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

By Sean Mack, Esq.
smack@pashmanstein.com

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.)

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