In Hargrove v. Sleepy’s, a recent case unanimously decided by the New Jersey Supreme Court, the Court intended to resolve longstanding wage‐and‐hour public policy disputes. In New Jersey, some employers historically and too often used improper determinations when classifying workers as “independent contractors” rather than as “employees”. That approach cut down on the employer’s taxes and benefits paid to workers, but it also deprived improperly classified workers of their benefits and certain insurance protections on the job. The Court chose to apply the “ABC test”, which now makes it much easier for employers, workers, and courts to determine the worker’s proper status.

The “ABC Test” and the Unemployment Compensation Act

Employers now have limitations when classifying employees as “independent contractors”.

Under NJ Unemployment Compensation Law, the ABC test automatically presumes that a worker is an employee — and it is up to the employer to prove that the employee is indeed independent. This distinction can be quite difficult to prove, as employers must meet three criteria, and failing to meet any of them could result in an employee-favorable ruling.

The ABC test will apply to claims under both the New Jersey wage payment law and the wage‐and‐hour law. The Supreme Court found that the statutes have similar purposes and therefore should be interpreted similarly.

Employer’s Responsibilities

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

•· Is not being controlled by the company when providing services and will continue to be free from control or direction over the performance of such services;

•· Does work outside the usual course of the company’s business or outside the company’s place of business; and

•· The individual is normally engaged in an independently developed trade, occupation, profession, or business.

The ABC test embraced by the New Jersey Supreme Court is not a “new” test, but rather is deemed the best way to evaluate independent contractor status in the context of New Jersey wage-and‐hour claims.

Employer Engagement with Independent Contractors

Employers who engage independent contractors in New Jersey may now want to double check their current classifications of these workers to ensure the arrangement complies with the revised New Jersey model. In particular, companies should review their independent contractor agreements and the application of those agreements to the day‐today relationships between the company and its workers.

Companies should immediately re‐classify workers who are improperly classified as independent contractors.

New Jersey Wage‐and‐Hour Law

The New Jersey wage‐and‐hour law, which defines the minimum wage and overtime rate, states an “employee” is “any individual employed by an employer”, which means if the employer is controlling your work or direction over the services you perform for them, then you should be considered an employee of the employer. If this is not the status that your employer provided, then you have been classified wrongly ‐‐ and should seek reclassification. If your employer says no, then you should seek immediate legal advice and possible representation. The consequences of failing to act in the face of misclassification can be serious and long‐term.

Additionally, the Court noted its deference to the New Jersey Department of Labor, the agency that enforces the New Jersey wage payment law and the New Jersey wage‐and‐hour law. The New Jersey Department of Labor will (A) apply the ABC test and (B) determine if an individual is an employee or an independent contractor.

The Bottom Line

Employers should be aware and considerate of the ABC test when classifying individuals as independent contractors rather than employees. Improper classification can lead to costly wage‐and‐hour issues and result in litigation, and it is unfair to misclassified workers who should be able to depend upon proper employment benefits and insurance for themselves and their families.

As a worker, if you require legal assistance, representation, or just want to consult with an experienced employment attorney on misclassification issues or anything else in the world of employment law, please call us today at 866‐959‐3786, or contact us via email to arrange a consultation. We will do our very best for you under all the facts and circumstances.