Third Circuit Reinstates New Jersey Employment Misclassification Lawsuit

silhouettesWorkers asserting a cause of action against an employer under various employment statutes must establish multiple facts before any claim may proceed. Perhaps before anything else, they must demonstrate an employment relationship between the defendant and themselves. If a claimant is an independent contractor rather than an employee, the employer may have far fewer obligations, or none at all, under employment statutes and the common law. “Misclassification” involves classifying workers who meet a legal definition of an employee as independent contractors. A recent Third Circuit Court of Appeals decision allowed a New Jersey misclassification lawsuit to proceed, specifically addressing another early roadblock for complainants:  a contractual clause purportedly mandating arbitration of all disputes. Moon v. Breathless, Inc., No. 16-3356, slip op. (3d Cir., Aug. 17, 2017).

No precise definition of “employee” exists in state or federal law. The federal Fair Labor Standards Act (FLSA) defines an “employee” as “any individual employed by an employer,” and “employ” as “to suffer or permit to work.” 29 U.S.C. §§ 203(e)(1), (g). Different jurisdictions have therefore developed their own definitions of “employee” and “independent contractor.” New Jersey’s definition is quite expansive, holding that an individual is an employee unless they meet a three-part test:  (1) the employer lacks control over how the individual performs their job; (2) the individual’s job either is substantially different from the employer’s usual business activities or is not performed at the employer’s regular place of business; and (3) the individual has an “independently established trade, occupation, profession or business” that includes their work for the employer. Hargrove v. Sleepy’s, LLC, 106 A.3d 449, 458 (N.J. 2015).

Many employment contracts include clauses stating that both parties agree to arbitration of any disputes, often precluding the option of going to court. The arbitration process involves submitting a dispute to an arbitrator, a private individual with specialized training in dispute resolution. The process may involve something resembling a trial, in which each side presents arguments and evidence, and the arbitrator makes a decision. Whether the arbitrator’s decision is binding on the parties depends on the terms of the arbitration clause.

Since prospective employees often are not in a position to negotiate certain terms of a contract, state and federal court decisions have established guidelines for the enforceability of arbitration clauses. The New Jersey Supreme Court has held that an arbitration clause “must state its purpose clearly and unambiguously,” and all parties “must have a basic understanding that they are giving up their right to seek relief in a judicial forum.” Atalese v. U.S. Legal Serv. Group, 99 A.3d 306, 309 (N.J. 2014). A court “must be convinced that [an employee] actually intended to waive his statutory rights.” Garfinkel v. Morristown Obstetrics & Gynecology Assocs., 773 A.2d 665, 673 (N.J. 2001).

The plaintiff in Moon worked as a dancer for the defendant, a men’s club located in Rahway, New Jersey. She signed a contract containing an arbitration clause. She later filed a collective action under the FLSA and New Jersey wage laws. The district court dismissed the lawsuit, finding that the arbitration clause precluded litigation.

The Third Circuit reversed the lower court and reinstated the lawsuit. It found that the rulings in Atalese and Garfinkel applied, and the arbitration clause was insufficient to preclude the litigation of statutory rights. The court did not make a ruling on the misclassification claim itself.

To speak with an arbitration attorney about a legal dispute in New Jersey or New York, contact the Resnick Law Group today online, at 973-781-1204, or at 646-867-7997.

More Blog Posts:

New Jersey Appellate Court Invalidates Arbitration Clause in Employee Handbook, The New Jersey Employment Law Firm Blog, April 1, 2016

New Jersey Appellate Court Rules on Enforceability of Employee Arbitration Agreements, The New Jersey Employment Law Firm Blog, October 27, 2015

A Resnick Law Group Victory: Last Minute Arbitration Will Not Be Upheld in New Jersey, The New Jersey Employment Law Firm Blog, April 5, 2012

Photo credit: geralt [CC0 1.0], via Pixabay.

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