A recent ruling by the New Jersey Supreme Court in the matter Hargrove v. Sleepy’s, LLC has held that the strict “ABC” test must be used for determining whether an individual is an employee or independent contractor for wage and hour purposes. This is bad news for NJ employers who will now find it even harder to effectively classify workers as independent contractors. As a result of this ruling, employers should expect an increase in claims alleging that they have failed to properly pay wages and overtime to individuals misclassified as independent contractors.

Unlike other tests previously used for determining independent contractor status, the ABC test presumes all workers are employees unless it is shown that 1) the individual has been and will continue to be free from control or direction over the performance of their services; 2) such services are either outside the usual course of business or performed outside of the places of business of the presumed employer; and 3) the individual is customarily engaged in an independently established trade, occupation, profession or business. Unless all three requirements are met, the worker will be deemed an employee.

Employers should immediately review the practices and procedures they have in place for determining who is an independent contractor.