New Jersey delivery firm will reclassify independent drivers as employees

Awaiting state rule on classification

Looming in the background of this agreement is the state’s Department of Labor’s attempt to codify the ABC test that is at the heart of AB5 in its own regulations, expanding its reach beyond the body of civil law. 

While the current size of the PDX North workforce was not disclosed, the state in its announcement of the settlement said that more than 1,000 workers were misclassified as independent contractors under New Jersey state law.

“By January 1, 2027, PDX has agreed to come into compliance with all State wage, benefit and tax laws, meaning the drivers will be eligible for protections, including minimum wage and overtime laws, earned sick leave, unemployment benefits, family leave and temporary disability benefits, and workers’ compensation coverage,” the state said in its news release. 

The settlement grew out of four audits the state performed on PDX North between 2006-2019, according to the Department of Labor’s statement.  It began when a driver for PDX North filed for unemployment benefits, which the company would not have funded for independent contractors but which presumably sent a red flag to regulators. 

New Jersey has a body of state law that recognizes the ABC test as the governing principle for determining whether a worker is an employee or a legitimate independent contractor. The ABC test, the core of California’s AB5 law, is considered far more likely to find a worker should be classified as an employee rather than an independent contractor.

The ABC tests in the New Jersey, which are similar if not verbatim to other states that have the standard in their respective state laws like California and Massachusetts, are as follows: 

–The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact”

–The work is either outside the usual course of the business for which such service is performed, or the work is performed outside of all the places of business of the enterprise for which such service is performed

–The individual is customarily engaged in an independently established trade, occupation, profession or business.

The B test has been particularly problematic for transportation companies that hire drivers, since transportation is not “outside the usual course of business”; it is the “usual course of business.” 

Harkening back to ULH deal

In the 2022 agreement between Universal Logistics (NASDAQ: ULH) and the Teamsters, Universal converted their drayage drivers to full-time employees not long after the U.S. Supreme Court declined to review the state’s AB5 law and its legality in trucking, which effectively erased any questions about whether AB5 could regulate California’s trucking industry.

The ABC test is not codified in New Jersey, as it is in California through AB5. The New Jersey Department of Labor last year launched a rulemaking process that aimed to make the ABC test a part of Labor Department’s regulatory structure, beyond the body of court decisions on the issue.

There have been no announcements by the state on the status of that rulemaking.  The ABC test is embedded in New Jersey’s Unemployment Compensation Law.

As the Department of Labor said when rolling out its proposal in August, “Although the court’s opinions should be known to attorneys and accountants who practice in this area, they may not (and likely will not) be known to employers who are making…consequential classification decisions. It is the Department’s hope that by codifying its interpretation of the ABC test…employers will be better informed, and, consequently, more likely to make appropriate decisions regarding the classification of workers.”

An email sent to PDX North via its webpage portal had not been responded to by publication time. 

The company’s webpage, under job opportunities, continues to have an employment opportunity portal for independent drivers. Given that the requirement under its agreement is to have the workforce as employees in place by 2027, there may continue to be opportunities for independent drivers for several more months. 

Tough place to do business

Richard Reibstein of the law firm of Troutman Pepper Locke, who specializes in independent contractor law, said the agreement between New Jersey and PDX North represents “yet another case involving companies that have come to realize that New Jersey is unfriendly to independent contractors.”

He added that he was not familiar with all the specifics of the dispute between PDX North and New Jersey, which according to the state’s recap had gone on for years and featured litigation in federal court and an unsuccessful attempt by PDX North to have the U.S. Supreme Court hear the case. 

Reibstein said it is not clear whether PDX North “would have been able to satisfy the federal standard governing independent contractor status. If not, then the same result could have transpired if the U.S. Labor Department had prosecuted this matter instead of the New Jersey Department of Labor. “

Reibstein’s firm works with companies to ensure they are compliant with independent contractor status.

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