The New Jersey Supreme Court has told a federal appeals court that there is no reason to depart from a more expansive interpretation of what constitutes an employee, as opposed to an independent contractor, when it comes to resolving wage-and-hour disputes.
In a unanimous ruling in Hargrove v. Sleepy’s, the court said the U.S. Court of Appeals for the Third Circuit, which is considering an appeal in a wage-and-hour dispute, should apply the “ABC” test that has been used by the New Jersey Department of Labor for two decades.
“We conclude that the ‘ABC’ test derived from the New Jersey Unemployment Compensation Act … governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim,” said Appellate Division Judge Mary Cuff, temporarily assigned, for the court.
Harold Lichten, one of the plaintiffs’ attorneys, said the ruling is a major victory for workers.
“This will affect thousands of workers in New Jersey who have been misclassified as being independent contractors,” said Lichten, of Lichten & Liss-Riordan in Boston.
Only a handful of states, he said, have adopted the “ABC” test.
“This puts New Jersey in the forefront of having one of the strictest standards,” Lichten said. “This ruling makes the state much more worker-friendly.”
The National Employment Law Project, the National Employment Lawyers Association of New Jersey and the New Jersey Industrial Union Council filed an amicus brief. One of their attorneys, Newark solo Bennet Zurofsky, agreed with Lichten’s assessment.
“It’s a good decision with regard to employers attempting to get around the responsibilities of being employers,” Zurofsky said. “This is going to help low-wage workers in particular by making sure they get what they are entitled to receive.”
The ruling, Zurofsky added, also will help combat wage theft by employers seeking to classify more of their workers as independent contractors.
David Tykulsker represented another amicus, the International Brotherhood of Teamsters. Tykulsker, who runs a firm in Montclair, N.J., said one key provision of the ruling is what party bears the burden of proof.
“The burden is on the employer to prove that the worker is not an employee,” he said. “This is really a step forward in our jurisprudence.”
Richard Hluchan represented an amicus group supporting Sleepy’s, the National Federation of Independent Business Small Business Legal Center.
“The decision is not a surprise,” said Hluchan, of Hyland Levin in Marlton, N.J. “The New Jersey Supreme Court has a history of protecting employees.”
Like Tykulsker, Hluchan said employers will now face having to prove that workers are actually independent contractors when it comes to wage and benefits disputes.
The Academy of New Jersey Management Attorneys also participated as amicus.
“This is a significant change in the law,” said its attorney, Denise Keyser, of the Cherry Hill, N.J., office of Ballard Spahr. “Employers around the state are going to be disappointed with this decision. They are going to have to re-evaluate their relationships with their employees and contractors.”
Sleepy’s lawyer, Matthew Hank of Littler Mendelson in Philadelphia, said only that while the ruling does provide some clarification, he believes Sleepy’s will ultimately prevail in the Third Circuit.
In the ruling, Cuff said that to be considered an “independent contractor,” an individual must meet all three of the following factors:
• The individual must be free from direction and control in connection with the performance of the service.
• The individual’s service must be performed either outside the usual course of business of the employer or outside all the employer’s places of business.
• The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed.
Cuff quoted the court’s ruling in Carpet Remnant Warehouse v. New Jersey Department of Labor: “‘The failure to satisfy any one of the three criteria results in an ‘employee’ classification.’”
The justices refused to adopt the positions sought by the defendant and employer groups, which argued that the plaintiffs should be considered independent contractors because of defendant Sleepy’s—a seller of mattresses, pillows and other bedding items—relative lack of control over the plaintiffs and because of the contracts stating that the plaintiffs were independent contractors.
The case before the Third Circuit is a potential class-action suit against the New York-based company.
Plaintiffs Sam Hargrove, Andre Hall and Marco Eusebio allege in the suit that the “Independent Driver Agreements” they signed to provide delivery services were merely a way for Sleepy’s to avoid paying them employee benefits, according to court documents. They claim they are actually employees and as such are entitled to be paid like them, with overtime, health and pension benefits and family and medical leave.
In March 2012, U.S. District Judge Peter Sheridan in Trenton, N.J., granted Sleepy’s motion for summary judgment dismissing the case, finding that the drivers are independent contractors.
Sheridan applied the common-law “right to control” test from the U.S. Supreme Court’s ruling in Nationwide Mutual v. Darden for defining who is an employee under the Employee Retirement and Income Security Act. That test looks at factors like the skill required for the work, where it takes place, who provides the tools, who sets the work schedule, what method of payment is used, whether benefits are provided and how it is treated for tax purposes.
The plaintiffs appealed and the state Supreme Court accepted the Third Circuit’s request to answer the question of law.
Cuff said the dispute required the court to resolve conflicting thoughts on the workplace.
The plaintiffs and their allies argued that “misclassification of employees as independent contractors is now common in many industries, causing a cumulative societal effect of less protection for an increasing number of workers and reduced revenue to federal and state governments due to unpaid taxes and assessments,” Cuff said.
Conversely, Cuff said, Sleepy’s and its allies urged the court to adopt a less-expansive position that “recognizes and preserves the legitimate role that true independent contractors play in our modern economy.”
Ultimately, Cuff said, the court found no reason to abandon the Department of Labor’s use of the “ABC” test.
“No good reason has been presented to depart from the standard adopted by the DOL to guide employment status determinations,” she said. “The ‘ABC’ test fosters the provision of greater income security for workers.”