Independent Contractors


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When it comes to determining employment rights and responsibilities, the most important factor is the definition of employer and employee.

Some employers run into trouble when they classify workers as independent contractors instead of employees. Such a mistake can be an expensive one as under New Jersey Unemployment Compensation Law, employers are liable for unemployment compensation and disability payments. Additionally, unpaid wages, overtime, and employee benefits may be owed under New Jersey Wage and Hour law and New Jersey Wage Payment Law.

A new decision by the Superior Court of New Jersey, Appellate Division may have implications for future employment classification disputes involving independent contractors. The panel examined whether the pyrotechnicians hired by a fireworks company were indeed independent contractors as maintained by the company, or if they should have been classified as employees under New Jersey Unemployment Compensation Law.

The case started when the New Jersey Department of Labor and Workforce Development found during a routine audit that the fireworks company had erroneously classified the pyrotechnicians as independent contractors. The company successfully appealed the finding and an Administrative Law Judge (ALJ) reversed the decision. However, the Commissioner of the Department then rejected the decision of the ALJ, and the company then appealed the Commissioner’s decision. The Appellate Court panel reviewed the case, including the hearing record from the ALJ, and found that based on the “ABC” test, the pyrotechnicians qualified as independent contractors and the fireworks company had correctly classified them as such.

The “ABC” Independent Contractor Test

The “ABC” test is criteria used by both the New Jersey Unemployment Compensation Law and Wage and Hour Law to determine if a worker can be classified as an independent contractor.

Those criteria are that:

1) The worker controls and directs his or her work, not the employer.
2) The work is performed somewhere other than the primary business site and outside of all other places of business of the employer.
3) The worker would not lose income if the employment ended, in other words, they have another primary source of income.

All three requirements must be met in New Jersey, or the worker cannot be classified as an independent contractor and must be paid as an employee.

The decision by the appellate panel hinged on part C, which is worded in N.J.S.A. 43:21-19(i)(6), the “individual is customarily engaged in an independently established trade, occupation, profession or business.” The panel held that this does not mean that the individual must operate his or her own business offering the same services as the employer, or in the same industry, as is the case in some states. Instead, the key is whether the worker will have an income should the employment contract end. Some of the pyrotechnicians were retirees and the panel did not disqualify them as unable to satisfy part C of the ABC test.

Any employer who uses independent contractors is advised to check to ensure they are in compliance with New Jersey law and the ABC test.

ABOUT THE AUTHOR: Richard D. McOmber
Richard D. McOmber was admitted to the New Jersey and Federal District Court Bars and then served as a Captain in the United States Army, Judge Advocate General Corps, for three years in Washington, D.C. Upon his discharge from the Army, he joined the law firm of Giordano, Giordano & Halleran, later Giordano, Halleran & McOmber. Thereafter, he left that firm to start a new firm with his wife, Adrienne H. McOmber. His primary practice areas include business law, employment law, estate planning, land use, real estate, sexual harassment and hostile work environment, wills, and trusts.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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