NJ Independent Contractor Ruling Favors Employees

January 26, 2015Articles Law360

Reprinted with permission from Law360. (c) 2015 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.

On Jan. 14, 2015, the New Jersey Supreme 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 and the New Jersey Wage Hour Law.


The plaintiffs contended that the Sleepy’s drivers were employees who were improperly classified as independent contractors. The plaintiffs filed claims under New Jersey state wage and hour laws, as well as common law claims of unjust enrichment and breach of contract. Plaintiffs also filed claims under the Family and Medical Leave Act and Employee Retirement Income Security Act. On March 29, 2012, in a summary judgment proceeding, U.S. District Judge Peter Sheridan ruled that the plaintiffs were independent contractors and dismissed the complaint. The court applied the factors emanating from ERISA for determining independent contractor status and ruled that the plaintiffs were, in fact, independent contractors. The plaintiffs appealed to the Third Circuit.

The court took this case after the Third Circuit certified the question to the court in August 2013. The Third Circuit recognized that the “determination of whether individuals are employees or independent contractors for purposes of New Jersey law may well have a significant impact on the tax revenue collected by the State of New Jersey.” Accordingly, it certified to the court the following questions of law: “Under New Jersey law, which test should a court apply to determine a plaintiff’s employment status for purposes of the New Jersey Wage Payment Law, N.J.S.A.§34:11, et seq., and the New Jersey Wage and Hour Law, N.J.S.A.§34:11-56a, et seq.?


Sleepy’s is a New York-based mattress retailer that provides delivery services to its customers. Sleepy’s contracted with delivery companies or with individuals to deliver mattresses, beds, pillows and mattress pads to its customers. Sleepy’s referred to its contracts with delivery individuals as independent driver agreements.

The IDAs classified the deliverers as independent contractors and stated that the delivery companies’ personnel were “not employee(s) of Sleepy’s.” The relationship between Sleepy’s and its deliverers was nonexclusive. On any particular day, Sleepy’s was not obligated to request, and no signatory to an IDA was obligated, to provide delivery services for Sleepy’s. That is, deliverers could turn down delivery requests from Sleepy’s. A deliverer was free to use its vehicles and/or personnel to perform deliveries for other companies when not performing deliveries for Sleepy’s.

However, Sleepy’s prohibited deliverers from having merchandise from other companies on the truck while making Sleepy’s deliveries. Additionally, Sleepy’s provided training materials to anyone who drove or worked as a helper on a truck making Sleepy’s deliveries. The training materials set forth several requirements for trucks used for Sleepy’s deliveries.

Deliverers had to procure Sleepy’s products from one of Sleepy’s six distribution centers (e.g., Robbinsville, New Jersey) and had to supply their own trucks, which they were responsible for insuring and maintaining. Sleepy’s provided deliverers with scanners, known as Agentek, which Sleepy’s required drivers to use during the course of their day. The scanners enabled Sleepy’s to monitor where trucks were located at any given time of the day. Deliverers were required to enter each delivery as it was made into the scanners after each stop.

A deliverer was responsible for hiring, firing and paying its personnel and bearing its own business expenses. However, in order to work on a truck making Sleepy’s deliveries, an individual had to consent in writing to a background check paid for by Sleepy’s and individuals working on a Sleepy’s delivery had to wear a Sleepy’s uniform. Failing the background check disqualified an individual from participating in any Sleepy’s delivery, although the deliverer could continue to employ the individual provided the individual did not perform deliveries for Sleepy’s.

Further, Sleepy’s reserved the right to audit trucks to ensure that the delivery personnel were working in accordance with Sleepy’s rules. It also reserved the right to alter drivers’ schedules as it deemed appropriate, in order to accommodate a customer’s request, and maintained a policy that imposed penalties upon deliverers for failure to make assigned stops in the assigned order. In addition, Sleepy’s had the authority to terminate a deliverer at its discretion.


The regulations implementing the wage and hour law (i.e., the New Jersey Administrative Code) explicitly provide that “the criteria identified in the Unemployment Compensation Law at N.J.S.A. 43:21-19(i)(6)(A)(B)(C) and interpreting case law will be used to determine whether an individual is an employee or independent contractor for purpose of the Wage Hour Law.” This is the infamous ABC test. Under this test, services are deemed to be employment unless it is shown that: (a) such individual has been and will continue to be free from control ...; (b) such service is either outside the usual course of business … or performed outside of all the places of business of the enterprise …; and, (c) such individual is customarily engaged in an independently established trade, occupation profession or business. All three criteria must be met; this test has historically been very difficult for a putative employer to satisfy.

The parties strenuously argued that the court should depart from the above test and pressed a number of different theories for the definition of an independent contractor. This proved a tough task, as the most relevant standard was the one already engrafted into the New Jersey Wage Hour Law, by the U.S. Department of Labor ’s adoption (though regulation) of the test utilized by a “sister” agency under the DOL's umbrella (i.e., unemployment insurance). The New Jersey Supreme Court had several occasions to consider what constitutes an independent contractor in an unemployment context and it was likely that the court would synthesize its judicial interpretations under the unemployment law into the wage and hour/wage payment law and adopt an interpretation consistent (if not identical) to that it had set forth under the unemployment law. As it turned out, this was the case.

In starting its analysis, the court noted that both wage and hour laws failed to define employee or independent contractor or set forth the standards to be utilized in such analyses. The court examined the plain language of the laws and the implementing regulations of both statutes and concluded that the same test, under both laws, should be utilized to determine whether or not an employment relationship existed. The court observed that deference should be given to the position of the agency charged with interpreting and enforcing these laws and made special note that this interpretation “has never been challenged and no party or amici have refuted that contention.” The court further noted that the ABC test presumed an employment relationship existed and placed the burden on the employer to prove differently, thereby facilitating the goals of the statutes. The court discussed the protective purposes of these laws (i.e., to protect workers from the possibility of unfair wages and excessive hours) and concluded that the ABC test operated “to provide more predictability and may cast a wider net than FLSA ‘economic realities’ standard.” In short, the court believed more people would be deemed “employees” under this test than the other tests espoused.

The court examined (and rejected) the other standards that it had been urged to adopt. It rejected application of the FLSA “economic realities” test. The court observed that this standard utilized six factors, none of which were determinative, thus contemplating a “qualitative rather than a quantitative analysis of each case.” Thus, this test could yield a “different result from case to case.” The ABC test, by requiring that each element be satisfied, facilitated “greater income security” for workers, the underlying purpose of both statutes at issue.

For similar reasons, the court rejected the common law “right to control” test. The court stressed that, for several years, New Jersey courts have required that the determination of employment status involves examination of more than “one simple factor.” Additionally, the “right to control test” was better suited for tort cases, rather than employment status determinations and was “incompatible with the legislative purpose of insuring income security for wage earners.”

Thus, as stated above, the court saw no basis for departing from the standard adopted by the DOL to guide employment status determinations. Neither did the court perceive any reason to deviate from the well-established practice of treating both laws in a parallel/tandem manner. Accordingly, the court ruled that any employment-status dispute arising under either the wage payment or wage and hour law should be resolved by utilizing the ABC test set forth in the unemployment law, N.J.S.A. 43:21-19 (i) (6) (a)-(c).

My experience in unemployment cases involving independent contractor determinations has shown that the ABC test is one of the toughest for a defending company to prevail upon and show the absence of an employer-employee relationship. 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 founder for the putative employer. Accordingly, the Hargrove decision has, in my view, decidedly and emphatically increased the coverage and protection of New Jersey wage-hour laws in favor of “employees.”

Reprinted with permission from Law360. (c) 2015 Portfolio Media. Further duplication without permission is prohibited. All rights reserved.