Settlement reached in trucker misclassification suit establishing ABC Test in New Jersey
A landmark case involving truck drivers has reached a settlement after nearly 14 years in court.
Truck drivers for mattress company Sleepy’s, now Mattress Firm, reached a $4.5 million settlement with the company. After attorney’s fees, more than $2.4 million will be paid out to more than 100 drivers.
What began as a misclassification lawsuit typical of others filed across the nation turned into a lengthy court battle that ultimately established the ABC test for New Jersey wage lawsuits.
Sleepy’s independent contractor drivers claim they are employees
Drivers for Sleepy’s filed a lawsuit in March 2010 claiming that they missed out on wages and benefits by being misclassified as independent contractors rather than employees.
Sleepy’s had a terminal in Robbinsville, N.J., that ran 50-60 trucks per day and up to 90 trucks per day during peak season. Truckers hired by the company had to sign an “independent drivers agreement” establishing them as independent contractors. The contract provided for a non-exclusive relationship that allowed drivers to make deliveries for other companies when not performing deliveries for Sleepy’s.
As independent contractors, drivers had to buy or lease vehicles; pay for maintenance, fuel and insurance; and absorb other operational costs typically paid by employers. Consequently, drivers were denied unemployment and workers’ compensation insurance, benefits and overtime pay.
However, the lawsuit argued that drivers “exercise virtually no independent control over their own work life.”
“For example, the drivers do not work for Sleepy’s ‘from time to time,’ on a non-exclusive basis, as paragraph two of the contract reads,” the complaint stated. “They work full-time for Sleepy’s, are required to wear Sleepy’s uniforms, adhere to Sleepy’s grooming standards and (are) required to display Sleepy’s advertising on their vehicle upon Sleepy’s request.”
Additionally, drivers were not involved in negotiations or arrangements regarding pickup/delivery times. In fact, drivers were required to keep cellphones, Sleepy’s scanners and a GPS so the company could contact them for delivery changes.
In March 2012, the federal district court granted Sleepy’s motion for summary judgment, finding the drivers were independent contractors. The court cited a 1992 case defining “employee” under New Jersey’s Employee Retirement Income Security Act of 1974. Known as the “right to control” test, employment status is determined by considering a litany of factors, including:
- Hiring party’s right to control the manner and means by which the product is accomplished
- Skill required
- Source of the instrumentalities and tools
- Location of the work
- Duration of the relationship between the parties
- Whether the hiring party has the right to assign additional projects to the hired party
- Extent of the hired party’s discretion over when and how long to work
- Method of payment
- Hired party’s role in hiring and paying assistants
- Whether the work is part of the regular business of the hiring party
- Provision of employee benefits
- Tax treatment of the hired party
The drivers appealed that ruling, a decision that would redefine misclassification lawsuits in New Jersey.
ABC test established
The Third Circuit Court of Appeals hit a snag when deciding on the case, tapping in the New Jersey Supreme Court.
After hearing oral arguments in April 2013, the Third Circuit realized that neither the New Jersey Supreme Court nor any New Jersey appellate court had determined which employment test applies to claims under the state’s wage laws. The federal appeals court asked the state Supreme Court which test it should apply to determine the Sleepy’s drivers’ employment status.
In January 2015, the New Jersey Supreme Court in a unanimous decision determined the state Department of Labor’s ABC test applies when making employment status determinations under wage laws. Under that test, a worker is an independent contractor if all of the following requirements are met:
- Individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact.
- Service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed.
- Individual is customarily engaged in an independently established trade, occupation, profession or business.
The decision sent shockwaves through the employment law world in New Jersey, with numerous law firms posting blogs about the new standard.
“This case should serve as another wakeup call to New Jersey employers that classifying workers as independent contractors, rather than as employees, is disfavored under the law and will be subject to close scrutiny by state agencies and courts,” law firm Archer & Greiner stated after the decision. “As New Jersey employers get ready to supply IRS Form 1099s to those workers paid as independent contractors last calendar year, they should review each of these relationships to determine if they meet the high standard of the ‘ABC’ test.”
Since then, misclassification lawsuits in New Jersey have been citing the Sleepy’s case. Last year, drivers for American Eagle Express reached a nearly $1 million settlement in a misclassification lawsuit. The Sleepy’s case was heavily cited in a 2022 court opinion in that case. Also in 2022, the New Jersey Supreme Court used the ABC test when determining that independent contractors for a drywall installation company were employees.
More courtroom drama
Despite the 2015 Supreme Court ruling, the Sleepy’s case dragged on for several more years.
After the decision, Sleepy’s again filed a motion for summary judgment claiming that drivers were independent contractors. That bid was denied in October 2016.
From there, drivers had difficulty getting the lawsuit class-certified. In February 2018, the district court denied class certification. A second bite of the apple was struck down in May 2019.
Plaintiffs appealed that decision. In September 2020, the Third Circuit again ruled in favor of the drivers, ordering the district court to reconsider the bid for class certification. Drivers ultimately prevailed. However, Sleepy’s challenged that decision, bringing the case back to the Third Circuit yet again in June 2022. A year later, the appellate court affirmed the approval for class certification.
On the losing end of a state Supreme Court decision and several federal appellate court rulings, Sleepy’s decided to settle. On Jan. 11, the court granted preliminary approval of the $4.5 million settlement. LL
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