14-year-old case that brought ABC test to New Jersey was just settled
The case that first brought the ABC test for determining independent contractor status into New Jersey involved truck drivers hauling bedding. Fourteen years later, the case has been settled out of court.
That’s just one development in recent weeks regarding the always contentious question of how a court or regulator determines whether a worker is an employee or a truly independent contractor.
In recent weeks, there has also been the Department of Labor’s independent contractor rule, which sets the parameters for DOL’s Wage and Hour division to use on questions of IC status. There are at least two lawsuits arising out of that proposal.
For trucking, these latest developments come as stakeholders wait to see whether a federal court will hand down a new injunction any day now blocking California’s AB5 law — which is built around that ABC test.
In New Jersey, the $4.5 million settlement came last month in the case of several drivers against Sleepy’s, a mattress retailer. Richard Reibstein, an attorney with the law firm Locke Lord who specializes in independent contractor status and writes a blog on the subject, reviewed the history of the Sleepy’s case that dates back to 2010.
Sleepy’s won summary judgment at the federal district court level in New Jersey in 2012. The court ruled that the drivers who filed the case were in fact independent contractors. But in 2015 — coincidentally the same year Sleepy’s was acquired by Mattress Firm (NASDAQ: MFRM) — a federal appellate court overturned that decision and cited the ABC test as the guiding principle for determining whether a worker is an employee or a contractor.
According to Reibstein, that brought the ABC test into New Jersey case law, though the appellate court had received the recommendation to use the ABC test from the New Jersey Supreme Court.
“New Jersey borrowed the state’s strict ABC test under its unemployment law and adopted it as the new test for independent contractor status under its wage laws,” Reibstein wrote. “That change in the law was not an act by the state legislature; instead, it was created entirely by the judiciary. These judicial decisions have created havoc for businesses and legitimate independent contractors that had developed business relationships based on then-existing law.”
A long, tortuous history
The Sleepy’s case was kicked back to district court, where its history online shows a long list of motions, notices, a series of decisions at both the district and appellate court levels regarding seeking class certification of the case (which was ultimately granted to about 120 class members), failed mediation in 2021, and finally a settlement.
Under the settlement, Sleepy’s denies any wrongdoing. Its total payout will be $4.5 million, according to court documents.
The three named plaintiffs in the case, who had set up companies to drive for Sleepy’s but were ultimately found to be employees rather than independent contractors under the ABC test, each will receive $26,666 under the settlement. The court documents also say approximately $2.425 million will be available to the 120 class members.
Though the ultimate numbers might not be large, especially given the roughly 14 years of litigation, Reibstein said in his blog that the legacy of the Sleepy’s case and the introduction of the ABC test into case law because of it, means that “today, New Jersey is one of a few states in the U.S. where businesses and freelancers are in peril if they seek to create or maintain IC relationships including those that would otherwise be compliant with the test for IC status under the federal wage and hour law and most state wage laws.”
Though IC cases in New Jersey are not as frequent as in California (which has a codified the ABC test through AB5) and Massachusetts (which, like New Jersey, has established through case law the factors that determine IC status), Reibstein said they are “quite prevalent” in the Garden State.
What’s in the ABC test?
The three-pronged ABC test helps guide a determination of whether a worker is an employee or a contractor. Broadly, it deals with questions of control and the independence of the occupation. For trucking, the B prong is particularly problematic: “The work takes place outside the usual course of the business of the company and off the site of the business.” That calls into question whether a trucking company can fairly hire an independent owner-operator to move freight when trucking is that company’s “usual course of business.”
California’s trucking industry awaits word from Judge Roger Benitez of the U.S. District Court for the Southern District of California on the latest request from the California Trucking Association and the Owner-Operator Independent Drivers Association to block implementation of AB5 in the state’s trucking industry.
The case is the same one that resulted in an injunction handed down New Year’s Eve 2019, a day before AB5 went into effect. That injunction agreed with the CTA’s argument that AB5 conflicted with the transportation provisions of the Federal Aviation Administration Authorization Act (F4A) and should be blocked. But an appellate court overturned that decision, the Supreme Court chose not to hear the CTA appeal, and the case was kicked back to district court while AB5 went into effect.
Oral arguments in the case were heard in early November. The scope of the arguments has widened beyond F4A. An earlier projection in some California trucking quarters that Benitez would rule before the end of 2023 proved false, and the waiting game goes on.
2 lawsuits challenge DOL rule
Meanwhile, the Department of Labor’s proposed independent contractor rule faces two lawsuits, one that was already in place and had an impact in 2021 and another filed by a group of freelance writers.
One of those cases, Coalition for Workforce Innovation, et al. v. Walsh, et al., resulted in a ruling early in the Biden administration by the U.S. District Court for the Eastern District of Texas that the Biden-aligned officials running the DOL erred in yanking the Trump administration rule that went into effect just before the end of Trump’s term.
That case was never fully adjudicated despite the impact it had, and in fact an appellate court in the 5th U.S. Circuit handed down a stay. Despite that, the Trump rule — seen as more favorable to declaring a worker an independent contractor rather than an employee — stayed in place while the Biden administration appealed the lower court ruling and drew up its substitute independent contractor rule.
In a recent blog posting, the law firm of Baker Hostettler said the plaintiffs — the Coalition for Workforce Innovation — are seeking to use the case to challenge the DOL rule. “The coalition has opted to try lifting the stay and reviving its 2021 challenge — rather than filing a fresh challenge to the DOL’s new rule — likely in the hopes of retaining a friendly trial court venue that sided with them once before,” the firm wrote.
The other lawsuit was filed last month by a group of four freelancers who have been prominent in discussions on X under the hashtag #FightForFreelancers. That case is Warren, et al. v. U.S. Dep’t of Labor, et al.; Warren is Karon Warren, one of the plaintiffs. (Another plaintiff is Kim Kavin, who writes frequently for other publications owned by Firecrown Media, which as of last week owns FreightWaves Media.)
The case was filed in the U.S. District Court for the Northern District of Georgia.
The four plaintiffs are being assisted by the Pacific Legal Foundation. In a blog posting on the lawsuit, the foundation said that “the government should protect the flexibility of freelancers and their clients to build mutually beneficial working relationships. Instead, the DOL’s new rule deliberately prevents workers and businesses from knowing whether anyone is an independent contractor and exposes those who work with freelancers to huge fines and criminal penalties for not knowing.”
But the Baker Hostettler blog posting was skeptical of the lawsuit. Referring to the argument that most freelancers want to stay in that situation, the law firm wrote, “while this argument may be persuasive in the court of public opinion, litigants should be aware that a worker’s classification preference is of minimal value. It has long been established that the economic reality of the working relationship controls workers’ classification under the FLSA [Fair Labor Standards Act] — not their subjective beliefs.”
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