Articles Posted in Employee Misclassification

Numerous laws protect the rights of employees in the workplace. For those laws to apply to a particular individual, they must have an employment relationship with their employer, as defined by law. Not everyone in a workplace is necessarily an employee. Some might be independent contractors. While employees have a wide range of legal protections, independent contractors often only have whatever protections are included in their contracts. Employers sometimes falsely claim that an employee is an independent contractor, which is known as employee misclassification. New Jersey employment law uses a test to distinguish between employees and independent contractors that generally favors employees. At the federal level, the definition used by the U.S. Department of Labor (DOL) for wage and hour claims has changed several times in recent years. The DOL’s Wage and Hour Division (WHD) recently published a final rule regarding “employee” status under the Fair Labor Standards Act (FLSA). The new rule is more employee-friendly than its predecessor.

Employers might misclassify employees as independent contractors to avoid legal obligations like minimum wage or overtime pay. New Jersey uses the “ABC test” to determine whether an individual is an employee or an independent contractor. The test gets its name from the definition of “employee” found in § 43:21-19(i)(6)(A)-(C) of the New Jersey Revised Statutes. An individual is presumed to be an employee under the ABC test unless an employer can demonstrate all of the following elements:
A. The individual exercises total control over when and how they do their job.
B. Their work is either outside of the scope of the employer’s usual business, or they do their work away from any of the employer’s regular worksites.
C. They have their own business, occupation, or trade separate from the employer.

The WHD’s new employee classification rule applies to wage and hour claims under the FLSA. It replaces a rule that the WHD put into place in January 2021, less than two weeks before the end of the previous presidential administration’s term. That rule, which took effect on March 8, 2021, was generally more favorable to employers. Independent contractor status was based on two “core factors”:
1. The amount of control that an individual has over how they do their job; and
2. Their ability to increase their income without working longer hours or producing more output.
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New Jersey employment laws strive to ensure that employees receive a minimum wage, additional payment for overtime work, and other rights. For a worker to recover damages for unlawful actions by their employer, they must demonstrate that an employment relationship exists between them and their employer. Laws that address matters like wages and overtime pay apply to employees, but not independent contractors who have a less formal legal relationship with their employers. Employers sometimes engage in “misclassification,” meaning that they wrongfully classify employees as independent contractors to avoid obligations under state and federal employment laws. New Jersey employees can sue employers for misclassification. A law passed by the state legislature in 2021 allows the state to sue employers who allegedly misclassify employees. In December 2023, the New Jersey Attorney General (AG) filed the first lawsuit under this law seeking back pay and other remedies for the defendant’s employees.

Independent contractors do not enjoy the protection of many employment laws. Their recourse is often limited to the terms of their contracts. Employees, on the other hand, have broad protections under New Jersey law. Defining who is an “employee” and who is not can be tricky. The New Jersey Wage and Hour Law, for example, defines the term as “any individual employed by an employer.” Most other state and federal statutes are not much more helpful. It has largely fallen to the courts to develop ways to distinguish employees from independent contractors.

The New Jersey Supreme Court issued a ruling in 2015 that adopts the “ABC test” in employee misclassification cases. The test gets its name from a section of the state’s unemployment law that contains a three-part definition of “employee” with subsections labeled A through C. A New Jersey court will presume that an individual is or was an employee unless the employer establishes all three of the following:
A. The employer did not have the right to exercise control over how the worker did their job, nor did they exercise such control.
B. The worker’s services were either performed away from the employer’s usual place(s) of business, or they were outside of the employer’s usual type of business.
C. The worker has their own profession that does not depend solely on the employer, meaning that they may continue to work for others if their relationship with the employer ends.
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New Jersey guarantees a minimum wage for all non-exempt employees in the state. In order for an individual to claim a right to minimum wage, they must establish that they are, legally speaking, an “employee.” Some employers try to avoid this obligation by misclassifying employees as independent contractors. This type of practice is considered a minimum wage violation. The federal and state definitions of “employee” differ slightly from one another, but both are based on the extent to which an employer controls how an individual does their job. A lawsuit pending in a Newark federal court alleges misclassification of online workers under both federal and New Jersey employment laws.

New Jersey has developed a concise definition of “employment” for the purposes of determining whether an employer has misclassified an employee as an independent contractor. A court must presume that an individual is an employee unless the employer can establish all three of the following elements:
A. The employer does not have direct control over how the worker does their job, both under the terms of a written contract and in actual practice.
B. The worker’s service is either not part of the employer’s usual business, or they do much of their work off-site.
C. The worker regularly works in their own trade or occupation separate from the employer.

At the federal level, the definition of “employment” in this context is also based on how much control an employer exerts, and how much independence a worker exercises. It is not as specific as New Jersey’s definition, so it tends to be less favorable to employees. The U.S. Department of Labor has stated that it is working on revising the definition.
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Employment laws in New Jersey and at the federal level guarantee a minimum wage and overtime pay for many employees, as well as many other protections. In order to take advantage of these legal safeguards, a worker must demonstrate that an employment relationship exists between them and their employer. The definition of an “employee” in federal and New Jersey employment statutes is rather vague. The U.S. Department of Labor (DOL) recently issued proposed rules that would establish a new test to determine whether a worker is an employee or an independent contractor. The current rule, which the DOL put in place under the previous presidential administration, is generally favorable to employers. New Jersey’s rule for state law claims presumes that a worker is an employee unless an employer can prove otherwise.

The employer-employee relationship is a complicated concept, legally speaking. It draws on legal theories about an employer’s authority to exert control over a person. For example, how much say does an employer have over when, where, and how a worker does their job? Do they have a specific workstation, monitored by supervisors, where the worker must be during specific working hours? If so, the worker is probably an employee. An independent contractor typically has more autonomy over their work. A large body of federal and state laws protect employees’ rights. An independent contractor’s rights depend on the terms of their contract with the employer.

The DOL’s current rule tends to favor employers. Unlike the New Jersey rule, the federal rule does not presume employee status. It uses two “core factors” to determine a worker’s status: (1) How much control is the worker able to exert over their work? (2) Are they able to earn more money by any means other than increasing their production or working more hours? The more control a worker has over their work and their income, the more likely a federal court will be to classify them as an independent contractor.
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Both federal and state employment laws in New Jersey protect employees’ rights to a minimum wage and overtime pay. While the federal Fair Labor Standards Act (FLSA) does not set the minimum wage as high as New Jersey law, it provides workers with useful enforcement tools. A worker can bring a “collective action” on behalf of other workers with similar federal wage and hour claims. An FLSA collective action is similar to a federal class action, with a few important differences. A recent decision by the Third Circuit Court of Appeals limits the use of FLSA collective actions when the plaintiffs come from more than one state. The ruling should not affect collective actions in which all members of the group are from New Jersey. If you have concerns about possible wage or overtime pay violations, make an appointment with a New Jersey employment lawyer today.

The most recent increase in the federal minimum wage occurred over twelve years ago. It reached its current level of $7.25 per hour on July 24, 2010. The rules for overtime compensation, which require payment at time-and-a-half for time worked over forty hours in a week, have remained the same for decades. These rules only apply to employees who are not exempt under the FLSA. They also do not apply to independent contractors. A wrongful claim that an employee is either exempt or an independent contractor is a violation of the FLSA known as employee misclassification.

The FLSA allows employees to file lawsuits against their employers for alleged wage and hour violations. Notably, § 16(b) of the FLSA allows employees to file suit on their own behalf and on behalf of “​​other employees similarly situated.” The requirements for a collective action under the FLSA are similar to those for a class action under Rule 23 of the Federal Rules of Civil Procedure. One important difference is that, while many class actions automatically include people who meet the description of class members and receive notice of the suit, the FLSA requires all plaintiffs to consent to participation in a collective action in writing. To put that another way, people may have to “opt out” of a class action and “opt in” to a collective action.
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New Jersey’s employment laws protect workers whose employers try to classify them as independent contractors instead of employees. Independent contractors do not enjoy the full range of safeguards offered by state law. Wage and hour laws, for example, only apply to employees. Some employers may try to misclassify employees as independent contractors as a way of avoiding various legal obligations. Employment misclassification is a violation of state law. The New Jersey Supreme Court recently ruled against a business in a misclassification claim. It ruled that workers who operated as separate business entities were still employees under state law.

A 2015 decision by the New Jersey Supreme Court applied a three-part test, known as the “ABC test,” to the question of whether a worker is an employee or an independent contractor. The test is notable for being very favorable toward workers claiming to be employees and placing the burden of proof on employers. It gets its name from the definition of “employment” found in the New Jersey Unemployment Compensation Law, codified at N.J. Rev. Stat. § ​​43:21-19(i)(6)(A) through (C).

The ABC test presumes that an individual is an employee unless an employer can establish all three of the following:
A. The employer does not direct or control how the worker does their job.
B. The services provided by the worker are either outside of the scope of the employer’s usual business activities, or performed somewhere other than the employer’s regular place of business.
C. The worker’s services are part of a business or trade that the worker has established apart from the employer.
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New Jersey’s employment laws guarantee a minimum wage and overtime compensation for millions of workers. They protect employees from various forms of discrimination and harassment in the workplace. They bar employers from retaliating against workers who object to unlawful or unethical conduct. In order to enjoy the benefits of state and federal employment laws, however, a worker must be an “employee.” The definition of “employee” can be ambiguous and subject to debate. Employers may try to describe an employee as an independent contractor in order to avoid obligations set by state wage and hour laws and other statutes. New Jersey has developed a test for determining whether an individual is an employee. A federal judge recently granted summary judgment for a plaintiff in a wage and hour dispute.

Wrongfully categorizing an employee as an independent contractor is known as “employee misclassification.” It is considered a violation of wage and hour laws when an employer does it in order to avoid obligations established by those laws. New Jersey has adopted the “ABC test” to determine whether a worker is an employee or not. The test receives its name from the definition of “employment” found in New Jersey’s Unemployment Compensation Law at N.J. Rev. Stat. § 43:21-1(i)(6)(A) through (C).

A worker is presumed to be an “employee” under the ABC test unless they meet all three of the following criteria:
A. The employer does not exercise “control or direction” over the worker’s job duties and job performance.
B. Either the services the worker performs are “outside the [employer’s] usual course of…business,” or they perform those services “outside of all the [employer’s] places of business.”
C. The worker’s services are normally part of their own “trade, occupation, profession or business,” which is separate from the employer’s business.
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State and federal laws protect New Jersey employees’ rights to minimum wage and overtime compensation. The term “employees” is important here, because these laws’ protections are not available to independent contractors. The distinction between an employee and an independent contractor has been the subject of much employment litigation, both in New Jersey and around the country. Employers may attempt to classify employees as independent contractors in order to avoid various legal obligations, a practice known as “employee misclassification.” New Jersey has developed a reasonable clear definition of “employee.” Federal law lags behind, with different definitions for different statutes. Recent litigation addressed the definition of “employee” under the Fair Labor Standards Act (FLSA), which sets a national minimum wage and standards for overtime pay. The current White House administration withdrew an employer-friendly definition of “employee” put in place by the previous administration. In March 2022, a federal judge vacated this move, reinstating the earlier rule.

The FLSA defines “employee” in quite general terms as “any individual employed by an employer.” It defines “employ” as “​​to suffer or permit to work.” The FLSA’s definition of “employee” goes into more detail for individuals employed by the government. It excludes most elected officials, political appointees, and volunteers for government agencies. The statute also exempts employees in various roles from its provisions on minimum wage and overtime pay. For workers who are neither excluded from the definition of “employee” nor exempt from the FLSA’s protections, questions often still remain as to whether they are “employees” in the specific context of the FLSA.

New Jersey uses the “ABC test” to determine whether an individual is an employee or an independent contractor. The test is named for the three-part definition of “employee” found in §§ 43:21-19(i)(6)(A) through (C) of the New Jersey Revised Statutes. New Jersey employment law presumes that a worker is an “employee” unless the employer can establish all three of the following:
A. The worker has control over how and when they do their job;
B. The worker performs the services away from the employer’s usual premises, or their services are not part of the employer’s regular business; and
C. The worker has an “independently established” business.
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New Jersey employment laws ensure that employers pay minimum wage to all non-exempt employees, as well as a greater rate of pay for overtime hours. These laws only apply to “employees.” Employee misclassification happens when an employer wrongly classifies an employee as an “independent contractor.” State law has a clear definition of “employee” for the purposes of wage and hour law, which sets strict limits on employers’ ability to designate someone as an independent contractor. At the federal level, the definition is not as clear. Beginning in late 2020, the U.S. Department of Labor (DOL) developed a rule defining “employee” and “independent contractor” for the Fair Labor Standards Act (FLSA). The final rule, published in January 2021, was far more favorable to employers than New Jersey’s rule. When the new presidential administration took over in late January, it postponed the effective dates of all new administrative rules. The DOL has since sought to withdraw the new rule.

The FLSA requires employers to pay their non-exempt employees a minimum wage of $7.25 per hour, and to pay them at one-and-a-half times their usual rate for work that exceeds forty hours in a week. See 29 U.S.C. §§ 206(a)(1), 207(a). Exemptions include people employed in professional or executive capacities, and various other specific jobs. Id. at § 213. The statute is specific about only applying to “employees,” but it does not provide particularly clear definitions of “employ” and related terms. It defines “employ” as “to suffer or permit to work,” and “employee” as “any individual employed by an employer,” with some exceptions. Id. at §§ 203(e)(1), (g).

New Jersey law states that employers should consider their workers to be employees unless they meet all three parts of the “ABC test,” named for the definition of “employee” found in N.J. Rev. Stat. §§ 43:21-19(i)(6)(A), (B), and (C):
A. The worker, not the employer, controls the time and manner of their work;
B. The worker’s services are either not part of the employer’s “usual course of business,” or they do their work away from the employer’s regular business premises; and
C. The worker has their own “independently established” business operation.
This definition tends to favor classification as an employee. The New Jersey Supreme Court adopted it for wage and hour claims in a 2015 decision. State regulators and the New Jersey Legislature have incorporated it further into state law.

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The Fair Labor Standards Act (FLSA) establishes a national minimum wage and sets standards for overtime compensation. While New Jersey has set a higher minimum wage than the federal rate, the FLSA still plays a critical role in many New Jersey wage and hour disputes. It allows workers to file “collective actions,” which are similar in many ways to class actions. A petition for certiorari is currently pending before the U.S. Supreme Court and asks the justices to address ambiguity in the FLSA’s provision on collective actions. The employer in the case filed the petition in August 2020, but both parties have asked the court to defer consideration of the petition while they engage in settlement negotiations. If they reach a settlement, the employer has indicated that it will withdraw the petition, meaning that the court will not hear the case.

The federal minimum wage has been at its current level, $7.25 per hour, since July 2010. See 29 U.S.C. § 206(a)(1)(C). The provisions regarding overtime have remained largely unchanged since Congress first enacted the statute in 1938. Employers must pay non-exempt employees at one-and-a-half times their regular rate for work time during a week that exceeds forty hours. Id. at § 207(a)(1).

Employers who violate the minimum wage or overtime provisions of the FLSA may be liable for the amount of unpaid wages, plus an equal amount as unliquidated damages. If, for example, an employer withholds $1,000 in overtime compensation from an employee, a court may order them to pay that employee $2,000 in damages. The FLSA allows an employee to file suit on their own behalf and for other “similarly situated” employees who have consented in writing to inclusion in the lawsuit. Id. at § 216(b). The statute does not define “similarly situated.”

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