Some employers make extensive use of independent contractors. The benefits for an employer are clear. While employees are entitled to overtime pay and benefits, such as health insurance, worker’s compensation coverage and more, independent contractors are generally on their own in terms of securing these rights. For that reason, it is very common for employers to misclassify an employee as an independent contractor in an attempt to avoid these legal protections. The New Jersey Supreme Court recently clarified the standard under which a designation of independent contractor will be evaluated.
The ruling found that what is known as the “ABC test” applies when evaluating a worker’s status as employee or contractor. Basically, there is a presumption that an individual doing work for a company is an employee unless the employer can make a three part showing indicating that the worker is actually an independent contractor.
First, employers must be able to prove that the worker is not subject to control or direction over the performance of the service. Second, the service must be shown to be outside the usual course of the employer’s business. Third, the worker must be shown to be customarily engaged in an independently established trade, occupation, profession or business. If the employer fails to prove any of these things, the worker will be properly classified as an employee with all the rights that entails.
The ABC test will be applied in disputes arising under the New Jersey Wage Payment Law and the New Jersey Wage and Hour Law. This hardly represents a change, as the New Jersey Department of Labor was already using that test in making decisions about proper classification of workers under the Wage and Hour Law.
Source: The National Law Review, “New Jersey Supreme Court Clarifies Independent Contractor Standard under State Wage Laws,” by Guy Brenner and Daniel L. Saperstein, 22 January 2015