New Jersey Supreme Court Rules in Employees’ Favor in Misclassification Case

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.

The employer in the recent state supreme court case stopped reporting wages to the New Jersey Department of Labor and Workforce Development (LWD) in June 2013, according to the court’s opinion. In 2016, the LWD conducted an audit of the workers that the employer had hired in the previous three years. It concluded that sixteen workers described by the employer as subcontractors should have been classified as employees. Of the sixteen, twelve used their own business entities for their work. The LWD still found that they were employees under the ABC test. The Appellate Division affirmed the LWD’s findings as to five of the workers, but reversed their findings on the other eleven. The LWD appealed.

The New Jersey Supreme Court reversed the Appellate Division’s ruling, finding that all sixteen workers were employees. The court’s analysis focused on the “C” part of the ABC test. The employer produced business entity registrations and insurance certificates as evidence that the eleven workers at issue in the appeal had independently-established businesses. A representative for the employer had testified that the workers were free to pursue work with other employers, but had no evidence that any of them had ever done so.

The court stated that the evidence produced by the employer could support a finding of independence, but found that it did not in this case. Most of the business entities consisted solely of one worker. None of them appeared to have any business activities other than their work for the employer. The court warned the employer about the potential “subterfuge” of requiring workers to operate through a business entity.

The experienced employment attorneys at the Resnick Law Group represent employees, former employees, and job applicants in New Jersey and New York, advocating for their rights in claims under federal and state law. If you have questions about an employment dispute, please contact us today online, at 973-781-1204, or at 646-867-7997 to schedule a confidential consultation to see how we can help you.

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