New Jersey is Becoming the Next California: February 2023 Independent Contractor Legal News Update

by Richard Reibstein Esq.

Ever since the New Jersey Supreme Court issued its 2015 decision in the Sleepy’s case, establishing an ABC test for wage and hour lawsuits, class action lawyers have targeted companies operating in that state for IC misclassification class actions.  We summarize below four developments in lawsuits and administrative proceedings in New Jersey: two settlements involving last-mile logistics firms; a case involving a lengthy appellate court process and legislation involving an industry seeking an exemption from the ABC test for independent contractor status; and an administrative investigation and assessment following a joint enforcement initiative by regulatory agencies.  The ABC test has triggered more litigation recently than any other test for independent contractor status.  Not surprisingly, all six of the legal developments we report on below involve three states with ABC tests: California, Massachusetts, and New Jersey.  While proponents of the ABC test argue that that this three-factor test simplifies this area of the law, experience has shown that it creates more litigation and uncertainty than multi-factor tests. 

A professor who has studied the matter concluded that the ABC test “does not make the law of employee status clearer, simpler or more uniform [but rather] … makes the law more complex and less uniform than it was before.” That challenge has prompted more companies to undertake a process such as to restructure, re-document, and/or re-implement their IC relationships in a customized and sustainable manner to minimize misclassification liability, regardless of the IC tests that may be applicable.

In the Courts (3 cases)

NEW JERSEY APPELLATE COURT INVOKES AN EXEMPTION FROM STRICT ABC INDEPENDENT CONTRACTOR TEST FOR REAL ESTATE SALESPERSONS. 

 New Jersey has been a hotbed of independent contractor misclassification lawsuits since the state’s Supreme Court decision in Hargrove v. Sleepy’s, LLC in 2015.  In that case, the court applied the statutory ABC test for IC status, found in the state’s unemployment law, to claims brought under that state’s wage and hour laws. Since that decision, parties have battled in court over whether the two dozen exemptions from that strict ABC test, also found in the states’ unemployment law, should apply as well in lawsuits brought under the wage and hour laws. 

One of those exemptions in the unemployment law covered real estate agents compensated solely by commissions.  The real estate industry successfully lobbied the state legislature and governor for a law that would effectively incorporate into the state’s wage and hour laws the same exemption to the ABC test located in the unemployment law.  The legislative path has been peppered with more than one amendment and a veto by the governor, causing the legislature to further amend the law with the objective of exempting real estate salespersons from the ABC test in lawsuits seeking damages for overtime and wage payment deductions.

After years of litigation, the state’s Appellate Division last month issued a decision in an appeal that was filed over three years ago, concluding that the amended legislation indeed provided an exemption from the ABC test for IC misclassification claims brought under the state’s wage and hour laws.  The appellate court decision, however, left the industry in suspense by “declining to expound on what the appropriate ‘test’ should be to determine whether the plaintiff was an employee or independent contractor in this case.” It remanded the case to the trial court to determine as a threshold matter the applicable test, likely adding at least another two or more years before any certainty in the real estate industry on this issue can be restored.  Kennedy v. Weichert Co., d/b/a Weichert Realtors, No. A-0518-19 (N.J. App. Div. Feb. 9, 2023).

LOGISTICS COMPANY TO PAY $2.8 MILLION IN CLASS ACTION LAWSUIT FOR IC MISCLASSIFICATION UNDER NEW JERSEY LAW.  

USPack Logistics, LLC has reached a proposed $2.85 million settlement with almost 370 delivery drivers in a ‎proposed wage and hour class action filed in New Jersey ‎federal district court alleging independent contractor misclassification. The proposed settlement provides for $1,866,000 to be distributed to all participating class members after legal fees, the costs of administration, and a large $24,000 “service award” for the named plaintiff are deducted, with each class member receiving an average of $5,000. 

The class action complaint alleged that the company violated overtime and wage deduction provisions of the New Jersey Wage Payment Law, the New Jersey Wage and Hour law, and the state’s common law due to its alleged misclassification of the drivers, who deliver pharmaceuticals and related items to the company’s customers. 

According to the class action complaint, the company: requires drivers to comply with its instructions, policies, procedures, and directives regarding their duties; dictates the manner in which the deliveries performed by the drivers are to be made; employs managers who have supervisory responsibility over the drivers and assign and direct their work; requires the drivers to use the company’s scanning/radio devices so that deliveries can be tracked and downloaded to the company’s computer system; and mandates that the drivers wear company uniforms and badges.  Easterday v. USPack Logistics, LLC, No. 15-cv-07559 (D.N.J. Feb. 17, 2023).

NEW JERSEY LAST-MILE LOGISTICS COMPANY SETTLES CLASS ACTION BY DRIVERS IN IC MISCLASSIFICATION CASE. 

Delivery drivers and last-mile logistics company, American Eagle Express, Inc., have reached a $950,000 settlement of another class action lawsuit alleging wage deduction violations under the New Jersey Wage Payment Law due to the company’s alleged misclassification of the drivers as independent contractors and not employees. 

The deductions allegedly taken from the drivers’ pay included those for occupational insurance, use of the company’s electronic scanner that the company used to track the drivers’ locations and packages to be delivered, and penalties sometimes assessed for poor delivery service, lateness, background checks, and drug testing. The company, headquartered in New Jersey and Pennsylvania, is in the business of providing courier delivery services to hospitals, drug companies, and pharmacies. The proposed class action settlement creates a non-reversionary fund of $950,000. The parties now await the court’s approval of the proposed settlement.  Bedoya v. Am. Eagle Express Inc., No. 2:14-cv-02811 (D.N.J. Feb. 3, 2023).