Supreme Court Adopts “ABC” Test To Conclude If Workers Were Independent

New Jersey Supreme Court resolves how to determine whether an individual is an employee or an independent contractor for wage payment and wage and hour purposes

On January 14, 2015, the New Jersey Supreme Court resolved the issue of which criteria is to be used to determine whether a worker is an “employee” or an “independent contractor” under the New Jersey Wage Payment Law and the New Jersey Wage and Hour Law. In Hargrove v. Sleepy’s, LLC, the plaintiffs were mattress delivery drivers who worked for Sleepy’s pursuant to Independent Driver Agreements. Plaintiffs contended they suffered financial and non-financial losses as a result of this arrangement, which they claimed was a ruse that Sleepy’s used to avoid paying them benefits.

After considering other tests used to determine whether workers are employees or independent contractors in other contexts, the Supreme Court decided to adopt the “ABC” test set forth in the New Jersey Unemployment Compensation Act, N.J.S.A. 43:21-19(i)(6)(A)-(C)). The ABC test presumes that a worker is an employee, unless the employer can show all three of the following:

1. Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
2. Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
3. Such individual is customarily engaged in an independently established trade, occupation, profession or business.

N.J.S.A. 43:21-19(i)(6). The Supreme Court selected this test, in part, because it provides greater income security for workers, a purpose of both the Wage Payment Law and the Wage and Hour Law. To this end, the Supreme Court decided that the workers at issue are to be considered employees and put the onus on the employer to show they are independent contractors. This burden may only be carried by satisfying all three of the above-referenced factors.