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New Jersey Gov. Phil Murphy (Associated Press/Seth Wenig)

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The New Jersey Department of Labor and U.S. Department of Labor signed a joint agreement to step up efforts to protect employees, including truck drivers, from illegal misclassification as independent contractors.

The agreement and other efforts by New Jersey labor department officials have turned the Garden State into a “misclassification battlefront,” according to Greg Feary, a partner with the law firm of Scopelitis, Garvin, Light, Hanson & Feary, P.C.

“It’s political and union-inspired,” Feary told Transport Topics. “The misclassification issue tends to be a blue state-red state issue. New Jersey, along with California, Washington and Illinois are examples of blue states that are being very aggressive on the issue of misclassification, and trucking is among the top industries they’re looking at.”

Feary

“Whether you want to be an independent contractor or not, the state has said we’re going to extend the social welfare umbrella over to protect you,” Feary added.

The agreement between federal and state officials comes after a report last month from a task force appointed by Democratic Gov. Phil Murphy. The report concluded that in 2018, the state’s DOL employer accounts section found that 12,315 workers were misclassified, $462 million in wages was underreported, and $14 million in unemployment, disability and family leave insurance was underreported.

The report said that federal studies and state-level agency audits, along with unemployment, insurance and workers’ compensation data, indicate that 10-30% of employers misclassify at least one employee as an independent contractor.

“Workers misclassified as independent contractors are ineligible for the wage and overtime protections afforded to employees, and can find themselves underpaid and without basic labor and OSHA protections,” state DOL officials said.

The state/federal memorandum of cooperation “adds teeth to labor enforcement efforts by promoting coordinated investigations and shared resources,” the agencies said in a joint statement. “The partnership sends a strong message to unscrupulous business owners that misclassification laws are being strictly enforced.”

That message has been heard loud and clear by the trucking industry, even before the latest reaffirmation by state labor officials.

Richard Pianka, deputy general counsel for American Trucking Associations, said the state’s misclassification effort has been building up steam for years. He called the misclassification report “a shot across the bow.”

“New Jersey has definitely been actively hostile to the independent contractor model in trucking,” Pianka said. “No question about that. New Jersey is becoming a very difficult environment for the independent contractor model.”

Pianka

Pianka said that most of the actions against motor carriers in New Jersey have been occurring at the state level in administrative hearings.

“The state Department of Labor has been auditing a lot of folks and finding misclassifications, but not a whole lot of these administrative decisions have made it to the courts,” Pianka said. “The state agency has been very aggressively, and we think illegally, interpreting its laws in a way that makes it extremely difficult for motor carriers to satisfy the statutory criteria with respect to unemployment insurance.”

Pianka said the state agency has been narrowly constructing the state’s statutory exemption for owner-operators under the unemployment statute for some time.

Of great concern to the trucking industry is New Jersey uses the so-called ABC test to determine if an independent contractor should be classified as an employee. That standard was first established in California courts and recently upheld by the state’s Supreme Court in the Dynamex Operations West Inc. v. Superior Court case.

The three-pronged ABC test dictates that a worker is considered an independent contractor if he or she is A) free from the control and direction of the hiring entity, B) performs work that is outside the usual course of the hiring entity’s business and C) is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

It is the “B” prong of the test that is most troublesome for motor carriers, making it virtually an impossible hurdle to clear for carriers wanting to use contractors, according to Pianka.