R. Eddie Wayland, TCA Legal Counsel
A trucking company retained two drivers to serve as independent contractors and, on that basis, the company was allowed to make wage deductions, including for insurance, membership dues, and truck lease payments. The lower court disagreed that the drivers were independent contractors but ultimately determined that the deductions were permissible and granted summary judgment in favor of the company. On appeal, the New Jersey appellate court overturned the decision in favor of the company and returned the case back to the lower court for further analysis.
Background
The trucking company has both employee drivers and independent contractors. Regardless of their designation, drivers must have at least two years of driving experience and a Transportation Worker Identification Credential card, which allows access to ports for deliveries and pickups for the Company’s customers. The Company also utilizes the same interview process to hire employees and to engage independent contractors, and requires each to complete a drug and alcohol test and pass a driving test. When selected, Plaintiffs were allowed to choose if they would rather be an employee or an independent contractor; both chose independent contractor. The Company uses a separate service to administer independent contractor services and payroll for drivers designated as independent contractors. Plaintiffs’ independent contractor agreements authorized the third-party servicer to deduct from their paychecks payments for occupational accident insurance, a lease payment for their truck, and monthly United Truckers and Independent Contractors Association (“UTICA”) membership dues in the amount of $10.00.
Plaintiffs, on behalf of themselves and others similarly situated, filed a complaint alleging the Company and its co-defendants, including the third-party servicer, violated the New Jersey Wage Payment Law (“WPL”) by misclassifying Plaintiffs as independent contractors during their respective associations with the Company and deducting “money from [their] paychecks each pay period ostensibly for payment for . . . truck leases and associated fees.” Plaintiffs also asserted a cause of action alleging the Company and its co-defendants were unjustly enriched by their retention of monies wrongfully deducted in violation of the WPL. The Company moved for summary judgment, arguing the WPL was inapplicable to Plaintiffs as a matter of law because Plaintiffs were associated with the Company as independent contractors and not employees. Plaintiffs subsequently moved for summary judgment and for class certification, asserting the undisputed facts established they were employees under the WPL and the Company violated the WPL by deducting various sums from their compensation and the compensation of others similarly situated.
Lower Court’s Decision
While Plaintiffs joined the Company as independent contractors, the lower court determined that they were employees with respect to the WPL because the Company failed to satisfy the ABC Test (more to come on this). This meant that Plaintiffs were entitled to the protections of the WPL. However, under the law, employers are allowed to make such withholdings “under certain defined circumstances.” The lower court determined that Plaintiffs properly authorized such deductions and the Company was authorized to make allowable deductions for insurance, truck lease payments and UTICA dues. Therefore, the lower court ruled in favor of the Company.
Appellate Court’s Decision
On appeal, the appellate court began noting that the ABC test has been made the law in New Jersey, and states that: “Services performed by an individual for remuneration shall be deemed to be employment . . . unless and until it is shown . . . that: (A) Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and (B) Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and (C) Such individual is customarily engaged in an independently established trade, occupation, profession or business.”
The appellate court determined that Prong A was satisfied because the Company exercised some control over the circumstances attendant to the actual performance of the work primarily by exercising control over the trucks utilized for the performance of their services, including by putting the Company’s logos on the truck. The Company “also exercised at least some control over Plaintiffs by reserving the right to terminate Plaintiffs’ retention at any time for any reason and requiring that Plaintiffs’ subleases of the trucks from a third party automatically terminate if [Company] ended Plaintiffs’ retention.” The court also determined that control was exercised through the third-party servicer by selecting Plaintiffs’ insurance providers and mandating organizational membership dues.
The appellate court next determined that Prong B was satisfied because Plaintiffs stored their trucks at the Company’s location when the trucks were not being used, and when they accepted assignments from the Company, Plaintiffs went to the Company’s facility to obtain their trucks and traveled to the Company’s customers’ locations to pick up, transport and deliver loads.
Lastly, the appellate court determined that Prong C was not properly analyzed by the lower court and needed to be reconsidered by the lower court.
The appellate court took the same approach with its decision regarding the wage deductions and determined that the record was “devoid of any evidence establishing that the insurance for which deductions were made from Plaintiffs’ wages was part of an employee insurance plan.” The appellate court also found there to be a genuine issue of material fact concerning the type of insurance for which the deductions were authorized, and whether the membership dues were permissible as well, remanding both to the lower court. The appellate court did conclude by determining that the truck lease deductions were impermissible according to state law.
Takeaway
While this decision took place in New Jersey under New Jersey state law, it demonstrates again how trucking companies must be conscious of the law in the states where they are present. Furthermore, the company took many precautions to make sure that the drivers were independent contractors, yet that still was not enough to appease the court, especially under the ABC test. Misclassification class actions, and wage hour collective actions, are prevalent in the trucking industry. While many of these cases are under federal law, as this case demonstrates, such claims frequently are based solely on state laws. It is advisable to consult with experienced legal counsel to ensure that an employer’s operations, which may subject them to a particular state’s laws, are satisfactory and compliant under those laws.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.