Third Circuit Confirms ABC Test Applies in Wage Theft Case

In a recent decision in Bailey v. Millennium Group of Delaware et al, the U.S. Court of Appeals for the Third Circuit confirmed that the ABC Test – long used by the New Jersey Department of Labor – sets forth the proper analysis for determining whether a worker is an employee or an independent contractor under the State’s wage and hour laws.

Facts

Anthony Bailey was hired in 2014 by Millennium Group (Millennium) to work as a stock Associate at a facility owned by NRG Energy, Inc. (NRG). In March 2017, Bailey was fired for breaching security protocols after opening a locked door for an employee, who had been terminated earlier that same day.

In 2018, Bailey brought claims against Millennium and NRG alleging that his termination was motivated by racial discrimination in violation of Title VII of the Civil Rights Act of 1964 (Title VII) and the New Jersey Law Against Discrimination (NJLAD). The District Court granted NRG’s subsequent motion to dismiss these claims against it, without prejudice, because Bailey had not sufficiently alleged that he had an employment relationship with NRG.

Bailey filed an amended complaint, attempting to adequately allege that he had an employment relationship with NRG. In addition to the Title VII and NJLAD claims, the amended complaint added claims against NRG under 42 U.S.C. § 1981, which, among other things, prohibits racial discrimination by parties to a contract. It also alleged violations of the New Jersey Wage Theft Act. NRG moved, again, to dismiss these claims, which the District Court granted, without prejudice. The court dismissed Bailey’s Title VII and NJLAD claims because it found that Bailey failed to establish an employment relationship with NRG. The District Court denied Bailey’s motion for reconsideration, and he appealed.

The Third Circuit’s Decision

The Third Circuit affirmed the District Court’s dismissal of Bailey’s Title VII and NJLAD claims finding that at no point did he raise an inference of racial discrimination or allege that any specific individual took any discriminatory action against him. Thus, Bailey’s complaints were “nothing more than his own speculation.” The Third Circuit also affirmed the District Court’s dismissal of his Section 1981 claim because the allegations failed to establish a contract between himself and NRG. The only “contract” Bailey referenced in his complaint was between NRG and Millennium.

The three-judge panel, however, rejected the District Court’s cursory analysis of Bailey’s allegation that NRG violated the New Jersey Wage Theft Act. The court agreed that Bailey’s claim should be construed as arising under New Jersey’s Wage and Hour Law (WHL), one of the statutes amended by the New Jersey Wage Theft Act. It also agreed that, for Bailey’s WHL claim to survive, he must properly allege “the existence of an employment relationship between himself and NRG.” However, the judges found that the District Court failed to apply the so-called ABC Test – the proper test for evaluating Bailey’s employment status under his WHL claim. Instead, the District Court applied the same analysis it used to dismiss Bailey’s discrimination claims for failure to establish an employment relationship with NRG. The Third Circuit noted that the Supreme Court of New Jersey had already established that the ABC Test was not coextensive with the test applied under Title VII and NJLAD to evaluate the existence of an employment relationship. The judges also noted that the ABC Test presumes that an individual is an employee and places the burden on the employer to prove otherwise. Accordingly, the Third Circuit vacated the dismissal of Bailey’s WHL claim and remanded it back to the District Court to reconsider under the appropriate analysis.

Bottom Line

The Third Circuit’s decision reinforces the need for employers to pay careful attention to all workers within their facilities, including those hired by independent contractors to perform certain business functions. If questions arise regarding unpaid wages, employers could face lawsuits brought by these workers and will need to satisfy every prong of the ABC Test or face serious consequences for misclassifying them as independent contractors.

For more information regarding this decision and best practices for hiring independent contractors to avoid claims and costly litigation, please contact John C. Petrella, Esq., lead Partner of the firm’s Employment Law & Litigation Practice via email here or Peter F. Berk, Esq., lead Counsel of the firm’s Wage & Hour Compliance & Dispute Resolutions Practice via email here, or via telephone at 973.533.0777.