Mejia v. RXO Last Mile, Inc.

Background

Maynor Mejia Lopez brought a proposed class action against RXO Last Mile, Inc. He alleges that RXO denied him and other delivery drivers protections required by the California Labor Code and other state laws by classifying and treating them as independent contractors instead of employees. The alleged violations include failure to pay minimum wage and overtime, failure to reimburse employment expenses, unlawful wage deductions, failure to provide meal and rest periods, failure to provide accurate wage statements, and waiting-time penalties.

RXO obtained permission to file a third-party complaint against ABC Logistics, Inc., and filed that complaint on January 17, 2024. The opinion states that RXO alleged ABC Logistics was a limited liability company founded and managed by Mejia Lopez. RXO also alleged that ABC Logistics entered into a Delivery Service Agreement with RXO, employed workers to provide delivery services, controlled the workers’ pay and working conditions, and agreed to defend and indemnify RXO for claims arising from the services performed under the agreement.

RXO requested indemnity for any judgment or settlement paid because of Mejia Lopez’s lawsuit, as well as attorneys’ fees, expenses, and costs incurred defending that lawsuit and pursuing the third-party complaint. The agreement also included a provision requiring ABC Logistics to defend, indemnify, and hold RXO harmless from claims connected to the agreement or services performed under it.

Motion and arguments

Mejia Lopez moved to dismiss the third-party complaint under Federal Rule of Civil Procedure 12(b)(6), which requires dismissal when a complaint does not state a legally sufficient claim. The opinion notes that, for legal purposes, the court treated the motion as filed by ABC Logistics because the third-party complaint was brought against that entity.

Mejia Lopez argued that California law and public policy do not allow employers to obtain contribution or indemnification for wage-and-hour claims, and that RXO’s attempt to hold him or ABC Logistics responsible improperly shifted responsibility for RXO’s alleged violations. He also argued that the issue could be decided from the pleadings without first determining whether he was an employee or an independent contractor.

RXO argued that the motion relied on Mejia Lopez’s unproven allegation that he was an RXO employee. RXO also argued that the motion depended on factual issues that could not be resolved at the motion-to-dismiss stage.

Court’s reasoning

The court concluded that the third-party complaint should be dismissed on the pleadings as contrary to public policy. It found persuasive decisions holding that contractual indemnification provisions may be unenforceable when they could shift the costs of wage litigation to workers or discourage them from bringing wage claims. The court applied those concerns to California wage-and-hour law, which it stated is more protective of workers than federal law.

The court relied on cases involving alleged worker misclassification and business entities formed or used in connection with delivery or other service work. Those decisions treated indemnification claims as contrary to public policy even before the workers’ employment status or ultimate success on the wage claims had been decided. The court reasoned that a loss to ABC Logistics could result in a loss to Mejia Lopez as its founding and managing member, implicating the same concerns.

The court rejected RXO’s argument that Mejia Lopez’s employment status had to be resolved first. The court specifically stated that it could not and did not assume at this stage that Mejia Lopez was an RXO employee. Nevertheless, it concluded that the public-policy concerns were sufficient to dismiss the indemnification claim without resolving that employment-status question.

The court also noted that the parties disputed whether the California Labor Code provisions at issue provided one-way or two-way fee shifting. It did not find it necessary at that stage to determine which alleged Labor Code violations would remain in the case or whether those provisions allowed fees to either side.

Disposition

Judge Susan Illston granted the motion to dismiss RXO’s third-party complaint filed against ABC Logistics. The opinion does not state that the dismissal was with or without prejudice.