Monthly Archives: July 2012

Court Dismisses Class Action Lawsuit Challenging Classification of Workers as Independent Contractors

By Sean Mack, Esq.

Over the past year, numerous articles have been written warning employers that state and federal government agencies (and plaintiffs’ attorneys) have made it a priority to investigate and pursue claims of worker misclassification – that is, claims that workers have been wrongly classified and treated as independent contractors, instead of as employees.

A recent decision from a federal district court in New Jersey explored this issue and in the context of a trucking business, upheld the classification as independent contractors (for now).

The trucking industry, like many others that are largely built on a business model using independent contractors, was ripe for this type of challenge, and in New Jersey, there has been little judicial precedent to provide guidance to trucking companies regarding whether they are properly classifying their drivers.  Most of the trucks hauling containers out of New Jersey’s busy ports are operated by independent contractors, who own their trucks and lease them to trucking companies or brokers, who make the arrangements for pick-ups and deliveries.  This relationship usually is memorialized in a lease agreement that states that the drivers are independent contractors.

That business model was challenged in court last year when several operators filed a class action lawsuit against one of the Newark based trucking companies, alleging that they were really employees who had been misclassified as independent contractors.

On June 28, 2012, the Federal District Court in New Jersey issued its decision rejecting the drivers’ claims and dismissed their lawsuit.  In reaching its decision, the Court analyzed six factors to determine if the drivers were employees or independent contractors.

Federal courts in New Jersey use these six factors not just in the trucking industry, but anytime they are required to determine if a worker is an employee or independent contractor under federal wage laws:  (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed, (2) the alleged employee’s opportunity for profit or loss depending on his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; (4) whether the service rendered requires a special skill; (5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business.

The Court concluded that four of the six factors favored finding the drivers to be independent contractors, and were not outweighed by the two factors that favored finding them to be employees (i.e., (5) the degree of permanence of the relationship and (6) the service being an integral part of the business).  The Court concluded (factor 1) that telling the drivers where to report, when to report, what they would be paid and where to deliver the containers was insufficient to establish sufficient control over the manner in which the work is performed.  The drivers retained authority to select their delivery routes, to determine how to properly secure the load, to select when and where to rest, to select when and where to obtain gas and oil, to select where to repair the trucks, to determine how to finance the vehicle, to select insurance carriers, and to determine the working hours; all of which showed a lack of control.

The Court found (2) that there was an opportunity to profit because the drivers could acquire additional vehicles, could hire other drivers to work for them, and control how frequently they would drive and thereby control their pay since they were paid on a per trip basis.

The Court also noted (3) that the drivers invested in the vehicles used to conduct the business.

The Court (4) further determined that having to obtain a commercial drivers license to drive the trucks was a specialized skill not possessed by the average citizen.

Based on those factors, the court concluded that the drivers were not employees.  The Court has permitted the drivers to amend their lawsuit and refile it.  The case is Luxama v. Ironbound Express, Inc., Civ. No. 11-2224 (D.N.J.)

Workers’ Compensation Insurance: Saving on Premiums Now Does Not Add Up to Money in Your Pocket Later

By Michael Zoller, Esq.

In New Jersey, every employer, who is not covered by Federal programs, whether it is a corporation, partnership, LLC or sole proprietorship is required to have workers’ compensation insurance or be approved for self-insurance, if anyone who is not an owner of the business performs work in return for a financial consideration (and under the statutes, a financial consideration is more than just money).  N.J.S.A. § 34:15-1 et seq.  Further, the definition of an “employee” is much broader under the workers’ compensation statutes than it is under other statutes like the Internal Revenue Code or Unemployment Compensation.[1]  A failure to carry workers’ compensation insurance can result in penalties that include fines and even a conviction for a disorderly persons offense or a crime of the fourth degree.  N.J.S.A. § 34:15-79.

Now, as the owner of a small business you might think that it is worth the risk of a statutory fine to skip paying the insurance premiums.  Perhaps you think you are small enough, maybe you have just one employee, that no one will ever notice that you do not have workers’ compensation insurance and thus, you will never have to face a penalty.  This type of thinking is extremely dangerous.  The biggest risk a small business faces from not carrying workers’ compensation is not a statutory penalty, but rather the potential liability that comes along with just one work related injury suffered by an employee.  One injury has the ability to single handedly sink a small business.

A workers’ compensation policy provides cash benefits to an employee for permanent or partial disability and for time lost from work.  Additionally, the policy provides for unlimited hospital and medical benefits.  The employer also benefits from the policy in that it will provide Employer Liability Insurance that protects the employer from legal liability for injuries not covered by the policy.  Without a workers’ compensation policy, an employer opens him or herself up to potentially having to foot the bill for an injured employee’s medical care as well as legal liability if the employee were to pursue a claim.

Further, an uninsured employer’s liability does not end with the injured employee.  In the event that the employer cannot pay the workers’ compensation benefits, the employee can recover most of the benefits from the Uninsured Employers Fund.  In this situation, the Fund itself can then make a claim against the employer for the benefits it has to payout.  N.J. S.A. § 34:15-120.5.  This is done in the form of a lien placed against the uninsured employer in Superior Court.  Additionally, the employee can place a lien against the employer for any benefits not covered by the fund.

When you add it all up, trying to save on insurance premiums now is not worth the risk you face later as an employer who does not carry the required workers’ compensation insurance.  Besides the fact that the law requires every employer to carry workers’ compensation insurance, the financial risk of potentially being liable for a work-related injury is just too great to not have a policy in place.  Accordingly, every New Jersey employer, no matter the size of their business, needs to make sure they retain and keep up to date at all times a workers’ compensation insurance policy.

[1] The statute applies either the “control test” or the “relative nature of the work test” and under either, if you have a person working for you, it is likely that person is an “employee” for the purposes of workers’ compensation.

Too Much Information on Credit/Debit Card Receipts Can Cause Big Problems for Businesses.

By Brendan Walsh, Esq.

The use of credit and debit cards has exploded in the past decade.  Indeed, recent data indicates that credit and debit card payments now account for a combined 60% of all sales volume, and that number is expected to rise by four percentage points in the next five years as new technologies make it easier for businesses and individuals to process such payments.  But all individuals and businesses, large or small, who accept credit and/or debit card payments should carefully review their point-of-sale practices to confirm that they are not unwittingly opening themselves up to substantial liability under federal law for including too much information on their customers’ electronically printed receipts.

In 2003, Congress enacted the Fair and Accurate Credit Transactions Act (FACTA) in an effort to combat identity theft.  Among many other things, FACTA provides that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any [electronically printed] receipt provided to the cardholder at the point of the sale or transaction.”  15 U.S.C. § 1681c(g)(1).  FACTA imposes civil liability for violations of this provision, but the amount depends on whether the violation was negligent or willful.  If the violation was negligent, liability is limited to “actual damages” suffered as a result of the violation, which in the vast majority of cases is zero.  However, if the violation was willful – meaning “objectively unreasonable” – FACTA allows the recovery of statutory damages ranging from $100-$1000 per violation, as well as the recovery of attorneys’ fees.  Punitive damages may also be awarded for willful violations.

The Third Circuit recently considered this provision of FACTA in Long v. Tommy Hilfiger U.S.A., Inc., 671 F.3d 371 (3d Cir. 2012), where a plaintiff sought to recover a substantial damages award on behalf of a class of consumers as a result of a Hilfiger store’s failure to fully redact the expiration date of the plaintiff’s credit card on the plaintiff’s electronically printed receipt.  Specifically, the receipt included the last four digits of the plaintiff’s credit card number (which is permissible under FACTA) and the month, but not the year of the card’s expiration date (i.e., 04/##).  Hilfiger argued that it had not violated FACTA because it had only included a portion of the expiration date on the receipt.  The Third Circuit disagreed and held that FACTA prohibits the inclusion of any portion of a card’s expiration date.  Nevertheless, the court concluded that the plaintiff was only entitled to recover actual damages (which the plaintiff conceded were zero) because it was not objectively unreasonable under the circumstances for Hilfiger to believe that FACTA only prevented the inclusion of complete expiration dates on customer receipts.  To this end, the court noted that “there was no guidance from the federal courts of appeal on this issue” and that the few district court opinions addressing similar FACTA violations “were not directly on-point because they involve[d] merchants who, unlike here, printed the entire expiration date.”

Now that the Third Circuit has resolved this issue, it is reasonable to believe that merchants who continue to include any portion of a credit card’s expiration date (or more than the last five digits of the card number) on electronically printed receipts may be opening themselves up to claims for willful violations FACTA.  If you accept credit and debit card payments and provide customers with electronically printed receipts, you should immediately review the information on your customers’ receipts in order to ensure that you are complying with FACTA.  Of course, attorneys at Pashman Stein would be happy to review your point-of-sale practices with you for compliance with FACTA.