On January 14, 2015, the New Jersey Supreme Court decided
which test should be applied under New Jersey law to determine whether a worker
is an employee or an independent contractor for purposes of resolving a wage
payment or wage and hour claim. Hargrove
v. Sleepy’s LLC presented that issue on a question of law certified and
submitted by the United States Court of Appeals for the Third Circuit.
The New Jersey Supreme Court determined that the “ABC”
test governs whether a worker is an employee or an independent contractor for
purposes of the New Jersey Wage Payment Law and the New Jersey Wage and Hour
Law. Under the “ABC” test, an employer
is required to presume that a worker is an employee unless the employer can
show that:
(1) the employer neither exercised control
over the worker nor had the ability to exercise control in terms of the
completion of the work;
(2) the services provided were either
outside the usual course of business or performed outside of all the places of
business of the enterprise; and
(3) the individual is customarily engaged in
an independently-established trade, occupation, profession or business.
An employer’s failure to satisfy any one of those three
criteria results in the worker being classified as an “employee” for wage
payment and wage and hour purposes.
Thus, New Jersey employers must satisfy the worker-friendly “ABC” test
in order to classify a worker as an independent contractor for purposes of the
Wage Payment Law and Wage and Hour Law.
Before Hargrove, many New Jersey employers
traditionally applied the six-factor “economic realities” test for determining
whether a worker is an independent contractor for purposes of minimum wage and
overtime under the Fair Labor Standards Act.
The results of an analysis under the economic realities test may, and
likely would, be different than the results of an analysis using the “ABC”
test.
Employers should take this opportunity to examine their
worker classifications to ensure they satisfy this new standard and either
re-classify their workers as employees or tailor their relationships in order
to satisfy the “ABC” test. This includes
reviewing – and ensuring the employer has – documentation regarding the
independent contractor’s separate business entity, invoices for work performed,
and written contracts that clearly describe the work duties and track the
elements of the “ABC” test.
Please feel free to contact Connell Foley’s employment lawattorneys for guidance on implementing the “ABC” test or any other worker
classification issue you may be facing.
