Truck Driver Misclassification Triggers $2.77 Million Settlement for STG Logistics

The misclassification of truck drivers as independent contractors continues to be one of the greatest legal and financial risks facing companies in the transportation industry. A recent case illustrating the consequences of this practice involves STG Logistics, a company that agreed to pay more than $2.77 million to settle a lawsuit filed by the State of New Jersey over the improper classification of hundreds of drivers.

The case dates back to 2019, when the New Jersey Department of Labor and Workforce Development (NJDOL) launched an investigation into XPO Logistics’ operations in Newark. In 2022, STG Logistics acquired XPO’s intermodal business, inheriting responsibility for the labor practices that were already under investigation.

According to state authorities, the company continued to face the legal consequences stemming from the way drivers had been classified during those years. The NJDOL investigation concluded that the drivers had been treated as independent contractors even though the company exercised a level of control that was inconsistent with that employment status.

The ABC Test: The Standard for Determining Employment Status

The case centers on the so-called ABC test, which is used in New Jersey to determine whether a worker may legally be classified as an independent contractor. Under this law, every worker is presumed to be an employee unless the company can demonstrate three key conditions:

• The worker performs services independently and is free from the company’s control.
• The worker performs work outside the company’s usual course of business or outside its places of business.
• The worker operates an independently established business that functions autonomously.

According to the lawsuit filed by the state, STG Logistics failed to satisfy any of these requirements. As a result, the drivers should have been classified as employees under state labor law.

Authorities noted that although the drivers were required to purchase and maintain their own trucks, the company retained significant control over how they performed their work.

Among the practices identified during the investigation were:

• Requiring the company’s name to appear on the trucks.
• Requiring drivers to lease their trucks to the company for its exclusive use.
• Prohibiting drivers from using their vehicles to provide services to other customers without written authorization.
• Requiring drivers to sign non-negotiable independent contractor agreements.
• Mandating the installation of GPS devices to monitor routes.
• Assigning work routes, supervising deliveries, and setting pay rates.

According to the New Jersey Department of Labor, these conditions demonstrated that the drivers operated under the company’s direction and control—hallmarks of an employment relationship rather than an independent contractor arrangement.

A Settlement Exceeding $2.7 Million

As part of the settlement, STG Logistics agreed to pay at least $2.775 million. Of that total, $2.22 million will be distributed among hundreds of affected drivers, primarily as compensation for violations of wage and hour laws. The remaining $550,000 will be paid to the State of New Jersey to cover labor penalties and contributions related to the state’s unemployment and disability funds.

The payments will benefit drivers who worked under STG’s operating authority beginning January 1, 2017, and who were classified as independent contractors despite performing the duties of employees.

One of the most significant aspects of the case is that STG Logistics filed for Chapter 11 bankruptcy protection earlier this year as part of a financial restructuring process. However, state authorities stated that the settlement has priority status within the bankruptcy proceedings, ensuring that affected workers will receive compensation before other creditors.

In addition, the agreement provides that if the company fails to comply with any of its obligations, it must pay an additional $7.5 million in penalties. STG Logistics is also required to fully comply with labor laws going forward and provide periodic reports to state authorities to verify ongoing compliance.

The STG Logistics case serves as a warning to the trucking industry as a whole. Misclassifying drivers can lead to years of litigation, substantial financial penalties, back-pay obligations, and reputational damage that directly affect a company’s financial stability.