A recent published opinion from the Third Circuit holds an important lesson for businesses contemplating a federal court challenge to an employee classification dispute with the State of New Jersey: file the federal court complaint before the classification dispute becomes a state administrative proceeding.
The New Jersey Department of Labor (DOL) audited PDX, a shipping company, and concluded that PDX’s drivers were employees, not independent contractors. PDX challenged the DOL’s determination in the New Jersey Office of Administrative Law (OAL). Several months later, PDX filed suit in federal court arguing that New Jersey’s statutory scheme for classifying workers was preempted by federal law and violated the Constitution’s interstate commerce clause.
The federal trial court dismissed the case on the grounds of Younger abstention, and the Third Circuit affirmed. A critical factor in that abstention analysis was whether there was an “ongoing [state] judicial proceeding.” Opinion at 9, n.3; id. at 17, 21. The Third Circuit held that the New Jersey OAL proceeding, initiated by PDX against the DOL, was an “ongoing judicial proceeding,” and that PDX could raise its federal challenges, if not in that OAL proceeding, then in the state-court review of the OAL proceeding. Opinion at 21-23.
By contrast, SLS (a different shipping company that intervened in PDX’s federal court case) was not involved in an “ongoing judicial proceeding” because SLS’s dispute with DOL was still at the audit stage, and no OAL proceeding had been initiated. Opinion at 23-26. The Third Circuit therefore held that abstention as to SLS’s claims was not proper. (The Third Circuit noted that, on remand to the trial court, SLS’s case might yet be dismissed for lack of jurisdiction pursuant to the Tax Injunction Act, Opinion at 9, but that is a subject for another day.)
The lesson from the case is that a New Jersey business that is involved in an employee-classification dispute with DOL, and is considering a federal court challenge to New Jersey’s classification regime, should consider initiating the federal court filing before the dispute reaches the OAL.
If you would like to discuss this case further please contact Shalom Stone, Stone Conroy 973-400-4182 or email@example.com.