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Federal Judge Reinstates Earlier Independent Contractor Rule for New Jersey Workers’ Claims Under the FLSA

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.

In January 2021, the U.S. Department of Labor (DOL) published a final rule defining employees and independent contractors under the FLSA. The rule made no presumption of employee status. Instead, it identified two “core factors” that could determine a worker’s classification:
1. The amount of control a worker can exercise over their work; and
2. The worker’s ability to increase their income through any means besides longer hours or greater output.
The new administration published a notice in March 2021 delaying the implementation of the rule. In May 2021, the DOL withdrew the rule altogether.

A group of trade organizations filed suit in late March 2021, alleging that the DOL violated the Administrative Procedures Act (APA) when it withdrew the rule. A judge granted their motion for summary judgment on March 14, 2022. She found that the DOL did not give the public enough opportunity to comment on the proposed withdrawal of the rule, and that its reasons were “arbitrary and capricious” in violation of the APA. The ruling leaves the rule established under the previous administration in place, at least for now.

The employment attorneys at the Resnick Law Group represent workers in New Jersey and New York who have experienced employee misclassification and other unlawful workplace practices. Please contact us today online, at 973-781-1204, or at 646-867-7997 to schedule a confidential consultation with a member of our team.

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