Appellate Division Rules Independent Contractor Agreements Signed by Driver’s Corporation Not Bullet Proof Against Class Action Overtime and Wage Deduction Claims

On October 29, 2018 a N.J. Appellate Division panel reversed a dismissal of class action overtime pay claims brought against a freight-forwarding company that convinced the lower court that the company’s drivers and deliverers lacked standing to sue because they signed independent contractor agreements to provide services through their separate corporations. In an unpublished opinion, the Appellate Division found that the court below prematurely ended its inquiry into whether the plaintiff was an employee or an independent contractor, and directed the lower court to look beyond the terms of the contract to consider the totality of the circumstances surrounding the relationship between the drivers and the company.  Veras v. Interglobo North America, Inc., et al., Docket No. A-3313-16T1 (Oct. 29, 2018).

In 2014, Raymond Veras, through his corporation J&K Trucking Solution, signed a “Contractor Lease Agreement” (CLA) with Interglobo and then provided driver services to Interglobo.  He claimed that he routinely worked in excess of 40 hours each week but received no overtime pay, and that Interglobo took illegal deductions from his pay. In 2015 he filed a class action under the N.J. Wage and Hour Law (WHL) and the Wage Payment Law (WPL) against two Interglobo entities. The CLA clearly stated that J&K was an independent delivery operator. However, Veras’s complaint alleged that, despite the CLA which his corporation signed, he was an employee protected by the WHL and WPL since he took direction from Interglobo and its employees, wore its uniforms, dealt with its customers’ invoices, and was subject to discipline and termination by Interglobo.

The lower court dismissed Veras’s complaint on the grounds that he lacked standing to bring the action. The Appellate Division reversed and held that the A-B-C test articulated by the N.J. Supreme Court’s 2015 decision in Hargrove v. Sleepy’s applied to determine whether Veras’ relationship with Interglobo was that of an employee as opposed to an independent contractor. The Appellate Division held that “a court is not limited to the terms of the contract between the parties” and the court should review “the substance, not the form of the relationship … to determine if [the relationship] is exempt from the WPL and WHL.”

The A-B-C test presumes that a service provider is an employee, unless the service recipient can prove A, B and C: (A) the service provider is free from direction or control by the service recipient, (B) the services rendered to the recipient are outside the recipient’s usual course of business, or are performed outside all places of the recipient’s business, and (C) the service provider is customarily engaged in an independently established trade, occupation, profession, or business.

Interglobo argued that the A-B-C test did not apply because Veras’s employer was his own corporation, J&K Trucking Solution, and under the economic realities test, Interglobo was not the employer. The court rejected this argument, too, and held that the economic realities test does not apply to WHL and WPL claims.

The Appellate Division held that the A-B-C test applied to Veras regardless of whether the CLA was signed by Veras as an individual or by his corporation, and stated that the A-B-C test presumes that Veras was an employee, not an independent contractor. The Appellate Division reasoned that even if the economic realities test did apply, dismissal of the complaint at the motion to dismiss stage was not warranted solely because of the CLA, because this test is fact-intensive, and courts rarely decide a worker’s status on a summary judgment motion, let alone on a motion to dismiss before discovery is taken.

Ultimately, this Appellate Division panel decided that the mere fact that the service provider’s corporation, and not the driver himself, signed an independent contractor agreement with the service recipient was not dispositive of the issue of employee versus independent contractor status at the motion to dismiss stage, and the underlying facts must be examined to determine whether, despite the contract, the service provider is an employee and has standing to sue the service recipient under the WHL or the WPL.  As businesses attempt to create more separateness between themselves and their service providers, this court cautions that employee status will not depend on the existence of a contract alone, but will be analyzed under the rigorous A-B-C test.

For more information on this court development, wage and hour law compliance, or independent contractor agreements, please contact Patrick W. McGovern, Esq., Partner in the firm’s Labor Law, Employee Benefits and Executive Compensation, Immigration Law and Wage and Hour Compliance Practice Groups, at PMcGovern@genovaburns.com.