On March 17, 2015, in Atiapo v. Goree Logistics, Inc., the North Carolina Court of Appeals affirmed an Industrial Commission Opinion and Award holding that Owen Thomas, Inc. (“Owen Thomas”), a federally licensed transportation broker based in Zephyrhills, Florida, was a “statutory employer” under N.C. Gen. Stat. § 97-19.1, and ordering Owen Thomas to pay Plaintiff temporary total disability compensation, all of Plaintiff’s medical expenses arising  from injuries due to Plaintiff’s accident, and the costs of the hearing. There are at least two important takeaways from the Court’s decision.

In the course of arranging for the transportation of freight for its customer, Sunny Ridge Farms (“Sunny Ridge”), a grower, packer, and shipper of fresh berries with operations in Florida, Georgia, North Carolina, and Mexico, Owen Thomas, the broker, entered into a typical broker- carrier agreement with Goree Logistics, Inc. (“Goree”), a federally licensed motor carrier headquartered in Charlotte, North Carolina. The Court noted that the agreement provided that Goree would control the work to be performed in terms of the transportation of freight, and that Goree would be responsible for payment of all taxes, unemployment, workers’ compensation, and other fees. Plaintiff Frances Atiapo, a North Carolina resident who drove a truck pursuant  to an independent contractor agreement with Goree, was injured in an accident in Colorado while transporting rejected goods from their intended destination in Wyoming. At the time of  the accident, Goree did not have workers’ compensation insurance.

Atiapo filed a claim for workers’ compensation. Goree denied the claim on the grounds that Atiapo was an independent contractor, not an employee. Subsequently, Owen Thomas was added as a defendant in the proceeding before the Industrial Commission. In its Opinion and Award, the Industrial Commission concluded that Atiapo was an employee, and further found that Owen Thomas was a “principal contractor” under the North Carolina Workers’ Compensation Act, resulting in the order that Owen Thomas pay Atiapo temporary total disability compensation, medical expenses, and costs. Owen Thomas appealed.

On appeal, Owen Thomas argued that the Industrial Commission lacked jurisdiction for two reasons. First, Owen Thomas asserted that it was a freight broker, not a principal contractor. Second, Owen Thomas argued that it was exempt from the North Carolina statute on federal preemption grounds.

The Appeals Court rejected Owen Thomas’ first argument, reasoning that the Industrial Commission’s order was proper insofar as Owen Thomas was a “principal contractor” under the statute and Goree had no workers’ compensation insurance at the time of Atiapo’s accident.

The Court of Appeals held that Owen Thomas’ use of the word broker was “a distinction without a difference.” Since Owen Thomas was, in the Court’s view, a principal contractor under the statute, and Owen Thomas “employed” Goree as a subcontractor without workers’ compensation insurance, liability was established under the Workers’ Compensation Act.

The Court also rejected Owen Thomas’ federal preemption argument on two grounds. First, the Court reasoned that a state statute requiring workers’ compensation insurance did not regulate prices, routes, or services as prohibited under 49 U.S.C. § 14501(c)(1) and, in any event, state regulations related to minimum insurance requirements were excepted under 49 U.S.C. §14501(c)(2). Therefore, FAAAA preemption did not apply to the applicable provisions of the North Carolina Workers’ Compensation Act.

Second, the Court rejected Owen Thomas’ claim that the exception contained in 49 U.S.C. §14501(c)(2) applied only to motor carriers, and not brokers. Chillingly, the Appeals Court held that Owen Thomas “went beyond its role as a broker” and “was, in effect, a motor carrier, despite the fact that the company itself owned no vehicles.” Thus, at the time Owen Thomas was doing business with Goree it was subject to the statutory exception.

Even if they do not operate or reside in North Carolina, motor carriers and freight brokers should note the Atiapo decision for two reasons. First, the decision evidences the continuing trend among the states to identify different, albeit illogical, means to fill their coffers and attack well-established, reasonable, efficient, and economically-sound ways of transacting business. For motor carriers utilizing an independent contractor/ owner-operator business model, the language used by the Industrial Commission and the Court of Appeals strongly suggests preconceived misconceptions about the transportation industry, on the one hand, and does not suggest a business friendly environment, on the other.

Second, freight brokers must be diligent in following motor carrier selection protocols that ensure compliance with duties and obligations contained within broker-carrier agreements. If your broker-carrier agreement requires motor carriers to maintain certain insurances, it is a best practice to make certain the motor carriers with which you transact business have the coverages required under the agreement. Diligence in this regard would, in all likelihood, have protected Owen Thomas from an expensive judgment