State News : New Jersey

In a surprising decision that is particularly topical with various states facing similar issues with the popular company UBER, the Appellate Division held inBabekr v. XYZ Two Way Radio, A-3036-13T3 (App. Div. August 6, 2015) that a limo driver was not an employee when his vehicle was involved in a crash during the course of his work.

Babekr provided chauffeuring services to XYZ, a car limousine service, since 1988.  The company had about 430 drivers and 50 other employees doing administrative duties in its office. XYZ is made up of individual drivers, including Babekr, who own shares in XYZ.  The drivers elect the “board members,” who make decisions on operations.

Petitioner worked as a driver 10-12 hours per day, six days per week.  He decided the days and hours he wanted to work, generally from early evening to 6:00 a.m. He did not have to work at all; it was up to him.  He used his own car to chauffer passengers and paid for his car insurance.  No evidence was offered that he was reimbursed for gasoline or other expenses.

The company gave each driver a computer to install in his car.  Drivers would log on when they were ready to work.  Most communications between XYZ and a driver came through the computer.  When a driver was in a zone, he could alert XYZ that he was available to pick up a passenger but he would have to get in line behind other drivers in that zone.  The driver could reject any offer to transport a passenger but if that happened, he could not receive any communications from XYZ for 30 minutes.

Passengers had accounts with XYZ and paid their fares directly to it. XYZ then forwarded to drivers a percentage of the fares generated by the driver. The company issued each driver a 1099 form and took out no deductions for taxes.  The company did require drivers to dress a certain way.

After petitioner was injured in a car accident on October 21, 2011, he filed a motion for medical and temporary disability benefits.  XYZ denied that he was an employee.  The Judge of Compensation ruled for XYZ and the Appellate Division affirmed the dismissal of petitioner’s case.  It said:

XYZ exercised very little control over the means and manner of petitioner’s performance.  While petitioner had to dress in a certain way and drive a particular kind of car, these were hardly exacting, controlling measures and he was otherwise left on his own and was largely unaccountable to XYZ.  XYZ located passengers for him when he chose to log onto the computer and, in return, he transported the passengers for a percentage of the fare.

The Court said that petitioner could work when he pleased and that he did not lose the right to log on if he limited his hours or did not work at all.  The Court interpreted this to mean that he could not be terminated from his job for not showing up for work.  The Court also emphasized that XYZ did not need to provide any direction over how petitioner drove passengers to their destinations.  It said that petitioner supplied his own equipment but for the computer that XYZ installed.  He used his own car, insured it himself and did not get reimbursed for expenses. It also said that petitioner was free to use or not use XYZ as a source to locate passengers.  Petitioner had no retirement benefits or annual leave.

The more dominant test is the relative nature of the work test.  The Court admitted, “Here, to be sure, transporting passengers was an integral part of XYZ’s business.  But those who transported the passengers were not employees but co-owners of XYZ.  The understanding between XYZ and the drivers was that, in exchange for producing passengers for the drivers, the drivers would transport the passengers and take a percentage of the fare.”

The Court seemed to misapply the concept of mutual dependency.  “Moreover, the evidence indicated that XYZ was never dependent upon any one particular driver to carry out the job of transporting passengers.  If one driver were not available to pick up and transport a passenger, another was waiting in line ready to do so.  No one driver was ever so essential to the effective functioning of the business to become a cog in its wheel.” In prior cases, this test has not focused on the company’s relationship to any one person but on the relationship of alleged workers generally with the company. InRe/Max v. Wausau Ins. Cos., 162 N.J. 282 (2000) the Supreme Court found that real estate agents were employees even though they could choose their own hours of work and used their own vehicles, as well as running their own advertisements. In that case, the Supreme Court said, “We hold that the innovative structure created by the Re/Max agreement is simply another sophisticated attempt to thwart the employer-employee relationship…”Id. at 288.

The decision in Babekr should not be seen in isolation.  While it appears to depart from prior case law holding that cab drivers were employees of cab companies and real estate agents were employees of real estate agencies, this case is now the second one this year to find in favor of the independent contractor defense.  The other case of great importance isKotsovska v. Liebman previously discussed in this Blog where the Supreme Court ruled this year that a personal caretaker for an elderly gentleman was not an employee, reversing the Appellate Division’s holding. The tide may be turning in favor of the independent contractor defense, but it is hard to square the reasoning of these recent cases with prior case law.

In sum, the rumors of the death of the independent contractor defense in New Jersey appear to be rather premature.

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John H. Geaney, Esq., is an Executive Committee Member and a Shareholder in Capehart Scatchard's Workers’ Compensation Group.  Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at jgeaney@capehart.com.