NJ Court’s Independent Contractor Test Assumes Workers Are Employees

By Eric B. Meyer

The New Jersey Supreme Court just fashioned a test to determine whether a worker is an employee or an independent contractor for purposes of resolving a wage-payment or wage-and-hour claim.

On Wednesday the Court, in this opinion, concluded that the “ABC” test, a creature of the New Jersey Unemployment Compensation Act, will determine whether plaintiff is an employee or an independent contractor for purposes of resolving a wage-payment or wage-and-hour claim.

The applicable Unemployment Compensation Act provision speaks in terms of control. The law presumes that an individual is an employee. It’s then up to the company to prove otherwise; i.e., that the individual is an independent contractor.

3 keys to New Jersey’s  “ABC” test

To do this, the company must do the following:

  • Show that it neither exercised control over the worker, nor had the ability to exercise control in terms of the completion of the work.
  • Show that the services provided were “either outside the usual course of the business … or that such service is performed outside of all the places of business of the enterprise.”
  • Show that the purported independent contractor actually “has a profession that will plainly persist despite the termination of the challenged relationship.”

If any one of these factors cuts in favor of an employer/employee relationship, then the individual is an employee according to the New Jersey Supreme Court test.

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What this means to employers

And why does this matter? You can pay independent contractors whatever you want.

Conversely, employees must be paid minimum wage, and time and a half for overtime. So, if you mess up the classification of one of your workers, in addition to the unpaid wages that you may owe, there are potential fines and, attorney’s fees and costs.

This was originally published on Eric B. Meyer’s blog, The Employer Handbook.

You know that scientist in the action movie who has all the right answers if only the government would just pay attention? Eric B. Meyer, Esq. gets companies HR-compliant before the action sequence. Serving clients nationwide, Eric is a Partner at FisherBroyles, LLP, which is the largest full-service, cloud-based law firm in the world, with approximately 210 attorneys in 21 offices nationwide. Eric is also a volunteer EEOC mediator, a paid private mediator, and publisher of The Employer Handbook (www.TheEmployerHandbook.com), which is pretty much the best employment law blog ever. That, and he's been quoted in the British tabloids. #Bucketlist.

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9 Comments on “NJ Court’s Independent Contractor Test Assumes Workers Are Employees

  1. MOST IND. CON. SET THEIR OWN PRICE OF WHAT A JOB WILL COAST A CUSTOMER. I WORK FOR A WELL KNOWN HOME INPROVEMENT COMPANY.
    THEY CALL WHEN THEY NEED TO HAVE SOMETHING INSTALLED FOR A CUSTOMER WHO MADE A PURCHAS IN THEIR STORE I GIVE THEM THE PRICE ON MY LABOR. THATS IT!!! TAKE IT OR LEAVE IT.

  2. I’ve seen this first-hand where a business owner has all his workers sign “independent contractor” contracts, thinking he or she is in the clear. It doesn’t work that way. There are a lot more questions typically asked to make this determination of independent contractor vs employee, but if you’re having to go out of your way to prove someone’s not an employee, then they are probably an employee.
    Independent contractor typically:
    Has business name. Advertises the business. Sets own hours. Has contract with set dollar amount and end date. Works for other businesses too. Offers a specialty you don’t do in-house. Is responsible for the final product (liability). Has own tools/equipment/licenses.

    1. how about a Realtor? They can not work for two different companies! They should be employees and have to pay payroll taxes.

      1. Most, maybe all, probably should be employees, but having an exclusive contract is not quite enough by itself (as long as you can change to another company); more facts are needed for each case.

    2. Hundreds of thousands “true” independent contractors work for only one company. Many are retirees that become consultants. They have the freedom to come and go. This “test” that New Jersey came up with “games” the system and is pure interference with commerce. It is unconstitutional and will not stand up to closer scrutiny.

  3. Great new for employees that have been misidentified as contractors… as long as they are in New Jersey.

  4. I’ve experienced this first hand. I worked for a company in 2008 and 2009 as a contractor. After leaving in 2010, I filed an SS-8 form for determination of work status. I finally got a response from the IRS in 2013 (yes, 3 years to the month) and they sided with me saying that I was indeed an FTE and to redo my taxes for the years I worked there. I was due for a tax refund (the 7.5% half of SS I paid, self employment tax, etc, etc, etc). I refiled my taxes only to get a letter from the IRS saying that they couldn’t accept my claim because “I filed my claim for credit or refund more than 3 years after the tax return due date” — even though it was the IRS themselves that took so long. How fair is that? I tried to hire a tax attorney, but that would have ate through the tax refund. So in the end, I just dropped it.

  5. I occasionally will hire someone as an independent contractor. They provide their own computer or other equipment, set there own hours and generally have the choice to work from home except when they need turn in work or receive a new project. They are generally paid more than employees because they have to pay both halves of employments taxes. I don’t agree with employers who use it to abuse their employees. But the independent contractor route does provide some advantages when you know a job is temporary or part time. I will also use it when I am taking a chance on some one in terms of their ability to do the work. In general if the option were not open, I simply wouldn’t hire anyone for that job.

    The federal definition of a statutory employee is not much less restrictive than NJ’s definition. However in my opinion it provides clearer definition than is described above. The last thing I want to have happen is to be wrong in how someone is classified. I think NJ is simply hurting themselves by having a different definition of an employee. If I operated my business in NJ, I would probably just have fewer people working for me. Sometimes it is a fine line between protecting workers and costing jobs.

  6. Newspaper delivery…. I hope the Teamsters are following this case.

    * Show that it neither exercised control over the worker, nor had the ability to exercise control in terms of the completion of the work.

    Newspaper tells the carriers where, when and how to deliver papers…. Papers must be picked up at a distribution center by a certain time, they must be delivered on set days before definitive times. Often they tell the carriers that they must bag papers, place papers on a porch or behind a door. They fine the carrier for missed papers, wet papers or papers not delivered to the customers satisfaction. Sounds like control to me.

    * Show that the services provided were “either outside the usual course of the business … or that such service is performed outside of all the places of business of the enterprise.”

    Newspaper industry lore suggests that the first paperboy was hired in 1833…. So home delivery is definitely part of the usual course of business.

    * Show that the purported independent contractor actually “has a profession that will plainly persist despite the termination of the challenged relationship.”

    Carriers deliver for one newspaper… while some do have “alternate papers” added to the delivery route, they are controlled by the paper. Absent this contract the carrier is out of work. It is not like a house painter who, if he does not paint your house, will paint another house… Another test of this is asked, “What percentage of this business is provided from this employer?” Usually the answer is 100%

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