Employers should note a recent decision from the Supreme Court of New Jersey regarding the proper test to apply when determining an individual’s status for purposes of the New Jersey wage and hour laws.  The court chose to apply the so-called ABC test, which makes it significantly easier for independent contractors to prove their status as employees for purposes of the New Jersey wage and hour laws.

In Hargrove v. Sleepy’s, LLC, No. A-70-12 (072742) (N.J. Jan. 14, 2015), the Supreme Court of New Jersey answered a certified question from the Third Circuit Court of Appeals regarding the proper test to apply when determining an individual’s status for purposes of the New Jersey Wage Payment Law, N.J.S.A. 34:11-4.1, et seq., and the New Jersey Wage and Hour Law, N.J.S.A. 34:11-56a, et seq.

The underlying lawsuit was brought in the US District Court for the District of New Jersey by three plaintiffs, individually and on behalf of a putative class of delivery truck drivers, against Sleepy’s, a company that contracted with individuals and delivery companies to provide delivery services to its customers.  The plaintiffs claimed that Sleepy’s had misclassified them as independent contractors rather than employees and, in doing so, denied them the benefits and protections that they otherwise would have been entitled to under New Jersey’s wage and hour laws.

The district court judge issued a decision that applied the federal common law test − which focuses primarily on the employer’s ability to control the contractor’s work performance − and awarded summary judgment to Sleepy’s.  The plaintiffs appealed the decision to the Third Circuit Court of Appeals. 

The Third Circuit, however, asked the New Jersey Supreme Court to consider the issue of which test should be applied to determine independent contractor status because “there are at least four distinct employment tests that have been applied under New Jersey law in other contexts (including unemployment, whistleblowing, discrimination and tort claims).”

In a unanimous opinion, the New Jersey Supreme Court concluded that the “ABC” test governs. 

Under the ABC test, employers will now have the burden of showing that an individual providing services:

  1. is free from the company’s control in performing the services 
  2. performs work outside the usual course of the company’s business or outside the company’s place of business and 
  3. is engaged in an independently established business.

The Court noted that “the failure to satisfy any one of the three criteria results in an ‘employment misclassification.’”

In reaching its decision that the ABC test applied, the Court opined that the state’s wage and hour laws are remedial statutes that should be liberally construed and  that the New Jersey Department of Labor had enacted regulations under the wage and hour laws that use the criteria set forth in the ABC test, as found in the New Jersey Unemployment Compensation Act.  According to the Court, those regulations are entitled to “great deference.” 

In light of Sleepy’s, employers conducting business in New Jersey should reexamine their policies and procedures as they relate to independent contractors, including subcontractors who themselves may contract with individuals they classify as independent contractors, in order to avoid costly litigation and penalties.