New Jersey Supreme Court Narrows Definition of “Independent Contractor” For State Wage and Hour Laws

On January 14, 2015, the Supreme Court of New Jersey answered a question of law submitted to it by the Third Circuit Court of Appeals regarding the classification of plaintiffs–as employees or independent contractors–in the case Sam Hargrove, et al. v. Sleepy’s, LLC.

Several tests have been used by different courts to decide the status of workers in wage and hour cases. For example, recently the Federal Court for New York’s Southern District has used the “Economic Realities Test” and the “Common Law Test,” each of which considers a long list of factors and each of which specifies that its list of factors is not to be considered sufficient to decide the question. These tests require courts to consider factors such as the degree of control the worker exercised over the tasks they performed, their freedom to engage in other employment, the benefits they received, the determination of their work schedule, and so on.

At the federal level, the Department of Labor’s Wage and Hour Division has offered its guidance regarding the interpretation of the phrase “employment relationship” for the purpose of determining whether a given person should be treated as exempt form the minimum wage and overtime rules of the Fair Labor Standards Act (FLSA). They explicitly state that the issue requires some subjective judgment, for example: “…while the factors considered can vary, and while no one set of factors is exclusive, the following factors are generally considered when determining whether an employment relationship exists under the FLSA (i.e., whether a worker is an employee, as opposed to an independent contractor)…” They then proceed to list six different factors that are themselves unclear.

Noting that this lack of clarity in the law is problematic and frustrates the intention of the relevant statutes, the New Jersey Supreme Court decided to adopt the relatively clearer “ABC Test,” which says that an employment relationship exists between the parties unless all of the following conditions are met:
1. The employer did not exercise control over the individual or have the ability to exercise control in terms of completion of the work;
2. The individual provided services that were outside the usual course of business or performed outside of all of the places of business of the employer; and 3. The individual’s work comes forman enterprise that exists independently and will continue to exist independently after the termination of the relationship between the individual and the employer.

The Court’s reasoning on the issue was decisive, interesting, and consequential (at least) for future New Jersey cases. The “ABC Test,” they conclude, “…provides more predictability and may cast a wider net than the FLSA ‘economic realities’ test. The latter test is guided by six criteria, none of which is determinative. Instead, the test contemplates a qualitative analysis of each case, which may yield a different result from case to case. By contrast, under the ‘ABC’ test, classification as an independent contractor requires that the employer demonstrate that the retained individual satisfies all three criteria. This fosters the provision of greater income security for workers, which is the express purpose of both the WPL and the WHL.”

Three cheers for the New Jersey Supreme Court, for recognizing and trying to address an ongoing general problem in this country’s employment law regime. Hopefully other courts and other jurisdictions will follow suit.

If you believe your employer has avoided paying you minimum wage and/or overtime by misclassifying you as an independent contractor rather than an employee, please contact The Harman Firm, LLP.