.” N.J. Stat. Ann. § 43:21-19(i)(6)(B).

Thus, if the other prongs of the New Jersey classification test

are met, the test allows an employer to classify a worker as an

independent contractor if it shows that the worker either

provides a service that is “outside the [employer’s] usual

course of business . . . or [performs such service] outside of all

21

the places of business of [the employer].” Id.7 No part of the

New Jersey test categorically prevents carriers from using

independent contractors. As a result, the state law at issue here

does not mandate a particular course of action—e.g., requiring

carriers to use employees rather than independent

contractors—and it offers carriers various options to comply

with New Jersey employment law.8

7

AEX focuses its argument on the B prong of the New

Jersey test, but also asserts that the A and C prongs of the test

are preempted. AEX cites no case holding that prong A or C

is preempted under either the FAAAA or the ADA. This is not

surprising given the legion of cases holding that the A and C

prongs are not FAAAA-preempted. See, e.g., Vargas v. Spirit

Delivery & Distrib. Servs., Inc., 245 F. Supp. 3d 268, 281-84

(D. Mass. 2017); DaSilva v. Border Transfer of Mass., Inc.,

227 F. Supp. 3d 154, 159-60 (D. Mass. 2017); Portillo v. Nat’l

Freight, Inc., Civ. No. 15-7908, 2016 WL 5402215, at *5-6

(D.N.J. Sept. 26, 2016); Chambers v. RDI Logistics, Inc., 65

N.E.3d 1, 11-12 (Mass. 2016). AEX also provides no reason

why these prongs are preempted and in fact does not

individually analyze them. Thus, AEX has failed to carry its

burden to demonstrate that the affirmative defense of FAAAA

preemption applies to these prongs.

8

AEX makes much of the fact that the Costello and

Lupian courts observed that certain aspects of the IWPCA

classification provision could be contracted around (i.e.,

employees could enter into contracts with carriers to allow

certain paycheck deductions), Lupian, 905 F.3d at 135 n.12,

whereas neither the New Jersey test nor the Massachusetts test

allows the same contractual avoidance. Contrary to AEX’s

argument, this does not make the current case more analogous

22

AEX argues that applying the New Jersey law may

require it to shift its model away from using independent

contractors, which will increase its costs, and in turn, its prices.

Specifically, AEX asserts that if it can no longer use

independent contractors to perform its delivery services, then

it will be forced to recruit employees, bring on a human

resources department to manage them, acquire and maintain a

fleet of vehicles and pay expense reimbursements, provide

fringe benefits, plan and dictate delivery routes and timing, and

pay overtime wages and employment taxes. Our Court and our

sister circuits have rejected similar lists of conclusory impacts.

Lupian, 905 F.3d at 135-36; Costello, 810 F.3d at 1056;

Mendonca, 152 F.3d at 1189. Though AEX correctly states

that it need not proffer empirical evidence to support its

assertions of significant impact at the pleading stage, see, e.g.,

Costello, 810 F.3d at 1055 (citing Rowe, 552 U.S. at 373-74),

to Schwann than to Costello and Lupian. Though Costello and

Lupian correctly took the IWPCA contractual loophole into

account, neither court relied on it. See Lupian, 905 F.3d at 136

n.12 (observing that the Costello court “noted” the contractual

allowance in the IWPCA); Costello, 810 F.3d at 1057 (noting

in a single sentence that the IWPCA’s prohibition on

deductions from wages can be contracted around, ultimately

holding that the IWPCA is not “related to a price, route, or

service of any motor carrier”). Moreover, while a contractual

circumvention option may provide another route for

compliance, weighing against FAAAA preemption, it is not the

only way a state statute can afford carriers some flexibility.

Here, the New Jersey ABC classification test gives carriers

options; it does not need to provide a contractual workaround

to avoid preemption.

23

it does not provide even a logical connection between the

application of New Jersey’s ABC classification test and the list

of new costs it would purportedly incur.9

AEX’s argument that it may be subject to other legal

requirements arising from reclassification, citing only the

Affordable Care Act,10 is equally unavailing. In the words of

the Costello court, “[c]onspicuously absent from [the

company’s] parade of horrors is any citation of authority

showing that it would be required to comply with [other]

federal and state laws.” Id. at 1056. Instead, AEX “rel[ies] on

conclusory allegations that compliance with the [NJWHL and

NJWPL] will require [AEX] to switch its entire business model

. . . [but w]e see no basis for concluding that [New Jersey law]

would require that change given that the federal employment

laws and other state labor laws [may] have different tests” for

determining whether someone is an employee under a specific

statute. Id. (citations omitted).

Furthermore, while “[w]e have no doubt that the

disruption of a labor model—especially after services have

been performed—could have negative financial and other

consequences for an employer,” Lupian, 905 F.3d at 136, this

impact on the employer does not equate to a significant impact

on Congress’ goal of deregulation. Congress sought to ensure

9

For instance, we cannot see, nor has AEX explained,

how reclassification of employees would necessarily require

AEX to acquire a new fleet of vehicles or create a human

resources department.

10

Patient Protection and Affordable Care Act of 2010,

Pub. L. No. 111-148, 124 Stat. 119 (2010).

24

market forces determined prices, routes, and services. Nothing

in that goal, however, meant to exempt workers from receiving

proper wages, even if the wage laws had an incidental impact

on carrier prices, routes, or services.11

Finally, the fact that New Jersey’s ABC classification

test differs from the federal test used in the Fair Labor

Standards Act of 1938, 29 U.S.C. §§ 201-19, will not result in

a “‘patchwork’ of unique state legislation, which [AEX

contends] regulates differently from state to state how motor

carriers are required to perform their delivery services.” Reply

Br. at 14. Most notably, New Jersey’s test is similar to that

used in many other states. See, e.g., RDI Logistics, 65 N.E.3d

at 11-12 (holding that prongs A and C of the Massachusetts

test, which are identical to those in the New Jersey test, were

not FAAAA-preempted because they did not present a

“patchwork problem” as they were “more or less nationally

uniform,” unlike the Massachusetts B prong, which was

preempted in Schwann because it was anomalous (quoting

Schwann, 813 F.3d at 440)).

11

Indeed, Congress evinced its intent for the FAAAA

not to preempt general state wage laws when it included New

Jersey—where, at the time the FAAAA was enacted, the

NJWHL and NJWPL were already in effect, N.J. Stat. Ann. §§

34:11-56a7 & 34:11-4.1 (indicating initial enactment in 1966

and 1965, respectively)—in its list of jurisdictions with laws

that did not run afoul of the FAAAA. H.R. Conf. Rep. No.

103-677, at 86 (1994); see also Mendonca, 152 F.3d at 1187-

88 & n.3.

25

Thus, AEX has not shown that New Jersey’s ABC

classification test has a “significant impact” on Congress’

deregulatory efforts with respect to motor carrier businesses,

nor are the NJWHL and NJWPL—typical state wage and hour

laws—the kinds of preexisting state regulations with which

Congress was concerned when it passed the FAAAA.12 See

Lupian, 905 F.3d at 135-36; Schwann, 813 F.3d at 438;

Costello, 810 F.3d at 1050-51; Amerijet, 627 F. App’x at 751;

Dilts, 769 F.3d at 647-48; Gary, 397 F.3d at 189-90;

Mendonca, 152 F.3d at 1187-89. Notably, eight of the ten

jurisdictions that Congress identified as not regulating

intrastate prices, routes, and services “had laws for

differentiating between an employee and an independent

contractor,” Su, 903 F.3d at 967, and at least three codified

ABC tests similar to that of New Jersey, see Alaska Stat. §

23.20.525(a)(10) (1992); Del. Code Ann. tit. 19, § 3302(9)(k)

(1992); Vt. Stat. Ann. tit. 21, § 1301(6)(B) (1992). Therefore,

AEX’s patchwork argument fails.

Accordingly, any effect the New Jersey ABC

classification test has on prices, routes, or services with respect

to the transportation of property is tenuous and insignificant.

See Lupian, 905 F.3d at 136. As a result, the test is not

preempted.

12

As the Schwann court observed, while Congress

sought “to avoid ‘a patchwork of state service-determining

laws,’” we can assume that “Congress intended to leave

untouched” “pre-existing and customary manifestation[s] of

the state’s police power.” 813 F.3d at 438 (quoting Rowe, 552

U.S. at 373).

26

III

For the foregoing reasons, we will affirm the District

Court’s order denying AEX’s motion for judgment on the

pleadings and remand for further proceedings.

27