New Jersey Supreme Court Broadens Definition of “Employee” Under Wage and Hour Law

The question of whether you are an employee or an independent contractor can be very important. It can determine many issues, including how you will be taxed, whether you are entitled to health insurance and other employee benefits, and whether you are protected by various employment laws. However, the issue whether you have been misclassified as an independent contractor can be confusing because there are different tests under different laws.

Earlier this month, in Hargrove v. Sleepy’s, LLC, the New Jersey Supreme Court clarified which test applies under two important state laws: The New Jersey Wage and Hour Law (“NJWHL”) and the New Jersey Wage Payment Law (“NJWPL”). The NJWHL is a law that, among other things, entitles covered employees to be paid at least the minimum wage, and overtime at time-and-a-half when they work more than 40 hours in a week. Similarly, the NJWPL requires most employers to pay employees at least twice per month.

Group of industrial workers. Isolated on white background.The case was filed in federal court. The Unites States District Court for the District of New Jersey applied a relatively narrow definition of “employee.” It concluded the plaintiffs were independent contractors, and therefore were not protected by the NJWHL or the NJWPL. Accordingly, it dismissed their case.

The plaintiffs appealed to the Third Circuit Court of Appeals. The Third Circuit then asked the New Jersey Supreme Court to answer the question because it involves an interpretation of state law.

In Hargrove the New Jersey Supreme Court answered the Third Circuit’s question by adopting something called the “ABC test.” This is the same test the New Jersey Department of Labor uses to determine if someone is covered by the New Jersey Unemployment Compensation Act.

Under the ABC test, an individual is presumed to be an employee. The employer can prove the worker is not an employee if it can establish three things:

  1. The company did not exercise control over any aspect of the person’s work, and did not have the ability to exercise any such control.  In determining whether the employer has the right to exercise control over an individual, a court can consider the contract between the employer and the worker, but it cannot rely on the contract alone. Rather, it has to look at all of the circumstances relating to the actual performance of the work;
  2.  The services provided by the person are either “outside the usual course of the business for which such service is performed” or are “performed outside of all the places of business of the enterprise for which such service is performed;” and
  3.  The individual normally works in an independently established trade, occupation, profession or business, and is likely to continue to do so after this relationship ends. A company cannot meet this factor if the worker is likely to join “the ranks of the unemployed” after the relationship is over.

This definition of “employee” is significantly broader than the definition under the Fair Labor Standards Act, a federal law that provides similar protections to the NJWHL. In fact, it is even more expansive than the broad definition under the New Jersey Law Against Discrimination and the Conscientious Employee Protection Act (“CEPA”). This is likely to significantly expand the number of workers in New Jersey who are entitled to be paid minimum wage and receive overtime pay.

For more information about the relevant definition of an “employee” under CEPA, please read my previous article: Independent Contractors Protected by Conscientious Employee Protection Act.