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New Jersey Supreme Court Clarifies Definition of "Employee"

New Jersey
November 17, 2022
November 16, 2022

One of the most deceptively complex issues in New Jersey workers’ compensation is the definition of an employee. This designation is critical because only employees, as opposed to independent contractors, are eligible for workers’ compensation benefits if injured on the job.

In East Bay Drywall, LLC v. Department of Labor and Workforce Development, on August 2, 2022, the New Jersey Supreme Court issued a unanimous decision making this seemingly simple determination even more complex.

East Bay Drywall is a drywall installation business that engages workers on a per-job basis. Once a builder accepts East Bay’s bid for a particular project, East Bay contacts workers it alleges are subcontractors to see whether they are available to work on the project. Each worker is free to accept or decline the work offer. East Bay provides the workers with the raw materials necessary for the drywall installation, while the workers must provide their own tools and arrange for their own transportation to and from the worksites. Although East Bay does not direct the workers on how to install the drywall, they remain responsible for the finished product.

Because the issue before the court was whether East Bay was required to contribute to unemployment compensation and temporary disability funds, the court used New Jersey Unemployment Compensation Law’s so-called “ABC” test to evaluate whether these workers were employees. This law provides that an individual is considered an “employee” unless all the following factors are met:

        A. An individual has been and will continue to be free from control or direction over the performance of work              performed, both under contract of service and in fact; and

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

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

Factor A equates to the Workers’ Compensation “Control Test,” while factor C is equivalent to the Workers’ Compensation “Relative Nature of the Work Test” in that it looks at whether the worker is economically dependent on the employer.

In its decision, the court specifically addressed prong C and whether a worker can maintain a business independent of and apart from the employer. According to the court, “the prong C standard is satisfied when a person has a business, trade, occupation, or profession that will clearly continue despite termination of the challenged relationship.”

Although decided under New Jersey’s Unemployment Compensation Law, this case could certainly be persuasive in workers’ compensation applications. Consequently, any business that classifies workers as independent contractors would be well advised to perform regular evaluations to ensure each employee is correctly classified.