NJ Attorney General and Commissioner of Labor Put Employers Who Misclassify Employees as Independent Contractors on Notice: We Are Coming After You

In a December 11, 2021 press release, New Jersey Attorney General Matthew Plotkin and New Jersey Department of Labor Commissioner Robert Asaro-Angelo announced the filing of the first lawsuit under a 2021 law that enhances the State’s authority to curtail illegal misclassification of workers as independent contractors through actions such as direct suits in the Superior Court, work-stoppage orders and enhanced penalties.

“When employers unlawfully and callously toss their workers into the ‘independent contractor’ category they are not only depriving them of a steady paycheck, they are also stripping them of earned sick leave, workers compensation, minimum wage, and more,” said AG Plotkin.  “These are national, profitable corporations with deep pockets who are padding their profits with illegal labor schemes, and they seem to have no plans to stop this kind of behavior.”  Labor Commissioner Asaro-Angelo cautioned that companies profiting through misclassification “have been put on notice.  We are proud to have the strongest worker protection laws in the country, which also safeguard employers who play by the rules.  Misclassifying employees will not be profitable, nor overlooked.”

Under New Jersey law, workers are presumed to be employees unless the employer can establish the three criteria of what is commonly called the “ACBC test”: 1) the worker is largely free from the control or direction of the company over the performance of the work; 2) the type of work being performed by the worker is outside the company’s usual course of business, or is performed outside the company’s place of business; and 3) the worker has their own independent trade, job, profession or business.  Treating workers who do not meet these stringent criteria deprives them of the rights and benefits afforded to employees, including minimum wage, overtime, workers compensation benefits, temporary disability benefits, earned sick leave, job protected family leave, equal pay, unemployment payments, and statutory protection against unlawful discrimination.

The State filed suit against shipping and logistics companies STG Logistics, Inc. and STG Drayage, LLC (collectively “STG”), claiming they systematically misclassified more than 300 drivers as independent contractors.  Although STG required drivers to purchase and maintain their trucks, the Complaint alleges that it failed to pass the ABC test because it exercised significant control over the drivers and their work by, among other things:

  • Requiring STG’s name to appear on the trucks;
  • Requiring drivers to lease their trucks exclusively to STG;
  • Prohibiting drivers from using their trucks for other work without STG’s consent;
  • Requiring drivers to sign non-negotiable “independent contractor agreements;”
  • Requiring the installation of GPS tracking devices monitored by STG;
  • Assigning all routes, monitoring deliveries and setting rates of pay; and
  • Mandating drug and alcohol testing, defensive driving courses, certain insurance and accident reporting.

The State seeks to recover millions of dollars in back wages and penalties for STG’s violation of various labor laws, including: unlawful deductions and withholding from wages for costs of maintaining trucks in violations of the Wage Payment Law; failure to pay minimum wages and overtime and comply with recordkeeping requirements in violation of the Wage and Hour Law; failure to make paid sick time available to workers in violation of the Earned Sick Leave Law; failure to provide workers compensation insurance under the Workers’ Compensation Law; and failure to make required contributions to the State’s Unemployment Compensation, Disability Benefits, Workforce Development funds.

According to the State’s Complaint, in August 2020, STG paid the State $893,671.28 to resolve a prior NJDOL finding that it failed to make required contributions to the State’s Unemployment Compensation and Disability Benefits Funds from 2015 through 2018.  Nonetheless, STG did not change its ways and continued to misclassify drivers and failed to make requisite payments to the State funds.

Despite increased efforts at both the state and federal levels to curb misclassification of employees, many employers continue to scoff at the law to avoid the added costs of an employer-employee relationship.  With this first salvo from the Attorney General and NJDOL, employers should come to the realization that any cost savings may pale in comparison to the attorney fees, damages, fines and penalties that will be incurred if the employer is in the crosshairs of the Attorney General and NJDOL.  Given the anticipated uptick in enforcement efforts, employers with independent contractors on their payrolls should get an assessment from employment law counsel whether these positions can in fact meet the ABC test for independent contractor status.

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