Latest scoop from New Jersey on independent contractor misclassification may cause employers brain freeze

From Lexology — Todd Tebowitz of Baker & Hostetler writes about the five (5) different standards now used in New Jersey to determine if a worker is an employee or independent contractor under different laws.  He offers a terrific image by comparing the 5 different standards to “The Original Kitchen Sink Sundae” from an ice cream parlor.  He observes that while mixing everything together is great in a desert, it is considerably less appealing when it comes to legal standards.  He writes:

“The New Jersey Supreme Court ruled that an ABC Test should be used to determine who is an employee under the Wage Payment Law and the Wage and Hour Law.  This is the same test applied under New Jersey Unemployment Compensation Law.  It is exceedingly pro-employee.

Under the ABC Test, an individual is presumed to be an employee unless all three of the following criteria are met:

A.  The individual has been and will continue to be free from the company’s control or direction over the performance of such service, both under his contract of service and in fact;

B.  Such service is either outside the usual course of the business for which such service is performed or is performed outside all the places of business of the enterprise for which the service is performed; and

C.  Such individual is customarily engaged in an independently established trade, occupation, profession, or business.

Clear enough, right?  Not at all.

The substance of New Jersey’s overtime rules generally tracks the federal overtime rules, which are set forth in the Fair Labor Standards Act.  The Fair Labor Standards Act, however, applies an entirely different standard for determining who is an employee, and the federal standard determines whether the federal overtime rules apply.  The FLSA applies an Economic Realities Test that weighs six factors to determine how economically dependent the individual is upon the company.  The Economic Realities Test bears little resemblance to the ABC Test.

Federal antidiscrimination and employee benefit laws, moreover, apply a third test, the common law Right of Control Test, or Darden Test.  This test weighs at least 12 factors to determine how much ability the company retains to control how the work is performed.

New Jersey’s antidiscrimination law (the Law Against Discrimination) and New Jersey’s antiretaliation law (the Conscientious Employee Protection Act) apply a fourth legal standard.  These laws use a hybrid test that incorporates some elements of the Economic Realities Test and some elements of the Darden Right of Control Test.

The Internal Revenue Service applies a fifth set of factors for determining who is an employee under federal income tax laws, applying its own version of the Right of Control Test that considers different factors than those considered in the common law Darden version.

The same contractor relationship, therefore, must be examined under at least five different legal standards to determine whether a contractor is legitimately a contractor or should instead be deemed an employee.  Because these legal standards are different (and inconsistent), it is highly plausible that the same individual could be considered a contractor under some laws and an employee under others….”

Read the full story at Latest scoop from New Jersey on independent contractor misclassification may cause employers brain freeze

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