On May 11, 2016, the First Circuit Court of Appeals rendered a decision in Massachusetts Delivery Association v. Healy (the “MDA case”) preempting Prong 21 of the Massachusetts Independent Contractor Law (the “Massachusetts “ABC” Test”) based, in large part, on the First Circuit’s February 2016 decision in Schwann, et al. v. FedEx Ground. Thus, we are pleased to report that it now appears that Prong 2 of the Massachusetts “ABC” Test is officially dead as to motor carriers. This is, of course, good news, albeit not necessarily new news.

Earlier this year in FLASH No. 53, we analyzed the First Circuit’s decision in Schwann, in which the Court affirmed the District Court’s ruling that Prong 2 of the Massachusetts “ABC” Test was preempted for motor carriers under FAAAA, but reversed the District Court’s ruling as to preemption of Prongs 1 and 3. The First Circuit also returned the case to the District Court for further proceedings on Prongs 1 and 3, and we are continuing to monitor those proceedings for any new developments.

In reaching its recent decision in the MDA case, the First Circuit initially rejected a request by the Massachusetts Attorney General to reconsider Schwann on the grounds that it was wrongly decided. Noting a “law of the circuit doctrine” providing that the Court is bound by prior decisions “absent intervening authority,” the Court wrote that the Attorney General provided no such authority. Moreover, authorities cited by the Attorney General as “inconsistent” with Schwann had already been considered and rejected by the Court in Schwann, and in the Attorney General’s petition for rehearing, and in the Attorney General’s petition for rehearing en banc.

The Court also summarily concluded that Prong 2 was preempted as to X Pressman Trucking & Courier, Inc. (“XPressman”), the member entity which had been offered by MDA as an exemplar for purposes of the case. The Court’s analysis began with a finding that Prong 2 of the Massachusetts “ABC” Test “expressly reference[d] XPressman’s services,” and that “application of Prong 2 to XPressman would logically have a significant effect on XPressman’s routes and services.”

Rebuffing the Attorney General’s attempt to draw a distinction between the FedEx drivers in Schwann and XPressman’s drivers in MDA, the Court acknowledged differences but held that the reasoning of Schwann prevailed. XPressman drivers bore the expense of delivering packages and were compensated based on the number of packages delivered. XPressman’s drivers were “free to decide what route[s] to follow in making deliveries.”

And, XPressman “structured its relationship with its [drivers] to incentivize its [drivers] to keep costs low and to deliver packages efficiently.”

As a result, the Court decided that applying Prong 2 to XPressman would “deprive XPressman of its choice of method of providing for delivery of services and incentivizing the persons providing those services.” In effect, the Court wrote, the application of Prong 2 would dictate the services XPressman provided to its customers and the manner in which those services would be provided.

While we wrote in FLASH No. 53 that the Schwann decision was mildly disappointing, if the reasoning of Schwann continues to be applied favorably and uniformly in industry-related cases, as it was in MDA, these cases could potentially become the bellwethers of the industry, as a circuit court focuses on the application of market factors and forces to the logical effects of laws and regulations on a business’s operational model. Bear in mind, though, that the saga of the Massachusetts “ABC” Test is not quite over. Prongs 1 and 3 of the Massachusetts “ABC” Test remain in play and are still being considered by the courts. We will continue to monitor further developments in MDA and Schwann. In the meantime, an “A—C” (or “1—3”) test continues in place in Massachusetts.