ABC not easy as 1-2-3: NJ Supreme Court issues employment misclassification decision

On August 2, 2022, the New Jersey Supreme Court issued a unanimous opinion stating that workers previously classified as independent contractors were actually employees of a drywall installation business. The court also found that whether the workers could “join the ranks of the unemployed” when the relationship with the company ends directly affects independent contractor status in New Jersey.

Facts

East Bay Drywall LLC stopped reporting wages to the New Jersey Department of Labor and Workforce Development (NJDOL) in 2013. As a result, the NJDOL sent an auditor to analyze the status of workers the company hired between 2013 and 2016. The agency interviewed leadership and requested documentation to determine whether the workers’ subcontracting businesses were each independent entities, or if they should have been considered employees, subject to salary requirements.

The auditor determined that 16 subcontractors should have been classified as employees, and as a result ordered payment of unpaid unemployment and disability contributions, as well as interest and penalties for the years in question. To determine this, the auditor used the ABC test. Under this test, all three prongs of the following criteria must be satisfied to establish nonemployee status: