New Jersey Attorney General Gurbir Grewal spoke out on a court case involving alleged misclassification of couriers under New Jersey’s ABC law for determining whether a worker is an employee.

The couriers delivered medicines and pharmaceutical scripts for American Eagle Express Inc., within New Jersey. They argue they were misclassified as contractors and are seeking damages in excess of $5.0 million. However, American Eagle argues that it is a “motor carrier” and that the 1994 Federal Aviation Administration Authorization Act pre-empts it from the state’s ABC law.

In a friend-of-the-court brief, Grewal argues that Congress “never intended to create a pre-emptive bulldozer” with the law. It was aimed, he argues, only at limiting the ability of states to interfere with uniform federal regulation of the motor carrier industry where “pricing, routes and service,” are concerned.

The issue is now before the US Court of Appeals for the Third Circuit after the district court refused to dismiss claims.

“Misclassification of our workers means those workers lose wages and benefits they rightfully deserve, is unfair to the employers that play by the rules and ultimately harms the state itself,” Grewal said in a statement.

American Eagle Express argues that finding the couriers not exempt and to not be independent contractors would require the company to discard its business model, which is the preferred model in the industry, as well as substantially increase the company’s expenses.

The case is Ever Bedoya, et al. v. American Eagle Express Inc.

US Department of Labor

Grewal announced on Tuesday that he is weighing in on the American Eagle case. However, on Monday, the state of New Jersey announced it struck a deal with the US Department of Labor to work together in an effort to combat misclassification. The state believes misclassification has resulted in more than $80 million in underreported tax contributions since 2010.

Virginia misclassification task force

Virginia Gov. Ralph Northam signed an executive order last Friday to create an interagency task force on worker misclassification and payroll fraud.

A report from 2012 found that one-third of audited employers in certain industries misclassify their workers as independent contractors. It estimated employers lower their costs by as much as 40% through misclassification. Misclassification is also estimated to cost Virginia as much as $28 million a year in state income tax collections.

The task force will be chaired by Virginia Secretary of Commerce and Trade Brian Ball; it will develop work plan by Nov. 1.