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Employee vs. Indepedent Contractor Classification: In New Jersey, It's as Easy as "ABC"


Hargrove v. Sleepy's LLC - New Jersey Supreme Court


Facts:  The plaintiffs were all hired to deliver mattresses ordered by customers of Sleepy's.  Even though all the plaintiffs signed an Independent Driver Agreement, they claimed they were misclassified as independent contractors and were therefore entitled to unpaid wages and overtime under New Jersey's wage and hour laws.  

Suit was filed in district court and summary judgment was granted for Sleepy's on the grounds that the plaintiffs were independent contractors.  Plaintiffs appealed to the Third Circuit Court of Appeals, which subsequently filed a petition with the New Jersey Supreme Court to certify the question of which test should be applied to determine employment status under New Jersey law.

Holding:  The New Jersey Supreme Court held that the "ABC" test applied and was therefore the proper test to determine whether a worker was an employee or independent contractor.  For those unfamiliar with it, the "ABC" test dictates that an individual is presumed to be an employee unless the employer can show:

  1. Such individual has been, and will continue to be, free from control or direction over the performance of such service, both under his contract of service and in fact; and
  2. Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  3. Such individual is customarily engaged in an independently established trade, occupation, profession, or business.

The Supreme Court further held that an employer's failure to satisfy any of the three factors would result in the worker being classified as an "employee".  As a result, the "ABC" test now governs New Jersey wage and hour claims.

Judgment:  The New Jersey Supreme Court held that the "ABC" test is the standard by which employee vs. independent contractor issues will be examined in New Jersey.  In adopting a clear cut test, employees now enjoy a presumption in their favor of "employee" status and places the burden on employers to overcome this presumption by proving all three factors of the "ABC" test.

The Takeaway:  This is what I would call a premier employment law ruling, not withstanding the fact that it was a unanimous ruling by the New Jersey Supreme Court.  It goes without saying that this ruling is a blow to employers as it is now much more difficult for employers to establish independent contractor status.

You might ask, what does it matter whether a worker is classified as an employee or independent contractor?  Well, employees must be paid minimum wage and time and a half for overtime.   There are laws in place to protect workers designated as "employees". Independent contractors on the other hand can be paid pretty much whatever an employer wants.  As a result, if a worker is designate as an employee, employers are likely on the hook for higher/more pay.

As a result of this ruling, New Jersey employees now have a lower burden to prove they are employees rather than independent contractors, given the presumption of "employee" status and the somewhat onerous burden on employers to overcome this presumption.  New Jersey employers beware, this ruling will likely make things more difficult for you in the area of independent contractors...  

Majority Opinion Judge:  Judge Cuff

Date:  January 14, 2015

Opinion:  http://www.judiciary.state.nj.us/opinions/supreme/A-70-12HargrovevSleepys.pdf

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