Independent Contractors Protected by Conscientious Employee Protection Act

On July 25, 2007, the New Jersey Supreme Court decided two employment law cases that clarified that the Conscientious Employee Protection Act (“CEPA”) applies to many individuals who have traditionally been considered independent contractors: D’Annunzio v. Prudential Insurance Company of America, 192 N.J. 110 (2007) and Stomel v. City of Camden, 192 N.J. 137 (2007). CEPA, which is often referred to as a whistleblower law, is a New Jersey statute that prohibits employers from retaliating against employees who object or refuse to participate in activities that they reasonably believe are illegal, fraudulent, criminal, or violate a clear mandate of New Jersey’s public policy relating to public health, safety or welfare.

In D’Annunzio, the New Jersey Supreme Court adopted a test that the Appellate Division established to determine whether an individual is an “employee” for purposes of another employment law statute, the New Jersey Law Against Discrimination. Those factors are: 1. the employer’s right to control the means and manner of the worker’s performance; 2. the kind of occupation-supervised or unsupervised; 3. skill; 4. who furnishes the equipment and workplace; 5. the length of time in which the individual has worked; 6. the method of payment; 7. the manner of termination of the work relationship; 8. whether there is annual leave; 9. whether the work is an integral part of the business of the “employer;” 10. whether the worker accrues retirement benefits; 11. whether the “employer” pays social security taxes; and 12. the intention of the parties.

D’Annunzio holds that Courts should primarily focus on three of those factors: 1. the degree of employer control; 2. the worker’s economic dependence on the relationship; and 3. whether the work is an integral part of the business. In its opinion, the Court notes that an individual is more likely to be considered an employee if he/she is a “cog” in the employer’s business, his/her work is continuously required by the employer’s business, his/her services are regularly at the employer’s disposal, or he/she performs routine or administrative activities.

D’Annunzio, Stomel repeats that courts should focus on the three factors discussed in D’Annunzio to determine whether an individual is employee protected by CEPA. However, the decision appears to focus on whether the employee’s work was an integral part of the employer’s business over the other two factors. Specifically, the New Jersey Supreme Court concluded that the plaintiff, a public defender, was an “employee” of the City of Camden and therefore covered by CEPA because his services were integrated into the City’s delivery of services to its residents. The Court reached this conclusion even though Mr. Stomel worked through a private law firm and exercised substantial independent judgment regarding his clients which the City did not have any right to control. In other words, the Court found that he was an employee for purposes of CEPA based on the presence of only one of the three primary factors, his integration into the employer’s business.

Thus, both D’Annunzio and Stomel apply broad definitions of “employee,” which include many individuals who are otherwise treated as independent contractors. While many other factors are relevant, the primary focus appears to be on the extent to which the individual’s work is an integral part of the employer’s business.