Employee Misclassification

December 13, 2019

Federal Appellate Court Vacates Arbitration Order in New Jersey Misclassification Lawsuit

The court system encourages litigants to attempt alternative dispute resolution (ADR) before taking their cases to court. Many employment contracts in New Jersey and nationwide include clauses requiring arbitration before (or instead of) going to court. The Federal Arbitration Act (FAA) strongly favors these clauses, but it exempts certain groups of workers. The Third Circuit Court of Appeals recently vacated an arbitration order in a New Jersey employment class action. It found that the plaintiff, a driver for a major rideshare company, could be part of an exempt group under the FAA.

The Third Circuit case deals with alleged misclassification of employees as independent contractors, a common issue with rideshare companies and other “gig economy” employers. Employees are protected by multiple local, state, and federal statutes governing wages, hours of work, working conditions, paid and unpaid leave, discrimination and harassment, and more. Independent contractors do not enjoy most of these legal protections. Under New Jersey law, a worker is considered an employee unless they meet the “ABC test,” which looks at the degree of control the employer may exercise over the worker, and the extent to which the worker has their own established trade or business. See N.J. Rev. Stat. §§ 43:21-19(i)(6)(A), (B), (C).

ADR offers some advantages over litigation, but for employees seeking relief under New Jersey’s employment statutes, it can also have disadvantages. The parties must pay all of the costs associated with ADR, including the fees charged by arbitrators, mediators, or other ADR specialists. This can give employers with deep pockets an advantage. The FAA sets a very high bar for challenging, modifying, or vacating an arbitration award. In order for a court to compel arbitration in an employment lawsuit, however, an employer must first demonstrate that the FAA applies to its employees.

November 26, 2019

Task Force Releases Report on Misclassification of Employees as Independent Contractors in New Jersey

by Resnick Law Group, P.C.

New Jersey employment statutes protect workers against a variety of acts by employers, but in order for these protections to apply, an employment relationship must exist. Independent contractors generally do not fall within the scope of these laws. Employers therefore sometimes attempt to classify workers as independent contractors when they should be employees. This is known as “misclassification.” In May 2018, the Governor of New Jersey established a task force to make recommendations on how the state can address employee misclassification. The task force released a report in July 2019 that provides 10 recommendations for identifying misclassification, enforcing state law, and deterring employers from misclassifying their employees.

Employee Misclassification

The task force defines misclassification as “the practice of illegally and improperly classifying workers as independent contractors, rather than employees.” It states in its report that the practice has increased over the past decade by about 40 percent. It attributes this, in large part, to the “fissured workplace,” in which companies use an extensive network of outsourced contractors and subcontractors.

In a 2015 ruling, the New Jersey Supreme Court adopted the “ABC test” for determining whether an individual is an employee or an independent contractor, based on a definition of “employment” codified at N.J. Rev. Stat. §§ 43:21-19(i)(6)(A) – (C). The test presumes that a person is an employee unless their working conditions meet three criteria. The individual’s work must be generally free from control by the employer, the services performed by the individual must be either not part of the employer’s usual business or performed somewhere other than the employer’s usual place of business, and the individual must have their own “independently established trade, occupation, profession or business.”

July 31, 2019

National Labor Relations Board, Department of Labor’s Wage and Hour Division Rulings on Classification of Rideshare Drivers Contrast with New Jersey Law

by Resnick Law Group, P.C.

The “sharing economy” has brought significant changes, both good and bad, to many aspects of the job market. Rideshare companies, for example, give drivers flexibility in terms of when and how long they work, but this has come with disadvantages. Some rideshare drivers have sought the protection of employment statutes in claims for unpaid wages and other matters. The question of whether they are employees, who are eligible for relief under those employment laws, or independent contractors remains largely unresolved. Various courts and administrative agencies have reached different conclusions. Two federal agencies, the National Labor Relations Board (NLRB) and the Department of Labor’s Wage and Hour Division (WHD), recently issued opinions holding that rideshare drivers are independent contractors. The bases for their conclusions differ from the legal standard used in New Jersey.

A worker in New Jersey is deemed an “employee,” and therefore not an independent contractor, unless their employer can satisfy the three-prong “ABC test.” First, the employer must demonstrate that they do not exercise control over how the person does their job, and that their agreement with the person indicates that they will not exercise such control. Next, they must show that the job performed by the person is not part of their usual business, or that the person does their work away from the employer’s place of business. Finally, they must establish that the person has their own “independently established trade, occupation, profession or business.” N.J. Rev. Stat. § 43:21-19(i)(6).

The New Jersey Supreme Court adopted the ABC test in a 2015 ruling. Several other states have also adopted it. The test generally applies to employee misclassification claims under state law. The 2015 case, for example, involved alleged violations of New Jersey’s wage and hour statutes. Claims under federal law may require separate analyses.
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July 26, 2019

Court Affirms Class Action Status in New Jersey Misclassification Lawsuit

by Resnick Law Group, P.C.

When a large number of individuals have similar claims against a defendant, federal and state law allow them to consolidate their claims into a single lawsuit. This is known as a “class action” in most circumstances. The Fair Labor Standards Act (FLSA) allows a claimant to bring a “collective action” on their own behalf and on behalf of others with similar claims. A group of distributors filed suit against a food manufacturer in 2015, alleging that the company misclassified them as independent contractors in violation of the FLSA, New Jersey wage laws, and other state laws. A federal court conditionally certified the case as a collective action under the FLSA in 2017. The court recently denied a motion by the defendant to decertify the case. In the same order, issued in May 2019, the court granted the plaintiffs’ motion for class certification under Rule 23 of the Federal Rules of Civil Procedure (FRCP).

In order to assert claims for violations of federal and state wage laws, a claimant must be able to demonstrate that an employment relationship exists. Individuals who work as independent contractors are not eligible for legal relief in most circumstances. A 2015 ruling by the New Jersey Supreme Court adopted a test for determining whether an individual is an employee or independent contractor, known as the “ABC test.” An individual is presumed to be an employee, absent evidence of three elements:
1. The individual performs their work “free from control or direction” by the employer;
2. The services performed by the individual are either “outside the usual course of the [employer’s] business,” or performed away from its usual place or places of business; and
3. The individual has their own “independently established” business, trade, or professional practice. N.J. Rev. Stat. §§ 43:21-19(i)(6)(A) – (C).

The FLSA allows collective actions when the claimants are “similarly situated,” and each claimant has consented in a document filed with the court. 29 U.S.C. § 216(b). Certification as a class action requires proof of four elements: (1) numerosity, (2) commonality of claims, (3) typicality of the claims of the representative parties, and (4) fair and adequate representation of the entire class by those parties. Fed. R. Civ. P. 23(a).
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April 2, 2019

The “Gig Economy” and the Minimum Wage in New Jersey

by Resnick Law Group, P.C.

Advocates for increasing minimum wage rates around the country argue that the current federal rate is insufficient to cover expenses in many American cities. A campaign known as the “Fight for $15” seeks to raise the minimum wage to $15 nationwide. Under newly-enacted legislation, the New Jersey minimum wage will gradually increase to $15 per hour over several years. As advocates succeed in this effort, however, the workforce is undergoing changes that could lessen the impact of their success. Workers in the “gig economy” are often classified as independent contractors rather than employees, or they only work part-time. Either way, many are excluded from a wide range of protections under federal and state employment laws, including minimum wage. Recent news reports have shown, however, that workers and their advocates are fighting for better terms.

The federal minimum wage last increased on July 24, 2010, from $6.55 to $7.25 per hour. 29 U.S.C. § 206(a)(1)(C). New Jersey’s minimum wage has been higher than that for some time. A new law signed by the governor in February 2019 will increase the minimum wage for many New Jersey workers to $10 per hour on July 1. On the first day of 2020, it will increase to $11 per hour. A $1 increase will follow on January 1 of each following year until the rate reaches $15 per hour in 2024. See N.J. Rev. Stat. § 34:11-56a4, as amended by P.L.2019, c.32. The definitions provided by state wage laws, however, continue to omit many gig economy workers. An “employee” is still simply “any individual employed by an employer.” Id. at § 34:11-56a1(h).

The term “gig economy” has no distinct definition, but generally refers to individuals who work for companies on a job-by-job basis. This includes people who provide freelance services to multiple clients, but also people who provide services to customers of companies like Uber or Instacart. Driving for a ridesharing company might look like a full-time job. On paper, the relationship between the two parties is not employer/employee, but employer/independent contractor.
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October 15, 2018

How the “Gig Economy” Could Impact Wage and Hour Law Claims in New Jersey

by Resnick Law Group, P.C.

The term “gig economy” has entered common usage in recent years. It broadly refers to alternatives, of sorts, to having a single 9-to-5 employer. This includes rideshare or delivery services, and services ranging from childcare to odd jobs through online platforms. It also includes selling goods through online marketplaces, and most kinds of freelance work. One supposed advantage of the gig economy is that it provides greater flexibility for workers than the traditional workplace. It also comes with certain disadvantages, including a lack of legal protections when compared to the traditional definition of “employment.” This summer, the New York Times reported on several studies examining the gig economy. While most of the workforce still holds traditional jobs, the gig economy is growing. The studies provide nationwide information, not figures on employment in New Jersey or any other specific state. As this type of work arrangement becomes more common, our system of employment laws may have to catch up. Speak to a New Jersey employment lawyer to discuss any questions you might have.

Minimum wage and overtime laws are among workers’ most important legal protections, but state and federal laws only apply to people who meet a specific definition of an “employee.” The federal Fair Labor Standards Act (FLSA) establishes a national minimum wage, overtime requirements, and limits on child labor. Its definition of an “employee” is simply “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). Gig economy workers are often considered to be independent contractors instead of employees, for FLSA purposes. The extent to which the FLSA’s minimum wage and overtime requirements apply to gig economy workers is a matter of ongoing dispute, with courts deciding cases in both directions and the U.S. Department of Labor (DOL) recently changing its position on the issue.

New Jersey’s Wage Payment Law expressly states that it only applies to “employees,” which it defines as “any person suffered or permitted to work by an employer.” N.J. Rev. Stat. § 34:11-4.1. The statute specifically excludes independent contractors from that definition. The state’s Wage and Hour Law has a similar definition of “employee,” but without the specific exclusion of independent contractors. Id. at § 34:11-56a1(h). State regulations establish a test for determining whether an employee has been misclassified as an independent contractor. N.J.A.C. § 12:56-16.1. See also Hargrove v. Sleepy’s, LLC, 106 A.3d 449 (N.J. 2015).
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August 24, 2018

New York Court Rules on Employee Misclassification Claim, Applying Different Standard than New Jersey Courts

by Resnick Law Group, P.C.

New Jersey employment laws provide numerous protections for employees, including minimum wage, overtime, and prohibitions on discrimination, harassment, and retaliation. In order to qualify for the protections offered by New Jersey’s employment statutes, however, an individual must meet the legal definition of an “employee.” New Jersey uses an expansive definition of the term based on unemployment law. See Hargrove v. Sleepy’s, LLC, 106 A.3d 449 (N.J. 2015). A recent decision from a New York appellate court uses a narrower definition of “employee” in an unemployment claim brought by a “gig economy” worker. Matter of Vega, 2018 NY Slip Op. 4610 (App. Div., 3d Dept.).Incorrectly or falsely designating a worker as an independent contractor is commonly known as “employee misclassification.” The various employment statutes at the state and federal levels contribute to the problem by lacking a consistent and distinct definition of “employee.” One statute’s definition of the term might differ from another statute, or a statute may lack any useful definition. Courts often step in to provide definitions that could apply to certain types of claims, or all claims in which employee classification is an issue.

The ruling in Hargrove involved alleged violations of state wage laws by a company that employed the plaintiff and others as delivery drivers. The New Jersey Supreme Court ruled that courts should apply a three-part definition found in New Jersey’s unemployment laws. This definition states that an individual is an employee unless: (1) they are “free from control or direction over the performance of” their job; (2) the job they perform is “either outside the usual course of the [employer’s] business, or it “is performed outside of all the [employer’s] places of business”; and (3) the individual works “in an independently established trade, occupation, profession or business.” N.J. Rev. Stat. § 43:21-19(i)(6).

The plaintiff in Vega worked as a delivery driver for a “gig economy” company. The job involves picking up food orders at restaurants, which have been placed by customers through a smartphone app, and delivering the orders to the customers. After the company terminated the plaintiff, he filed for unemployment benefits from the state. He did not allege any specific wrongdoing by the company but instead appealed a decision by an Administrative Law Judge (ALJ) finding that he had not been an “employee” for the purpose of state unemployment law. The state Unemployment Insurance Appeal Board (UIAB) reversed this decision, and the state appealed.

February 23, 2018

U.S. Department of Labor Issues New Rules Regarding When FLSA Covers Interns in New Jersey

by Resnick Law Group, P.C.

Internships often allow students to gain “real world” experience before entering the job market, but they have been a subject of controversy in the area of employment law. New Jersey labor law provides a statutory test for determining when an individual may be considered an intern, who is not necessarily protected by state wage and hour laws, and when they are an employee who should receive a paycheck. N.J.A.C. § 12:56-2.1. The federal Fair Labor Standards Act (FLSA) does not expressly define the difference between an intern and an employee, so the job of interpreting the statute goes to the Wage and Hour Division (WHD) of the U.S. Department of Labor. In January 2018, the WHD issued Field Assistance Bulletin No. 2018-2, which sets forth a new test for determining, in claims involving federal law, when an intern is actually an employee.

The FLSA governs the payment of wages to employees and the hours they may be expected to work, including provisions for minimum wage and overtime compensation. It defines an “employee” as “any individual employed by an employer.” 29 U.S.C. § 203(e)(1). The statute’s equally unhelpful definition of “employ” is “to suffer or permit to work.” Id. at § 203(g). It does not provide a definition for “intern” or “internship.” The commonly accepted definition of an internship is a temporary position that allows a student to gain experience in a particular field. The actual job description of an internship varies widely from one industry and one company to another. Interns in one company might spend much of their days getting coffee and running other errands, while interns in another company might gain hands-on experience in the profession of their dreams. Internships are often unpaid, based on the rationale that interns gain experience and connections that will help them start their careers.

The WHD established a six-part test for determining whether an individual is an employee under the FLSA in 2010 in a document entitled Fact Sheet No. 71. While the WHD has since updated that sheet on its website to reflect the new test, some court decisions evaluating the old test include its original text. The test considered whether the internship (1) was similar to instruction the intern would receive at school, (2) primarily benefited the intern rather than the employer, (3) did not displace existing workers, (4) provided “no immediate advantage” to the employer from the intern’s activities, (5) included no promise of a permanent job, and (6) involved an understanding between both parties that no wages were to be paid. Glatt v. Fox Searchlight Pictures, Inc., 811 F.3d 528, 534-35 (2d Cir. 2016). An intern is not an employee if all six questions are answered in the affirmative.

November 10, 2017

The Rights of Unpaid Volunteers and Interns in New Jersey Employment Law

by Resnick Law Group, P.C.

New Jersey employment laws protect workers’ rights in multiple areas, including wages and hours of work, discrimination and harassment, and retaliation for reporting suspected wrongdoing by an employer. Many of these laws apply specifically to “employees,” but no single definition of “employee” exists. Some statutes only cover paid employees, while others also apply to independent contractors, unpaid interns, or volunteers. The legal status of unpaid workers, including both interns and volunteers, has been the subject of multiple court battles. The New Jersey Appellate Division recently held that the state’s whistleblower statute, the Conscientious Employee Protection Act (CEPA), does not apply to unpaid volunteers. Sauter v. Colts Neck Volunteer Fire Co. No. 2, No. A-0354-15T1, slip op. (N.J. App., Sep. 13, 2017). In light of this decision, it is worth reviewing how various employment statutes in New Jersey view unpaid volunteers and interns.

“Volunteer” Versus “Intern”

Some laws make a distinction between volunteers and interns. Generally speaking, an internship provides some form of educational benefit to the worker, possibly including course credit at an educational institution, and it may be paid or unpaid. Even when an internship is unpaid, the worker is considered to gain an educational benefit. A volunteer position, on the other hand, is usually undertaken for primarily altruistic reasons, or at least without the expectation of any specific return.

October 6, 2017

Third Circuit Reinstates New Jersey Employment Misclassification Lawsuit

by Resnick Law Group, P.C.

Workers 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.