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New Jersey Supreme Court Issues Historic Ruling on Worker Misclassification – Employee or Independent Contractor?
     The Supreme Court gave an advisory opinion at the request of the U.S. Third Circuit Court of Appeals on the question of what legal test should be applied under the state’s Wage and Hour Law and the Wage Payment Law, to determine whether a worker is an independent contractor or must be treated as an employee. Independent contractors must make their own tax filings and are not protected by the laws administered by the state’s Department of Labor. The advisory opinion comes in the case of Hargrove v. Sleepy’s, decided January 14, 2015. The lawsuit was brought in federal court by three men who deliver mattresses for Sleepy’s and who have been treated as independent contractors, alleging violations of the Fair Labor Standards Act, a federal law, and various New Jersey statutes. The federal district court ruled for Sleepy’s and the workers appealed. Before it could render a decision on the New Jersey laws involved, the federal Court of Appeals asked for clarification from the New Jersey Supreme Court.

     The New Jersey Supreme Court reviewed a variety of possible tests which have been used under various statutes and court rulings. Mirroring a movement seen as far away as California, the New Jersey high court approved the “ABC Test” for determining the worker’s status, a test adopted by the New Jersey Department of Labor without express legislative authority. This is a three-prong test that starts with the presumption that any worker who performs services for pay is an employee. The putative employer can then seek to avoid the employee designation by meeting all three of the ABC Test prongs: 1) that it had, and exercised, no control over the worker’s completion of his work; 2) that the work is either outside the usual course of business of the enterprise or is performed outside all of its places of business ; and 3) that the worker is engaged in a trade, business, profession that will continue despite the termination of the work relationship.

     Part C of the ABC Test is the one which creates the most difficulty for enterprises who take on workers as independent contractors. In our experience in counseling business clients, this is the aspect of the ABC Test which requires the greatest care and attention in order to rebuff an unfavorable presumption that a worker is an employee. We invite inquiries on this current and sometimes challenging issue of worker classification.

© February, 2015, Law Offices of John C. Lane

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