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.