On January 14, 2015, the Supreme Court of New Jersey decided which independent contractor classification test should be used in determining a person’s employment status under the New Jersey Wage Payment Law (WPL) and Wage and Hour Law (WHL).  In Hargrove v. Sleepy’s, LLC, No. A-70-12 (072742) (N.J. Jan. 14, 2015), the court concluded that the “ABC” test should be used for classifying a person as either an employee or independent contractor.

The plaintiffs in Hargrove, deliverers for the New York-based mattress and bedding retailer, claimed they were actually employees and that Sleepy’s improperly classified them as independent contractors.  They argued that this misclassification deprived them of certain employee benefits, including health insurance.  They sued Sleepy’s in the Federal District Court for the District of New Jersey.  In 2012, that court granted Sleepy’s motion for summary judgment, holding that the plaintiffs were independent contractors.  It did so using classification factors from an ERISA case decided by the U.S. Supreme Court in 1992, Nationwide Mutual v. Darden, 503 U.S. 318 (1992).  Plaintiffs appealed to the Court of Appeals for the Third Circuit, which then certified to the New Jersey Supreme Court the question of which test should apply to determine employee status under New Jersey WPL and WHL.

After considering other tests used to distinguish employees from independent contractors in other contexts (i.e., the “Right to Control,” “Hybrid,” and “Economic Reality” tests), the New Jersey Supreme Court decided to follow the New Jersey Department of Labor’s (NJDOL) lead, holding that “employment-status issues raised under the WPL or WHL . . . are governed by the ‘ABC’ test”—the test which the NJDOL has been applying consistently since 1995.  This decision represents the first time New Jersey’s highest court has definitively articulated the test for independent contractor status under New Jersey WPL and WHL.

Under the “ABC” test, an individual providing services to a business is presumed to be an employee of that business, and not an independent contractor, unless the employer can show the individual satisfies all of the following:

  1. Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
  2. Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  3. Such individual is customarily engaged in an independently established trade, occupation, profession or business.

N.J.S.A. § 43:21-19(i)(6).  An employer can satisfy Part A  by showing that it neither exercised control, nor had the ability to exercise control, over the individual “in terms of the completion of the work.”  Establishing control under this element, however, does not require that the employer have control over every aspect of the individual’s work; rather, “some level of control may be sufficient.”  An employer can satisfy Part B by showing the individual’s services were provided outside of the employer’s usual course of business or that none of the services were provided in any of the employer’s places of business.  Part C is satisfied when the individual’s profession “will plainly persist” regardless of whether the current work relationship continues or is terminated.  In other words, ending the present work relationship will not leave the individual completely without work.

Multi-state employers should be especially concerned with this recent clarification because it may not match the test used in other states in which they operate and because it is a particularly fact-intensive inquiry.  Employers should reach out to counsel with additional questions or concerns regarding classification of employees or independent contractors if they are uncertain about their workers’ classification.

Brian DeShannon.