STG drayage drivers to get cash in NJ misclassification case

Much bigger figure to be swallowed by bankruptcy

But the settlement document filed in the Superior Court of Essex County puts the total value of the settlement at slightly more than $80.9 million. STG is coming out of a chapter 11 bankruptcy proceeding that cut its debt load by 90%. And most of that big $80 million settlement agreement looks to be going away in the bankruptcy case.

“This agreement…shall be incorporated into the (bankruptcy) plan,” according to the settlement document. 

In the prepared statement announcing the deal released by the Attorney General and the state’s Department of Labor and Workforce Development, the two agencies noted that the bankruptcy “resulted in many debts being canceled.”

But that part of the settlement going to drivers “is considered ‘priority’ under both the bankruptcy code and the settlement agreement, ensuring workers are compensated ahead of other creditors,” the agencies’ statement said. 

The breakdown on the payout of the $80-million plus is that $2.775-million of it will be paid out as $2.2 million to drivers and the $555,000 balance to be paid to New Jersey in both penalties and contributions to the Unemployment Compensation and State Disability Benefits Funds.

Drivers eligible for a payout can receive an amount that will be based on their earnings from January 1, 2017 to the present. The payment will be a lump sum.

There is an additional $7.5 million payment to be made by STG Logistics but only if it fails to meet certain obligations drawn up as part of the settlement. 

The balance of more than $70 million is what the settlement agreement refers to as the “general unsecured claims” that would only be paid out “to the same extent that general unsecured claims are ordered to be paid…according to the plan.” That plan is wiping away about 90% of the company’s debts.

History of the case

The state agencies said the suit against STG, which dates back to 2023, was the first filed under a 2021 law that allowed litigation against employers that New Jersey believes had misclassified workers who were effectively full-time employees as independent contractors.

The settlement ends litigation that traces back to an investigation that began in 2019, when the drayage operations were part of XPO Logistics (NYSE: XPO). They were sold to STG in 2022 as part of XPO’s ultimately successful plan to reposition itself as a pure play LTL carrier.

While the settlement document does not mention New Jersey’s  ABC standards that governs the definition of when a worker can be considered a truly independent contractor , the announcement of the deal by the state agencies does so.

“Under New Jersey’s ABC test, workers are presumed to be employees unless a company can prove the individual is largely free from the company’s control, performs work outside the company’s usual business or outside its places of business, and has their own independent business,” the two state agencies said in their announcement. “STG failed to meet any of these requirements.”

What STG was charged with

Over numerous bullet points, the state said STG (and XPO prior to that) did not legally meet several requirements a company must meet for its full-time employees.

Among the issues the state charged STG with were not paying wages due to employees, in violation of the state’s Worker Protection Law, failing to maintain records of hours worked and wages paid, and not carrying “sufficient” workers’ compensation insurance.

An email sent to STG through its portal had not been responded to by publication time.

Who’s in control?

The issue of control is always key in an independent contractor law. While various states’ ABC tests are not all verbatim, the A prong in the New Jersey test is typical: “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 state, in its prepared statement, said the drayage drivers hired by STG had little to no control over their jobs. According to the statement, the theoretically independent drivers needed to display STG’s name on their trucks, could lease only to STG “for its exclusive possession, control and use,” assigned all routes and were subject to electronic monitoring. 

Waiting for October 1

Lisa Yakomin, president of the Association of Bi-State Motor Carriers, declined comment on the specifics of the case as it relates to STG. 

But there were parts of the state agencies’ prepared statement that concerned her as her group, which represents the types of drayage carriers akin to STG, prepares for the state’s ABC law to be codified October 1. (It previously had been enshrined in various precedents but without a specific law on the books).

In particular, the state’s statement said STG was in violation of state regulations defining independent contractor status because it required the STG name be displayed on the truck driven by ostensible independent owner operators, which it said was a sign of control.

Yakomin said federal law requires such a display.

Even if this is ultimately a small issue, Yakomin said it raises concerns. 

“So if the Department of Labor in New Jersey is saying that following the laws put forth by the federal government is indicative of control, we have a real problem,” Yakomin said.

Yakomin said the example of the truck signage amounts to “saying the quiet part out loud.”

“They put it into writing, that OK, we’re using the ABC test, and this is how we’re interpreting it,” Yakomin said.

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