Drayage drivers who worked for STG Logistics in New Jersey may be eligible for a share of a more than $2.2 million payout following the resolution of a legal case over driver misclassification.

However, that cash payout represents only a fraction of the settlement's total value. The majority of the settlement will be absorbed into STG's recently concluded Chapter 11 bankruptcy proceeding, which reduced the company's debt load by approximately 90%. The timing of the settlement is also drawing concern from New Jersey carriers, as it arrives just before the state codifies the ABC test used in the STG case into law on October 1.

Settlement Breakdown

The total cash payout under the settlement is $2.775 million. Of that amount, $2.2 million will go to drivers, while the remaining $555,000 will be paid to New Jersey in penalties and contributions to the state's Unemployment Compensation and State Disability Benefits Funds.

However, the settlement document filed in the Superior Court of Essex County places the total value of the settlement at slightly more than $80.9 million. Most of that amount is expected to be discharged through STG's bankruptcy case.

"This agreement…shall be incorporated into the (bankruptcy) plan," the settlement document states.

In a prepared statement released by the New Jersey Attorney General's office and the state's Department of Labor and Workforce Development, the two agencies acknowledged that the bankruptcy "resulted in many debts being canceled."

However, the portion of the settlement directed to drivers "is considered 'priority' under both the bankruptcy code and the settlement agreement, ensuring workers are compensated ahead of other creditors," the agencies said.

Eligible drivers can receive a payment based on their earnings from January 1, 2017, to the present. The payment will be distributed as a lump sum.

STG Logistics is also subject to an additional $7.5 million payment, but only if it fails to meet certain obligations established under the settlement.

The remaining balance of more than $70 million consists of what the settlement agreement designates as "general unsecured claims," which would be paid "to the same extent that general unsecured claims are ordered to be paid…according to the plan." That bankruptcy plan is eliminating roughly 90% of the company's debts.

History of the Case

The lawsuit against STG, which originated in 2023, was the first filed under a 2021 New Jersey law authorizing litigation against employers that the state determines have misclassified workers who were effectively full-time employees as independent contractors.

The settlement concludes litigation stemming from an investigation that began in 2019, when the drayage operations were part of XPO Logistics (NYSE: XPO). The operations were sold to STG in 2022 as part of XPO's strategy to reposition itself as a pure-play less-than-truckload (LTL) carrier.

The drayage sector — short-haul trucking that moves shipping containers between seaports, rail yards, and distribution centers — has been a focal point for worker classification enforcement nationally. The business model commonly treats drivers as independent owner-operators rather than employees, a practice that has drawn legal challenges in multiple states. California's AB5, which codified an ABC-style test comparable to New Jersey's, has been the most prominent example, generating years of litigation between port trucking companies and state regulators.

While the settlement document itself does not reference New Jersey's ABC standards governing the definition of independent contractor status, the announcement by the state agencies does.

"Under New Jersey's ABC test, workers are presumed to be employees unless a company can prove the individual is largely free from the company's control, performs work outside the company's usual business or outside its places of business, and has their own independent business," the two state agencies said in their announcement. "STG failed to meet any of these requirements."

Charges Against STG

The state alleged that STG, and XPO before it, failed to meet several legal requirements that companies must satisfy for their full-time employees. Among the charges, the state accused STG of not paying wages owed to employees in violation of the state's Worker Protection Law, failing to maintain records of hours worked and wages paid, and not carrying "sufficient" workers' compensation insurance.

An email sent to STG through its portal had not received a response by publication time.

The Question of Control

The issue of control is central to independent contractor law. While various states' ABC tests differ in wording, the "A" prong of New Jersey's test is typical: "The individual has been and will continue to be free from control or direction over the performance of work performed, both under contract of service and in fact."

In its prepared statement, the state said the drayage drivers hired by STG had little to no control over their jobs. According to the statement, the drivers classified as independent contractors were required to display STG's name on their trucks, could lease only to STG "for its exclusive possession, control and use," were assigned all routes, and were subject to electronic monitoring.

Looking Ahead to October 1

Lisa Yakomin, president of the Association of Bi-State Motor Carriers, declined to comment on the specifics of the STG case. However, she expressed concern about elements of the state agencies' statement as her organization — which represents drayage carriers similar to STG — prepares for the codification of New Jersey's ABC law on October 1. The test had previously been established through judicial precedent rather than a specific statute.

In particular, the state's statement said STG violated independent contractor regulations by requiring the STG name to be displayed on trucks driven by ostensibly independent owner-operators, which it characterized as a sign of control.

Yakomin noted that federal law requires such displays.

Even if the signage issue is ultimately minor, Yakomin said it raises broader concerns.

"So if the Department of Labor in New Jersey is saying that following the laws put forth by the federal government is indicative of control, we have a real problem," Yakomin said.

She described the truck signage example as "saying the quiet part out loud."

"They put it into writing, that OK, we're using the ABC test, and this is how we're interpreting it," Yakomin said.