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Employees vs. Independent Contractors: NJ Supreme Court to Address Complex Issue


October 23, 2013
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The Supreme Court of New Jersey will soon address a legal issue that should be on the radar of every employer: when are workers considered independent contractors and when are they considered employees under the state’s wage and hour laws? Hiring workers as independent contractors has numerous benefits; employers do not have to offer healthcare benefits, provide workers’ compensation insurance or remit payroll taxes. However, determining whether workers legally qualify as independent contractors is not always an easy task, and penalties for misclassification are steep. The problem is that there is not one specific test for determining whether a worker is an independent contractor or employee. Instead, jurisdictions around the country have developed their own tests, which often depend on the facts of the case and the particular law at issue. For instance, the legal standard applied in a wage and hour case may not be the same as a tax suit. In fact, the standards are so unclear that a federal appeals court has asked New Jersey’s highest court for help. The issue arose in Hargrove v. Sleepy’s LLC, which is currently pending before the U.S. Court of Appeals for the Third Circuit. In the lower court decision, U.S. District Judge Peter Sheridan applied the “right to control” test, as set forth in Nationwide Mutual v. Darden, 503 U.S. 318 (1992), to determine that delivery drivers for Sleepy’s mattress company were not employees. The 12-part test considers factors such as the method of payment, the source of the tools needed to complete the job, the benefits offered, and discretion of the worker to determine when and how long to work. On appeal, the plaintiffs argue that the court applied the wrong test, citing that New Jersey courts have rejected the exclusive use of the “right to control” test in the employment context. In fact, four other tests have been applied. The Third Circuit agreed that “[n]either the New Jersey Supreme Court nor any other New Jersey appellate court has previously determined which employment test applies to claims that arise under the New Jersey Wage Payment Law or the New Jersey Wage and Hour Law.” Therefore, it decided to petition the Supreme Court of New Jersey for clarification. As this case highlights, classifying employees as independent contractors can be a risky endeavor. Employers should always consult with an experienced business attorney before finalizing an employment decision. If you have any questions about this case or would like to discuss the legal issues involved, please contact me, Ramon Rivera, or the Scarinci Hollenbeck attorney with whom you work.