In an opinion issued on July 9, 2020, the District Court of New Jersey granted class certification for a group of delivery drivers who allege they were incorrectly classified independent contractors.
In the opinion, the Court applied the well-known Rule 23 factors to the facts and determined that, among other things, the ABC misclassification test could be analyzed using common evidence, thereby satisfying the predominance requirement. The opinion comes at a time when New Jersey lawmakers, and lawmakers across the country, are cracking down on misclassification.
The case, Portillo v. National Freight, Inc., has been pending since 2015. Defendant National Freight Inc. (NFI), transports goods between Trader Joe’s warehouses and store locations across the eastern seaboard. In order to provide these services, NFI uses both its own employees and independent contractors to serve as delivery drivers.
The named plaintiffs are delivery drivers who were classified as independent contractors. Although they owned their own trucks, the drivers were required by NFI to submit to background checks and drug and alcohol testing, to utilize a specific GPS system, to acquire specific insurance policies, and to submit reports of maintenance, log sheets, and toll receipts, among various other terms. The drivers also were required to put NFI’s logo on their trucks and were restricted in their ability to work for other companies.
The named plaintiffs claim that they were incorrectly classified as independent contractors, rendering certain wage deductions made by Defendant illegal under the New Jersey Wage Payment Law.
In considering the question of class certification, the Court looked to the well-established factors laid out under Federal Rule of Civil Procedure 23: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy, as well as two additional factors under subsection 23(b)(3): (5) predominance and (6) superiority.
The Court briefly noted that numerosity was met, as the class exceeded 40 members, that commonality was subsumed by the predominance analysis, and that adequacy is proven because the claims are typical of the class and because counsel for the class is competent. The Court also noted that superiority was established where, as here, the potential class members have filed no other pending lawsuits and have exhibited no interest in controlling the prosecution of the action.
The Court focused the majority of its attention on the typicality and predominance analysis. With respect to typicality, the Court noted that the Plaintiffs and members of the proposed class were all classified as independent contractors, signed the same agreements, worked subject to the same controls, and were subject to the same wage deductions, among other things. According to the Court, these factors were sufficient to establish typicality.
In the predominance analysis, the Court applied the three-prong misclassification test in New Jersey, commonly referred to as the ABC test, under which an individual who performs a service is presumed to be an employee unless the employer proves that, (A) the individual is free from control, in contract and in fact, (B) the service is outside the usual course of business or outside the place of business of the of the enterprise for which such service is performed, and (C) the individual is engaged in an independently established trade, occupation, profession or business. The Court noted that predominance would not be established if “proof of the essential elements of the cause of action requires individual treatment.”
In addressing prong (A), the Court looked to the driver’s contracts, as well as the common policies and instructions issued to the drivers, to determine whether common evidence could prove that the drivers were contractually and factually free of control. The Court concluded that “evidence of common practices can establish common answers to control as a matter of fact.” Turning to prong (B), the Court noted that the nature of the prong itself –the services provided and the usual course of business of the employer – is abstract and does not vary by individual. Although Defendants argued that the place of work for each driver was unique, the Court found the Plaintiff’s argument more compelling, that the company’s business of transporting goods for its customers is not at a fixed place. Finally, in connection with prong (C), the Court noted that common evidence indicated that Defendants’ policies precluded all of the potential class members from operating as independent businesses. In each case, the Court found that common evidence could be used in the analysis, thus satisfying the predominance requirement.
Because each of the Rule 23 requirements was met, the Court certified the class.
Misclassification of employees in New Jersey has been a hot button issue among state lawmakers. Following the publication of Governor Murphy’s Task Force Report on Misclassification in the last legislative session, a bundle of six bills were passed intended to provide protections to misclassified employees.
Notably, one bill, S2404, which would have amended the ABC test to make independent contractor status extremely difficult to prove, died in the last legislative session. The bill was immediately reintroduced in the current session as S863, but no action has been taken on it to date. An alternative bill, A1439, has also been introduced, which would eliminate all prongs of the ABC test except prong A, making it easier for employers to maintain independent contractor classification.
The atmosphere in New Jersey is reflected in other states across the country, including California (AB5) and Virginia (see summary here), where lawmakers have recently passed strict laws relating to misclassification, making it increasingly difficult for employers to utilize independent contractors for their businesses, especially in the transportation industry. Although the legislation is focused on the gig economy, the transportation industry has been swept up in the movement. Many members of the industry believe that disruption of the status quo is contrary to the desires of the majority of truck drivers, who prefer the independent contractor model for a variety of reasons.
The Portillo v. NFI decision provides a framework for misclassified employees to join forces as a class. Employers should be aware of the risks associated with class actions, including the potential for large scale damage awards if the case is certified by the court. As courts and lawmakers across the country focus in on the issue of employee misclassification, it is critical that employers in the transportation industry assess their business models to determine compliance with local legislation.