On April 20, 2022, the Hon. Mary Ann Bogan, A.L.J. issued an initial decision in Farruggio’s Bristol and Philadelphia Express, Inc. v. New Jersey Department of Labor and Workforce Development, OAL No. LID 02027-17 finding, on summary judgment, that the owner-operator drivers that contracted with Farruggio’s Express were independent contractors, not employees. Accordingly, the Court found that Farruggio’s Express was not liable for state employment taxes in connection with the audit of the New Jersey Department of Labor and Workforce Development (“NJDOL”). In that audit, NJDOL concluded that the drivers were employees because Farruggio’s lacked an IRS determination finding the owner-operators to be independent contractors, and that NJDOL had no obligation to examine the relationship independently in order to make such a determination.

By way of background, NJDOL has, under the current administration, modified the regulations used to determine employment for purposes of taxation and coverage for purposes of the Unemployment Compensation Act (“UCL”), notwithstanding that the underlying statutory scheme has not been changed by the legislature. In particular, there are approximately 25 numerous categories of work that are exempt from the broad “ABC Test” of employment generally used to make determinations for purposes of taxation and coverage under the UCL, including a specific exemption, N.J.S.A. 43:21-19(i)(7)(X), that applies to motor carriers leasing large trucks from owner-operators. Under current NJDOL regulations, since Farruggio’s Express is not subject to the general ABC Test of employment, the owner-operators will be deemed to be independent contractors — and the carrier not subject to UCL taxation — if the carrier can show that it is not subject to federal employment taxation by obtaining an IRS determination that the carrier is not subject to those taxes. Notably, under the applicable federal test of employment applied by the IRS, carriers that genuinely adhere to an independent contractor relationship should be able to demonstrate that under the federal law test — which more narrowly views employment than the ABC Test — that the owner-operators are independent contractors, not employees that would subject the carrier to federal employment taxation. The complication is that IRS has no legal duty to provide such a ruling.

Fortunately, Farruggio’s Express was able to obtain the requisite IRS ruling. Consequently, Judge Bogan had a simple task, namely, to determine whether or not Farruggio’s had the requisite IRS ruling. Since that was undisputed, Farruggio’s was entitled to summary judgment because NJDOL’s regulations require the Department to accept the IRS determination as conclusive.

Since the federal test of employment will generally result in a finding that truckers who own their own trucks are independent contractors, the initial decision — which is subject to administrative and judicial review — affirms the ongoing viability of the independent contractor model that predominates at Port Newark and throughout the State of New Jersey.

Farruggio’s Express is represented by Steven R. Rowland, Esq. of Brown Moskowitz & Kallen, P.C. in Chatham, New Jersey, who can be reached at 973-376-0909, ext. 1124, and at srowland@bmk-law.com.