NJ SUPREME COURT RULES ON PROPER TEST FOR DETERMINING EMPLOYEE OR INDEPENDENT CONTRACTOR STATUS

In a recent case, Hargrove v. Sleepy’s LLC No. A-70-12 (072742)(N.J. Jan. 14, 2015), the Supreme Court of New Jersey held that the proper test to apply when determining an individual’s status for purposes of the New Jersey Wage Payment Law is the “ABC test”.

The case involved three plaintiffs, delivery truck drivers, suing Sleepy’s individually and on behalf of a putative class.  Sleepy’s had 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 lower federal court applied the federal common law test that focuses primarily on the employer’s ability to control the contractor’s work performance, and awarded summary judgment to Sleepy’s.  The plaintiffs appealed and the Third Circuit asked the NJ Supreme Court to consider the specific question of which test should be applied to determine independent contractor status.  At least four different tests had been used in New Jersey to determine employee vs. independent contractor status for purposes of unemployment, whistleblowing, discrimination and tort claims so the Court in this case was asked to decide which test to use for purposes of the wage and hour laws.

The Supreme Court determined that the “ABC test” governs, a test that is more worker-friendly.  Employers will now have the burden of showing that an individual providing services:

  1. is free from the company’s control in performing 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 further specified that the failure to satisfy any one of the three criteria means that the worker should be classified as an employee, not an independent contractor for purposes of the wage and hour laws. The Court noted that New Jersey’s wage and hour laws are remedial statutes that should be liberally construed.

Workers and companies alike should consult with employment counsel to determine the proper employment classification under this ABC test.