Decision: The New Jersey Supreme Court in Hargrove et al. v. Sleepy’s, LLC, recently held that the three-part “ABC test,” and not the FLSA’s “economic realities test,” was the appropriate standard for determining whether workers are employees or independent contractors. Under the “ABC test,” workers are presumed to be employees unless the would-be employer can demonstrate otherwise based on analysis of three factors: (i) whether the company exercised control over the worker or had the ability to exercise control in terms of the completion of the work; (ii) whether the services provided by the worker were outside the usual course of business or were performed outside of all the places of the enterprise’s business; and (iii) whether the worker has a profession that will plainly persist despite termination of the challenged relationship. The economic realities test used to determine appropriate worker classification under the federal Fair Labor Standards Act, analyzes six criteria with no single factor being dispositive.

Impact: Companies with employees in New Jersey should determine whether their independent contractors are properly classified under this new standard and should consult with counsel to determine how best to structure their contractor relationships going forward to ensure that those relationships meet the new test.