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Developments in the Third Circuit Regarding the New Jersey Test for Employee Status

February 28th, 2019

By Ryan Allen Hancock

Developments in the Third Circuit Regarding the New Jersey Test for Employee StatusOn January 29, 2019, the Third Circuit Court of Appeals held, in a precedential opinion, that the Federal Aviation Authorization Administration Act of 1994 (FAAAA) did not preempt the New Jersey law for determining employment status for purposes of the New Jersey Wage and Hour Law (NJWL) and the New Jersey Wage Payment Law (NJWPL). The NJWL establishes a minimum wage rate and overtime rate for all workers in New Jersey that are covered by the Act. The law requires the payment of time and one half per hour for actual hours worked in excess of 40 hours per week, with certain exemptions found in the statute. The NJWPL stipulates the time, manner, and mode of payment, and prohibits the withholding of wages for illegal deductions, such as breakage, spillage and cash register shortages. Employers may be penalized heavily for violating either statute Only employees, as opposed to independent contractors, are covered by the NJWL and the NJWPL.

American Eagle Express, Inc. (AEX) is a national company that provides last-mile, courier service, and critical logistics planning to large companies such as Cardinal Health, Wells Fargo, and Staples. A class of drivers for AEX filed a putative class action, seeking a judgment that the drivers were misclassified as independent contractors, and are in fact employees. Thus, the drivers alleged that they were employees of AEX, and that they were entitled to relief under the NJWL and the NJWPL. Under those statutes, a worker is considered an employee unless the employer can demonstrate that under New Jersey law, known as the ABC Classification Test, the worker is an independent contractor. If the drivers in the class are determined to be employees, the employer may be bound by other requirements such as restrictions on pay deductions and conditions regarding the time and mode of pay.

The FAAA is a federal statute enacted in 1994 to preempt state trucking regulations. The FAAA includes an express preemption provision, but the scope of that preemption provision has, until now, been unclear in terms how it interacts with state laws that are not trucking-specific.

At issue in the AEX case was whether the drivers’ claim that they were employees for purposes of the NJWL and NJWPL was preempted by the FAAAA. Specifically, AEX argued that the ABC Classification Test – the New Jersey test for determining employee status – was preempted by the FAAAA. The Third Circuit ruled that the ABC Classification Test was deemed to have neither a direct, nor an indirect, nor a significant effect on the carrier prices, routes, or services. Accordingly, the test for determining employee status under New Jersey law was not preempted. The Third Circuit Court of Appeals determined that Congress, through the FAAAA, did not manifest a clear purpose of preempting state law for purposes of determining “employee” status under the NJWL and the NJWP. Because the issue was not specifically raised, the Court did not decide whether the FAAAA preempts the NJWL and the NJWPL themselves, though that may become an issue as this case is litigated. The case will now be sent back to the District Court for further litigation and in compliance with the Third Circuit’s decision. Read more about the decision here: Bedoya v. American Eagle Express Inc, No. 18-1641

If you have questions about employment law, please contact the labor and employment lawyers at Willig, Williams & Davidson at (800) 631-1233.

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