Appellate Division Rules Independent Contractor Agreements Signed by Driver’s Corporation Not Bullet Proof Against Class Action Overtime and Wage Deduction Claims

On October 29, 2018 a N.J. Appellate Division panel reversed a dismissal of class action overtime pay claims brought against a freight-forwarding company that convinced the lower court that the company’s drivers and deliverers lacked standing to sue because they signed independent contractor agreements to provide services through their separate corporations. In an unpublished opinion, the Appellate Division found that the court below prematurely ended its inquiry into whether the plaintiff was an employee or an independent contractor, and directed the lower court to look beyond the terms of the contract to consider the totality of the circumstances surrounding the relationship between the drivers and the company.  Veras v. Interglobo North America, Inc., et al., Docket No. A-3313-16T1 (Oct. 29, 2018).

In 2014, Raymond Veras, through his corporation J&K Trucking Solution, signed a “Contractor Lease Agreement” (CLA) with Interglobo and then provided driver services to Interglobo.  He claimed that he routinely worked in excess of 40 hours each week but received no overtime pay, and that Interglobo took illegal deductions from his pay. In 2015 he filed a class action under the N.J. Wage and Hour Law (WHL) and the Wage Payment Law (WPL) against two Interglobo entities. The CLA clearly stated that J&K was an independent delivery operator. However, Veras’s complaint alleged that, despite the CLA which his corporation signed, he was an employee protected by the WHL and WPL since he took direction from Interglobo and its employees, wore its uniforms, dealt with its customers’ invoices, and was subject to discipline and termination by Interglobo.

The lower court dismissed Veras’s complaint on the grounds that he lacked standing to bring the action. The Appellate Division reversed and held that the A-B-C test articulated by the N.J. Supreme Court’s 2015 decision in Hargrove v. Sleepy’s applied to determine whether Veras’ relationship with Interglobo was that of an employee as opposed to an independent contractor. The Appellate Division held that “a court is not limited to the terms of the contract between the parties” and the court should review “the substance, not the form of the relationship … to determine if [the relationship] is exempt from the WPL and WHL.”

The A-B-C test presumes that a service provider is an employee, unless the service recipient can prove A, B and C: (A) the service provider is free from direction or control by the service recipient, (B) the services rendered to the recipient are outside the recipient’s usual course of business, or are performed outside all places of the recipient’s business, and (C) the service provider is customarily engaged in an independently established trade, occupation, profession, or business.

Interglobo argued that the A-B-C test did not apply because Veras’s employer was his own corporation, J&K Trucking Solution, and under the economic realities test, Interglobo was not the employer. The court rejected this argument, too, and held that the economic realities test does not apply to WHL and WPL claims.

The Appellate Division held that the A-B-C test applied to Veras regardless of whether the CLA was signed by Veras as an individual or by his corporation, and stated that the A-B-C test presumes that Veras was an employee, not an independent contractor. The Appellate Division reasoned that even if the economic realities test did apply, dismissal of the complaint at the motion to dismiss stage was not warranted solely because of the CLA, because this test is fact-intensive, and courts rarely decide a worker’s status on a summary judgment motion, let alone on a motion to dismiss before discovery is taken.

Ultimately, this Appellate Division panel decided that the mere fact that the service provider’s corporation, and not the driver himself, signed an independent contractor agreement with the service recipient was not dispositive of the issue of employee versus independent contractor status at the motion to dismiss stage, and the underlying facts must be examined to determine whether, despite the contract, the service provider is an employee and has standing to sue the service recipient under the WHL or the WPL.  As businesses attempt to create more separateness between themselves and their service providers, this court cautions that employee status will not depend on the existence of a contract alone, but will be analyzed under the rigorous A-B-C test.

For more information on this court development, wage and hour law compliance, or independent contractor agreements, please contact Patrick W. McGovern, Esq., Partner in the firm’s Labor Law, Employee Benefits and Executive Compensation, Immigration Law and Wage and Hour Compliance Practice Groups, at PMcGovern@nullgenovaburns.com.

Uber Scores Victory Compelling Arbitration in Wage & Hour Misclassification Suit

Just a few days after being in the news and facing consumer boycotts for allegedly seeking to profit as a result of a taxi boycott of JFK International Airport related to President Trump’s immigration Executive Order, Uber received good news when it received a pro-employer legal ruling in a suit brought against the company by its New Jersey drivers.

In a published opinion filed on January 30, 2017, Hon. Freda L. Wolfson, U.S.D.J. of the U.S. District Court for the District of New Jersey held that a proposed class of Uber drivers must arbitrate their claims that Uber misclassified them as independent contractors, failed to pay overtime compensation, and required drivers to pay business expenses purportedly incurred for Uber’s benefit.  In Singh v. Uber Technologies Inc., No. 16-03044 (D.N.J. January 30, 2017), the District Court made two significant findings that are favorable to employers: (1) employment agreements incorporating so-called “clickwrap” or hyperlinked agreements by reference are enforceable—whether or not the employee actually reviews the agreement—so long as the employer provides reasonable notice that the terms and conditions of that agreement apply; and (2) Uber’s agreement with its drivers is not considered a contract involving “transportation employees,” and therefore is not subject to the exemption provisions of the Federal Arbitration Act (FAA), which the court construed narrowly.

In Singh, plaintiff registered with the Uber App (the “App”) in order to become a driver with Uber’s “uberX” platform. Registration required him to electronically accept an Agreement provided by Uber’s technology service provider Raiser, LLC (the “Raiser Agreement”).  When plaintiff logged onto the App, he was able to review the Raiser Agreement by clicking a hyperlink to the Raiser Agreement within the App.  To advance within the App past the hyperlink and actively use the App, plaintiff had to twice confirm that he reviewed and accepted the Raiser Agreement by clicking “YES I AGREE.”

The first page of the Raiser Agreement also contained a paragraph, written in large bold and capital text, indicating that a voluntary arbitration agreement was contained therein.  The arbitration provision required Uber drivers—if they do not opt out within a 30-day period—to individually arbitrate all disputes arising out of, or relating to, the Raiser Agreement, or their relationship with Uber, including disputes alleging breach of contract, wage and hour, and compensation claims on an individual and class or collective basis.  Importantly, the Raiser Agreement’s 30-day opt out provision noted that the arbitration provision was not mandatory, and should the driver choose to opt out of arbitration, Uber would not retaliate against him or her.  Plaintiff was also permitted to spend as much time as he found necessary in reviewing the Raiser Agreement on his smartphone or other electronic devices before accepting it.

Following the filing of litigation by plaintiff, Uber moved to dismiss the complaint and compel arbitration.  In his opposition, the plaintiff first asserted that because Uber only provided a hyperlink, or “access” to the Raiser Agreement, as opposed to providing the document itself, he should not be bound to the Raiser Agreement’s arbitration provision.  In rejecting this argument, the District Court noted that for hyperlinked agreements to bind parties, they must provide “reasonably conspicuous notice of the existence of” the terms of the agreement, citing favorably to ADP, LLC v. Lynch, No. 16-01111 (D.N.J. June 30, 2016), a decision that our firm helped to achieve on behalf of a long-time client.  The District Court determined that since the plaintiff was required to review and agree to the hyperlinked Raiser Agreement before utilizing the App, and the link was prominently displayed, he was provided with sufficient notice of the terms and conditions and therefore manifested intent to be bound by the agreement.

The District Court also held that the parties’ agreement is subject to the FAA, granting the court authority to compel arbitration. Plaintiff argued that his employment with Uber fell within the exemption contained in Section 1 of the FAA, which excludes from the FAA’s ambit contracts involving “transportation employees.”  However, the court noted even if plaintiff was an Uber employee (as opposed to an independent contractor, as Uber argued), Section 1 of the FAA only excludes “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”  The court found that although the Third Circuit has yet rule on the issue, virtually every other Circuit Court having considered the issue found that the exclusion is to be narrowly construed as only applying “to those employees who are actually engaged in the movement of goods, as opposed to the transportation of people, in interstate commerce.”  Coupled with Congress’s intent to only exclude contracts involving certain categories of workers in this way from the application of the FAA, the District Court held that plaintiff’s job was “too far attenuated from the types of employees to whom the FAA’s exclusion is intended to apply.”

Finally, the District Court also rejected plaintiff’s argument that the Raiser Agreement violated Section 8 of the National Labor Relations Act (NLRA).  While noting that it is an open question whether “an employee may enter into an arbitration agreement requiring the resolution of labor disputes on an individual basis” (indeed, the Supreme Court recently granted certiorari to review this exact issue), the court found it did not need to reach this issue because Uber did not “restrain, or coerce” the plaintiff into being bound by the arbitration agreement contained within the Raiser Agreement because it was optional.

The court’s decision in Singh shows that if crafted correctly, employers are permitted to execute agreements with their employees in more contemporary fashion, and with dispute resolution provisions that are fair and efficient for all parties.

For questions about Singh v. Uber Techs. Inc. and its implications on your company’s arbitration agreements, please contact Harris S. Freier, Esq., a Partner in the firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or (973) 533-0777.  Please also sign-up our free Labor & Employment Blog at www.labor-law-blog.com to keep you up-to-date on the latest news and legal developments effecting your workforce.