New Jersey Supreme Court Rules On Proper Test For Determining Independent Contractor Status

New Jersey employers will encounter instances where an individual qualifies as an independent contractor under federal law, but does not meet the more stringent state test.  These conflicting standards will make it difficult for employers with multistate facilities to impose a single worker classification standard across their operations.

The New Jersey Supreme Court recently issued a unanimous decision in the case of Hargrove v. Sleepy's, LLC (N.J. Sup. Ct. A-70-12) (072742), which could affect virtually every employer in the state of New Jersey that uses independent contractors as part of its workforce.   The court adopted the “ABC” test for determining independent contractor status under the Wage Payment Law (“WPL”) and the Wage and Hour Law (“WHL”).  The ABC test is borrowed from the New Jersey unemployment compensation statute which requires the employer to prove: 

• The individual is free from control or direction over the performance of services, both under his contract, and in fact; and 
• The service is either outside the usual course of the business for which it is performed, or the service is performed outside of all the places of business of the enterprise for which it is performed and
• The individual is customarily engaged in an independently established trade, occupation, profession, or business.

Under the ABC test, an individual is presumed to be an employee, unless the employer satisfies its burden to show all three test prongs are met.  All employers with independent contractors in New Jersey should use the ABC test to reevaluate the status of their workers   to determine that they are properly classified as independent contractors.   It is recommended that you consult with your advisors to ensure proper classification of workers and to address resulting issues from any need to reclassify independent contractors as employees.