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November 29, 2022
Third Circuit Confirms ABC Test Applies in Wage Theft Case

by Cynthia Hobson McNutt

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In a recent decision, the U.S. Court of Appeals for the 3rd Circuit (which covers employers in Delaware, New Jersey, Pennsylvania, and the U.S. Virgin Islands) confirmed that the ABC Test—long used by the New Jersey Department of Labor—sets forth the proper analysis for determining whether a worker is an employee or an independent contractor under the state’s wage and hour laws.

Facts

Anthony Bailey was hired in 2014 by Millennium Group to work as a stock associate at a facility owned by NRG Energy, Inc. In March 2017, he was fired for breaching security protocols after opening a locked door for another employee, who had been terminated earlier that same day.

In 2018, Bailey filed claims against Millennium and NRG alleging his termination was motivated by racial discrimination in violation of Title VII of the Civil Rights Act of 1964 and the New Jersey Law Against Discrimination (NJLAD). The district court granted NRG’s request to dismiss the claims against it because he hadn’t sufficiently alleged he had an employment relationship with NRG.

Bailey filed an amended complaint, attempting to adequately allege he had an employment relationship with NRG. In addition to the Title VII and NJLAD claims, the amended complaint added claims against NRG under 42 U.S.C. § 1981, which prohibits racial discrimination by parties to a contract. He also alleged violations of the New Jersey Wage Theft Act.

NRG again asked to dismiss the claims, and the district court agreed. It found Bailey failed to establish an employment relationship with NRG. It denied his request for reconsideration, and he appealed.

3rd Circuit’s Decision

The 3rd Circuit affirmed the district court’s dismissal of Bailey’s Title VII and NJLAD claims, finding that at no point did he raise an inference of racial discrimination or allege any specific individual took any discriminatory action against him. Thus, his complaints were “nothing more than his own speculation.”

The appeals court also affirmed the district court’s dismissal of Bailey’s Section 1981 claim because the allegations failed to establish a contract between him and NRG. The only “contract” he referenced in his complaint was between NRG and Millennium.

But the 3rd Circuit rejected the district court’s cursory analysis of Bailey’s allegation that NRG violated the New Jersey Wage Theft Act. It agreed his claim should be construed as arising under New Jersey’s Wage and Hour Law (WHL), one of the statutes amended by the New Jersey Wage Theft Act. It also agreed that, for his WHL claim to survive, he must properly allege “the existence of an employment relationship between himself and NRG.”

The three-judge panel of the 3rd Circuit found that the district court failed to apply the so-called ABC test—the proper test for evaluating Bailey’s employment status under his WHL claim. Instead, the district court applied the same analysis it used to dismiss his discrimination claims for failure to establish an employment relationship with NRG.

The 3rd Circuit noted that the Supreme Court of New Jersey had already established the ABC test wasn’t coextensive with the test applied under Title VII and NJLAD to evaluate the existence of an employment relationship. The judges also noted the ABC test presumes that an individual is an employee and places the burden on the employer to prove otherwise.

Accordingly, the 3rd Circuit vacated the dismissal of Bailey’s WHL claim and sent it back to the district court to reconsider under the appropriate analysis. Bailey v. Millennium Group of Delaware et al.

Bottom Line

The 3rd Circuit’s decision reinforces the need to pay careful attention to all workers within your facilities, including those hired by independent contractors to perform certain business functions. If questions arise regarding unpaid wages, you could face lawsuits filed by the workers and will need to satisfy every prong of the ABC Test or face serious consequences for misclassifying them as independent contractors.

For more information regarding the decision and best practices for hiring independent contractors to avoid claims and costly litigation, please contact John C. Petrella, chair of Genova Burns LLC’s employment law and litigation practice group, at jpetrella@genovabyurns.com, or Peter F. Berk, chair of the firm’s wage and hour compliance and dispute resolutions practice group, at pberk@genovaburns.com, or call 973-533-0777.

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