Last week, New Jersey’s highest court ruled in Hargrove v. Sleepy’s, LLC, No. A-70-12 (Jan. 14, 2015), that the so-called “ABC test” applies when determining whether a worker is an employee or independent contractor under the New Jersey Wage Payment Law (“WPL”) and Wage & Hour Law (“WHL”).  That test presumes an individual is an employee unless the employer can establish that:

(i) the individual is “free from control or direction over the performance of [his] service”;

(ii) the service is “outside the usual course of business”; and

(iii) the “individual is customarily engaged in an independently established trade, occupation, profession, or business.”  According to the Court, the failure to meet any of these criteria results in an “employment classification.”

Given the Court’s decision, companies who engage independent contractors in New Jersey should review their independent contractor relationships and assess whether they can withstand scrutiny under the demanding ABC test.  Such reviews should be conducted with the assistance of counsel to allow the analysis to be protected by attorney-client privilege.  Although the ABC test imposes a high standard, it is a test with which New Jersey businesses should be familiar.  As the Court noted, the test has been used to answer employment classification questions under the New Jersey Unemployment Compensation Act and the New Jersey Department of Labor had already been applying the test in the context of employment classification inquiries under the WHL.