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By: Thomas Paschos, Esq.
Thomas Paschos & Associates, P.C.
Haddonfield, New Jersey

In Hargrove v. Sleepy’s LLC, 2015 N.J. LEXIS 38 (January 14, 2015), the New Jersey Supreme Court was asked by the U.S. Court of Appeals for the Third Circuit to decide which test a court should apply regarding the classification of an individual as an independent contractor under the New Jersey Wage Payment Law (“WPL”) and the New Jersey Wage and Hour Law.

The underlying action arose when the plaintiffs, Sam Hargrove, Andre Hall, and Marco Eusebio, who delivered mattresses to customers of Sleepy’s, brought an action under the WPL against their employer, Sleepy’s, LLC, asserting “that Sleepy’s miscategorized them as independent contractors, and that such misclassification caused various financial and non-financial losses to them.” The issue of whether the plaintiffs are employees or independent contractors was submitted originally to the U.S. District Court for the District of New Jersey on cross motions for summary judgment. The District Court ruled in favor of Sleepy’s and the plaintiffs appealed to the Third Circuit. Since there are a variety of tests that can be used to determine independent contractor status, the Third Circuit certified this question of law to the New Jersey Supreme Court.

In analyzing the case, the court noted that the New Jersey Department of Labor, the agency charged with implementation and enforcement of the WPL and the WHL, had declared that the "ABC" test set forth in N.J.S.A. 43:21-19(k)(6)(A) – (C), should govern employment-status disputes under the WHL and that that rule has been applied without challenge since 1995. The ABC test is a three-part test, which is derived from the New Jersey Unemployment Compensation Act (UCA), was extended to New Jersey wage and hour law by regulation. The ABC test assumes an employment relationship unless the employer can show all of the following:

  1. The employer did not exercise control over the individual or have the ability to exercise control in terms of completion of the work;
  2. The individual provided services that were outside the usual course of business or performed outside of all of the places of business of the employer; and
  3. The individual’s work comes from an enterprise that exists independently and will continue to exist independently after the termination of the relationship between the individual and the employer.

Sleepy’s argued unsuccessfully that the common law “right to control” test, which evaluates the totality of the circumstances, should be utilized in this situation, as opposed to the ABC test. The “right to control” test focuses primarily on the control exercised by the employer in terms of the manner and means of the work and how it is completed and is more employer friendly.

The court acknowledged that deference must be paid to the agency charged with interpreting and implementing a legislative initiative and said it was not persuaded that this long-standing approach to resolving employer-status issues should be altered.

As such, the Supreme Court held that the "ABC" test derived from the New Jersey Unemployment Compensation Act governs whether a plaintiff is an employee or an independent contractor for purposes of resolving a wage-payment or wage-and-hour claim.

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