New Jersey Supreme Court Applies Broad Definition of “Employee,” Including Many Normally Classified as Independent Contractors

A key question in many wage and hour claims is whether the complainant is an “employee,” and therefore protected by said laws, or an “independent contractor,” who is not covered. The New Jersey Supreme Court, in response to a certified question from the Third Circuit Court of Appeals, applied a very broad definition of “employee” for the purposes of state wage and hour laws. Hargrove, et al v. Sleepy’s, LLC (“Hargrove III“), Nos. A-70 Sept. Term 2012, 072742, slip op. (N.J., Jan. 14, 2015). It applied the definition used in state unemployment law, which is much more favorable to employees than state wage and hour laws have been.

The plaintiffs work as delivery drivers for the defendant, a mattress company. They contend that they are employees, while the defendant argues that they are independent contractors. They signed an “Independent Driver Agreement” (IDA) when they began working for the defendant, which they claim was “a ruse to avoid payment of employee benefits.” Id. at 3. They filed suit in federal court in 2010, alleging that the defendant was wrongfully denying them employment benefits under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., and the Family and Medical Leave Act (FMLA), 29 U.S.C. § 2601 et seq.

The U.S. district court granted summary judgment for the defendant, finding that the plaintiffs did not meet the definition of an “employee” under ERISA. Hargrove, et al v. Sleepy’s, LLC (“Hargrove I“), No. 3:10-cv-01138, mem. and order (D.N.J., Mar. 29, 2012), citing Nationwide Mutual v. Darden, 503 U.S. 318 (1992). While the court acknowledged that the defendant had “extensive control of deliverer’s activities,” Hargrove I at 10, it noted other factors that led to its conclusion, including the IDAs and the facts that each plaintiff had set up their own business entities, kept their own business records, had relationships with the IRS as business entities, and purchased and maintained their own delivery trucks.

The plaintiffs appealed this order to the Third Circuit Court of Appeals. The appellate court certified a question to the New Jersey Supreme Court: What test should a court use to determine “employment status” under the New Jersey Wage Payment Law, N.J.S.A. § 34:11-4.1, et seq., and the New Jersey Wage and Hour Law, N.J.S.A. § 34:11-56a, et seq. Hargrove, et al v. Sleepy’s, LLC (“Hargrove II“), 70 A.3d 592 (N.J. 2013).

The defendants argued in favor of the “relative nature of the work” test established in D’Annunzio v. Prudential Ins. Co., 927 A.2d 113 (N.J. 2007), a case that addressed the definition of “employee” under the state’s whistleblower protection law. The court instead adopted the “ABC” test, which presumes that an individual is an “employee” unless the employer can establish three criteria:
A. Ongoing freedom from direction or control by the employer over the individual’s performance;
B. The individual’s services are either outside the scope of the employer’s usual business activities, or performed away from all of the employer’s business locations; and C. The individual “is customarily engaged in an independently established trade, occupation, profession or business.”
Hargrove III at 17, quoting N.J.S.A. § 43:21-19(i)(6).

The employment attorneys at the Resnick Law Group represent the rights of workers and job seekers in New Jersey and New York. To schedule a confidential consultation with a knowledgeable and skilled employee advocate, please contact us today online, at 973-781-1204, or at (646) 867-7997.

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