New Jersey High Court Confirms Proper Test for Defining “Independent Contractor”

January 29, 2015Articles The WLF Legal Pulse

Mark Tabakman’s Labor & Employment Alert was repurposed by The WLF Legal Pulse.

A November 2014 I authored for Washington Legal Foundation, New Jersey Supreme Court Set to Rule on Definition of “Independent Contractor”, analyzed questions that had been certified to the New Jersey Supreme Court on whether an individual was an independent contractor under New Jersey wage-hour laws. My reading of the tea leaves was that the Court would adopt the test already engrafted into the New Jersey Unemployment Law. That is in fact what the Court did.

On January 14, 2015, the Court in Hargrove v Sleepy’s, LLC (“Hargrove”) (Dkt. No. A-70-12) resolved the issue of when an individual may be properly classified as an independent contractor under the New Jersey Wage Payment Act (“WPA”) and the New Jersey Wage Hour Law (“WHL”) and held that the “ABC” test governs. Under the ABC test, services performed by an individual are deemed to be employment unless the following is shown:

(a) that the individual has been and will continue to be free from control…;

(b) that the services provided are either outside the usual course of business…or performed outside of all the places of business of the enterprise…; and,

(c) that the individual is customarily engaged in an independently established trade, occupation, profession, or business.

The Court noted that both of New Jersey’s wage and hour laws neither defined “employee” or “independent contractor” nor set forth the standards to be utilized in such analyses. The Court then examined the plain language of the laws and the implementing regulations of both laws, and concluded that deference should be given to the position of the New Jersey Department of Labor and Workforce Development (“NJDOL”), as it was the Agency charged with interpreting and enforcing these laws. On that basis, the Court concluded that the same test, under both laws, should be utilized to determine whether or not an employment relationship existed.

In holding that the ABC test governs, the Court rejected the common law “right to control” test and the “economic realities” test because the “right to control” test, as the Court noted, is incompatible with the legislature’s goal of ensuring economic security and the “economic realities” test, as the Court noted, could lead to inconsistent results.

By requiring that each element be satisfied, the ABC test (which NJDOL supports and utilizes) facilitated, as the Court explained, “greater income security” for workers—the underlying purpose of both laws at issue. The ABC test presumes that an employment relationship exists and places the burden on the employer to prove differently. The last prong (i.e. independently established business), is where the issue is joined most of the time and where (often) most of the cases flounder for the putative employer. Accordingly, the Hargrove decision has decidedly and emphatically increased the coverage and protection of New Jersey’s wage and hour laws in favor of “employees.”

Businesses in New Jersey that presently utilize or are considering use of independent contractors would be well advised to work with experienced employment counsel to ensure compliance with the Court’s holding.