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.